Staying Alive

Contractors need caution in uncertain climate

By Seth Ansorge

Increased competition is driving bids to new lows. A monstrous state budget deficit delays government building projects. Many heavy industries are either dying off or moving out of state.

All these factors and more are pushing some contractors to the brink, and in recent months, several once-thriving firms have seen their fortunes turn for the worse. But while the economic downturn has taken its toll, other contractors say 2003 holds promise.

"Clearly there is more competition than existed a decade ago," said Randy Handel, director of business development at McGann Construction Inc. in Madison. "That is not a pitfall, but just reality. Those companies that scrutinize every aspect of their business...will survive and prosper."

Tough times

This fall, a number of companies faced hard times. Longtime Milwaukee firm Klug & Smith closed its doors Sept. 1 - exactly 90 years after it opened. A variety of factors - including high pension costs for retirees, a client list that was seeing its own share of shutdowns and a dwindling heavy industrial base in Milwaukee - forced its hand.

On Sept. 17, Milwaukee-based contracting firm Williams Construction Co. Inc., a certified disadvantaged-business enterprise that specializes in concrete, carpentry and masonry work, filed a notice of receivership, the state-level equivalent of bankruptcy.

Its attorney assumed the company's assets and property, according to court records.

Under state law, it's possible the company could maintain its operations. But the firm's president, Bill Williams, could not be reached regarding the company's outlook.

Also this fall, Milwaukee's T-3 Group Ltd., which closed its doors in August, fell under state investigation after 32 employees demanded $1.6 million in unpaid wages.

"It doesn't matter what company it is, we've all faced these problems," said David Cullen, vice president of J.P. Cullen & Sons Inc. in Janesville. "No doubt, in the past couple of years, there has been a significant downturn of business."

Keeping steady

But in 2003, "problems" shouldn't equal "panic," according to Doug Carlson, senior vice president/CFO at CG Schmidt Inc. in Milwaukee. While he said the number of bankruptcy filings seems to be up slightly, "there doesn't seem to be a huge rash of it.

"Sometimes this can be a tough business," Carlson said. "People may panic a little when business is down."

Cullen said early prevention is the key to keeping a firm afloat.

"Cash is king," he said. "You really need to watch the cash flow. That's a pretty common mistake in our business. Sometimes we have to wait 60 days to get paid for services rendered today. That's just part of our business. You have to be wary of that."

Cullen also said company leaders need to cut discretionary expenses and useless overhead. "You need to take a real close look at what you can do without before you have to cut people."

And he warned against underbidding in overly competitive markets.

"With fewer projects to chase, when projects do go out, they go cheaply," Cullen said. "Sometimes the tendency is to say, 'Hey, I gotta have that job no matter what,' when in reality, you might be signing your death warrant."

Spread out

For 2003, contractors have to stay diverse in the markets they serve, Carlson said. At CG Schmidt, that rule has been key.

He noted that while new building in Wisconsin's public schools has practically ground to a halt, the health-care market is rising, with new clinics and additions to hospitals feeding contractors steady work.

"By staying diversified in the industries we market to, that has definitely helped when certain sectors struggle," he said.

Handel agreed.

"Sometimes the tendency is to say, 'Hey, I gotta have that job no matter what,' when in reality, you might be signing your death warrant." David Cullen Vice President J.P. Cullen & Sons Inc.

"We have always strived to keep a good project blend," he said, citing McGann's involvement with state, municipal, commercial mixed use, nonprofit, public multifamily housing and private commercial developments. "So the slowdown in schools and industrial projects has had little effect on us."

Another way to land new business is to expand horizons - literally. Cullen said they are advertising and travelling out of state far more now than a decade ago, taking on projects in Iowa and Illinois.

"In the 1970s and '80s, we were out there, too, but in the '90s there was enough work around here to keep us busy," he said. "But the recent economic climate has forced us to look further out."

State budget deficits have slowed the flow of new government projects to a trickle. But Cullen is hopeful that the times are changing.

"Some of the state projects and university projects that have been on hold, some of those are being released," he said.

And in 2003, just like in 1903, the benefits of old-fashioned courtesy can't be overlooked when trying to stay profitable, Handel said. By treating subcontractors and owners right, he said, a company can boost its reputation and its number of repeat customers.

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