Builders searching far afield for profits

Northern Nevada's largest general contracting firms are countering a lack of work and a highly competitive bidding environment with a variety of strategies to position themselves to remain profitable and win work.

The construction environment in northern Nevada remains on life support and isn't expected to get any healthier in the coming year, says Tim Kretzschmar, senior vice president of Q&D Construction's building department.

There are so many distressed and vacant properties in the Reno-Sparks market, Kretzschmar says, that new construction is expected to stay weak for several more years. When any new building project is let for bid, there are so many work-hungry firms vying for the job that profit margins generally are at all-time lows.

Q&D's strategy focuses on pursuit of work in geographical regions that are more economically viable to see better profit margins, and to develop relationships with strategic partners. Case in point: Q&D is gearing up to build its second store for Scheels in Billings, Mont., and the company is doing renovation work in airports across the country.

Q&D, which built the Legends at Sparks Marina, did its first store for Scheels in Sandy, Utah.

The company's newest wave of airport work in California, Wisconsin, Virginia and Illinois stems from relationships forged through its work over the past few years at Reno-Tahoe International Airport.

Q&D works with key partners to soften the risk of working so far from its Sparks headquarters. Five years ago, Kretzschmar says, the bulk of the company's revenue came from a 65-mile radius of its home office.

"We have chosen to take a stance of going with clients we know when we are going out of the area," he says. "We go with clients that we can negotiate the work with. There is a lot less risk with that. But you just have to go where the work is right now."

Clark & Sullivan Construction is taking a slightly different approach, says Senior Project Manager Jarrett Rosenau. The company opened an office in Laramie, Wyo., to pursue work in that state. Company founder B.J. Sullivan hails from Laramie and still has ties to the area, Rosenau says.

"We still are operating in the markets that we have traditionally been in Nevada and Northern California but B.J. saw this as an opportunity to reconnect with family and friends there. The state of Wyoming is solvent and has a pretty aggressive building plan slated for next five to 10 years."

Working so far from home increases a company's risk, Rosenau says, because senior management can't be as hands-on with projects as they can with work won locally. The key, he says, is to work with subcontractors that are dependable and add value to a job.

"You have to have the correct vision with subcontractors and management," Rosenau says.

The profit margins on jobs bid in the Truckee Meadows have been so small, Rosenau adds, that Clark & Sullivan is ultra-selective with the work it pursues locally. To counter the lack of profits, the company founded in 1981 significantly downsized its staff, increased responsibility for those still employed, and committed to avoid bidding work at near-zero percent profit margins just to keep workers on the job.

"We still see people doing unbelievably aggressive bids, but no job is perfect and no bid is perfect," Rosenau says. "You will have things you bid well and things you bid not so well within a job. If you are already bidding at zero percent you have no margin, and that is not how our industry works. It wouldn't be responsible for us to bid at lower margins. We know how the industry is and things happen that you have no control over."

Michael Russell, chief operating officer for United Construction, says his company has taken a similar approach and is targeting more work out of the area. United won the two largest construction projects in the Reno-Sparks market last year, a 170,000-square-foot manufacturing and warehousing center for NOW Foods and a 465,000-square-foot building for Urban Outfitters in Stead, but the company currently is pursuing much more work in Northern California.

It's also got plans in the queue to work with NOW Foods and Urban Outfitters to construct additional facilities in Pennsylvania and Texas.

About half the company's revenues are drawn from relationships with past clients, Russell says, and that repeat business is much more preferable to bidding work against 10 other hungry construction firms.

"You don't have to be out in the market beating your brains out," Russell says.

Despite landing several big jobs that wrapped up this past year, Russell says the company hasn't had the luxury of realizing any noticeable gains in profit margins. Competition is so stiff, he adds, that United wins just one to two projects from every 10 bids it submits.

Locally, United won work to gut the old dining area and add a few new lanes in the National Bowling Stadium, and it also recently landed work replacing outdated windows at Reno High School.

"The Reno market just isn't active enough to support all the general contractors that are here," Russell says. "We are going to be stretching out our geographical footprint. We have always prided ourselves in making money, but is it difficult. Unfortunately we have got our margins dragged down by the entire market."