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Cover Story - April 2005

The Largest General Contractors in California

The majority of general contractors surveyed reported an increase in revenue for 2004. And many expect gains in 2005. But a growing shortage of skilled labor and qualified field and office personnel--many of whom moved to Nevada and Arizona to follow construction growth earlier in the decade--is a huge concern for GCs.

By Paul Napolitano

More than $1 billion worth of health care and school projects that reached the construction phase, as well as an expanding economy, helped reverse the fortunes for a majority of the general contractors doing business in California in 2004, according to a survey by California Construction magazine.

Even so, a number of issues may thwart any cause for celebration. GCs are facing a shrinking skilled-labor pool due to the improving economy, significant financial losses during a record-breaking wet winter and difficulties finding qualified field and office personnel to staff the increase in the number of projects in the pipeline.

Forty-five of the 70 GCs that responded to the annual survey reported more total revenue last year compared to 2003. Twenty-two firms reported less revenue in '04; two GCs did not report revenue for '03. And of the 33 firms that submitted a revenue forecast for 2005, 30 expect to increase revenue from '04.

Phoenix-based Perini Building Co., ranked No. 12 on this year's list, completed a number of large Indian gaming casino and resort projects in '04, and is optimistic that some new deals will come this year.

Dick Rizzo

"We've been very conservative about our 2005 forecast because, although we're working on an equivalent amount of work that we normally annualize in the past few years, we haven't inked [the project contracts] yet," said Perini chairman Dick Rizzo.

Rizzo said the pending projects are located throughout California-he declined to mention actual names, citing client confidentiality-and consist of entirely new construction or expansions of existing casinos and resorts.

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Scott Kaats, president of San Diego-based Bycor General Contractors Inc., said his firm's revenue gains in '04 came because "we've been selected more in the last year or so for the larger shell projects."

No. 62-ranked Bycor had $63 million of revenue for '04 compared to $60.1 million in '03 and $48.4 million in '02.

Scott Kaats

Kaats credited his clients' larger projects and their request for "a higher-quality product" for his firm's increase in revenue. Multi-story, Class A office buildings under construction at developer Corky McMillin's Liberty Station mega-project in Point Loma is a prime example of bigger and flashier projects, Kaats said.

Ironically, corporate consolidation at some of Bycor's clients is another major factor in the firm's increased work.

"Because so many companies have been downsizing, we've been doing a lot more renovation work," said Penny Lawlor, Bycor's marketing manager. "That has allowed our marketing dollars to focus on new objectives such as new market sectors or expanding in the shell and build-to-suit market sectors."

Other San Diego general contractors such as No. 30 Lusardi Construction Co. and No. 14 Barnhart Inc. have grown by expanding outside their home turf.

For Lusardi, high-end car dealerships in Arizona-the firm completed a $65 million showroom in Scottsdale-filled the revenue void created by California's recession earlier in the decade.

"That ain't peanuts," Bill Tirschfield, Lusardi's operations manager, said of the Scottsdale project. The general contractor continues to build dealerships in Arizona and Northern California.

Petaluma-based North Bay Builders, No. 53 with $82 million in revenue, has steadily increased its business every year by focusing on private-sector work.

Steve Geney

"We're not having to go out and beat our heads on the open-bid market as much because we do so much negotiated work," said Steve Geney, the firm's president.

Vacaville-based Hearn Construction, No. 65, forecasts $65 million in revenue in '05, which would nearly double the $33 million of revenue in '03. A good chunk of the huge increase will come from Hearn's recent acquisition of Nolan Construction, a St. Helena-based general contractor with a strong following in the residential sector.

Fred Hearn

"Solano County is one of the fastest growing counties in the state, and the high-end residential market is also experiencing substantial growth," CEO Fred Hearn said of the Nolan purchase.

Douglas E. Barnhart, CEO of the firm bearing his name, attributes a red-hot school construction market-particularly in inland areas, where enrollments are expected to experience double-digit growth rates in the next decade-as the main reason why his firm more than doubled its revenue in just two years.

Douglas Barnhart

In the last few years, Barnhart Inc. has opened offices in Ventura and Orange counties, Palm Desert, Riverside and Stockton, areas where it has more than a dozen major K-12 and higher-education projects under construction.

"We're planning to continue to grow the branch offices to have a major presence in those areas," Barnhart said. "We think private-work opportunities-office buildings and stuff like that-will follow."

The Southern California division of No. 9 McCarthy Building Cos. Inc. ramped up its recruiting in the last three years in a major effort to staff its massive medical center replacement projects that reached the construction phase in the last 24 months.

Carter Chappell

"There are obviously very qualified individuals in the marketplace that we can provide some training to," said Carter Chappell, McCarthy's division president. "Based on our experience with OSHPD, we can get them acclimated pretty quickly to [OSHPD's] way of doing business."

"OSHPD," the State Office of Health Planning and Development, is the agency that manages the approval process for health facility construction in California.

The increase in the number of projects for Lusardi has put a strain on recruiting efforts. The GC had 35-40 projects in '04 with an average construction cost between $6 million and $7 million.

"We have a hard time getting both field and office personnel," operations manager Tirschfield said. "This year, we sent 150 recruiting packages to colleges. But the level of quality for the project managers we want is not there."

One executive said good people are being pilfered in Northern California.

"One contractor will steal from the next guy to take PMs, supers, whatever," said Mark Alessio, director of marketing of Redwood City-based W.L. Butler Construction, No. 28, with $202 million in '04 revenue.

"When the bottom dropped out the economy, a lot of workers left and have not returned," Alessio added. "So, as things heat up again, there is a limited amount of [skilled] people available."

Many of those workers headed east earlier in the decade, when business was booming in Nevada and Arizona.

"When the California market had been active [in the 1990s], the Nevada market had been down, so we were able to draw qualified trades people from Nevada," said McCarthy's Chappell. "We're not seeing that phenomenon right now."

Chappell is concerned with escalating prices for steel and petroleum-related products such as roofing and flooring.

"They are probably the three biggest categories in price increases in the last 12 months," he said. "We are expecting prices in the next 12 months to escalate in the 6 to 8 percent range, which is roughly double what we've seen in the past five years."

Record-setting rainfall in Southern California-Los Angeles received 33.91 inches between July 1 and March 1, the third highest total since the late 1800s-has caused its share of headaches, from damaged drywall and the cost of de-watering jobsites to unexpected time off for salaried employees. Los Angeles County recorded $500 million in property damage during the rainy season.

"There's no telling how much this wet winter has cost the construction industry," Barnhart said. It's astounding."

Despite the soggy season, Jeff Jenco, a Lusardi vice president, said 2005 might be his firm's best year ever.

"We're starting the year with a backlog that leads us to believe that," he added.

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