Manufacturing Construction Shows Promise
From Construction Executive Magazine, November 2011
Contractors Meet Precise Needs of Manufacturing Projects
By Joanna Masterson
For more than a decade, Gray Construction, Lexington, Ky., kept Caterpillar Inc. in its trusty database of potential clients. The family-owned business’s bids came up short on a few Caterpillar jobs through the years, but the firm persevered each time a new project was announced. The payoff came in 2010, when Caterpillar selected Gray Construction to design and build its new 850,000-square-foot axle manufacturing plant in Winston Salem, N.C.
“In addition to our people, the most valuable asset we have is a database of 50 years of doing business,” says President and COO Stephen Gray. “We kept our chin up and knew that some day the right opportunity would come along. In this case, it was the North Carolina project, which required our specific design-build skill set.”
The manufacturing construction sector is all about persistence. Just two years ago, manufacturing contracting dropped 53 percent to 37 million square feet—the lowest level in 50 years, according to McGraw-Hill Construction. Dollar volume also decreased 67 percent. In 2010, contracting in dollar terms experienced a much less severe 12 percent decline, and square footage inched upward. This year, with the low value of the dollar making U.S. goods less expensive in other countries, the manufacturing market actually gained 11 percent in square footage (to 42 million square feet).
As far as construction put in place, FMI predicts manufacturing will remain somewhat sluggish through 2012, with respective increases of 5 percent, 6 percent and 8 percent in 2013, 2014 and 2015.
Firms across the country affirm the uptick in activity. Gray Construction, which has built more than 57 million square feet of manufacturing space nationwide, started to see opportunities materialize in spring 2010 that turned into contracts later that fall. After working off about 70 percent of its backlog, Gray Construction zeroed in on six large-scale projects with key industry owners (Whirlpool, Austal, Caterpillar, Volkswagon, Mitsubishi and Siemens). The company won each of these jobs and was able to keep valuable employees on board to help plan and execute each project.
“The recession affected us tremendously. We were faced with tough decisions about who gets to keep their job,” Gray says. “If we had been forced to lay off additional staff, we wouldn’t have been able to respond to the quality of jobs that were on the table.”
Though Gray is still seeing opportunities, they aren’t at the scale that emerged in mid-2010 (i.e., jobs exceeding $50 million with 150 workers onsite every day). “The number of jobs we get may be the same, but the depth and volume may not be. Still, I like where we are now a lot better than the summer of 2009,” Gray says.
In Texas, home to Richardson-based Hill & Wilkinson General Contractors, there has been a noticeable loosening of purse strings from industrial owners, especially in the oil and gas market.
“Previously, everyone was doing the bare minimum to maintain their plants. Now they’re thinking about expanding their processes,” says Paul Driscoll, CEO of Hill & Wilkinson. “Manufacturers haven’t done much in so many years that their plants need to be upgraded to meet output when the economy recovers. We’re seeing that in the oil and gas and trucking sectors right now, which leads to good signs for the economy.”
The automotive manufacturing market is proving to be another good source of work, according to Kevin Bean, president and CEO of O’Neal Inc., Greenville, S.C. He has noticed an uptick in the process chemical market as well, and some renewable and biomass projects are rebounding because of rising gas prices. About 90 percent of O’Neal’s work is in the industrial manufacturing sector, and the company has been adding to its staff of 250 during the last eight months.
“The work we see is still highly competitive and margins are still very tight, but there are definitely more projects,” Bean says. “We have a nice backlog and we believe we’ll add to it significantly during the next six months.”
Automotive work also has been a highlight for Fulton, Miss.-based JESCO Inc., particularly with the nearby Toyota plant coming online this fall. “A lot of first- and second-tier suppliers to Toyota are doing projects, so we’ve stayed quite busy working with those folks,” says Jerry Maxcy, JESCO’s vice president and building division manager.
The firm has seen a fairly consistent amount of industrial opportunities during the last three years, accounting for about 60 percent of its annual volume, and expects 2012 to bring more of the same. “I don’t know that it will be a breakout year, but things should continue to improve,” Maxcy says. “Opportunities that look great can disappear in a month. But with the Toyota plant firing up, there should be growth opportunities in our region for the next five-plus years.”
Maxcy also credits the state for helping support the local manufacturing industry. For example, the legislature and the outgoing governor just appropriated $175 million in incentives to entice two private industry prospects to build in Mississippi. “The politicians in Mississippi and Alabama—where the bulk of our work takes place—understand how important growth is through private industry. They’ve consistently done what they can to add jobs,” Maxcy says.
What Owners Want
Direct, no-nonsense communication is a must when it comes to manufacturing construction projects. That’s partially why design-build is so prominent in this field; owners want a team assembled early on that can be held accountable for all project goals.
“Owners don’t want you to say one thing and then be late. They want you to be upfront and honest and hit the commitment to the schedule,” Driscoll says, adding that manufacturing clients don’t like cost surprises either. “They have a dollar amount in mind and they expect the team to work together toward that budget.”
This candid communication style can be especially crucial when dealing with companies from other countries that are more forthright with their expectations.
“The great thing about having a direct customer is you know when they’re unhappy. If adjustments need to be made, you know immediately,” Gray says. “To keep a customer like that is a real blessing.”
Gray Construction also focuses on quality control—a major emphasis in the manufacturing world—as a way to separate the firm from competitors. Although a project’s design and construction jobsite aren’t controlled like a manufacturing environment, the owner’s expectation is the same: no defects. Being able to deliver that level of quality can mean the difference between winning and losing a job.
“Today you have to have a great price to get an initial look and start the conversation, but you also have to give the customer a reason to break a tie between two bids,” Gray says. “You want to tell the customer that your facility will be less of a headache than what he has experienced in the past.”
Drawing on its exposure to Toyota’s quality control process, Gray Construction operates within a “culture of continuous improvement.” Every Tuesday morning, about 10 project and design managers get on a call to discuss issues of concern and how they can do better going forward.
“Our goal is to be successful for the project at hand because the success of today clearly drives the success of five years from now,” Gray says.
Full Scope of Services
Being able to clearly and cost-effectively define a project early on also is crucial in the bidding process, as clients usually require budget and schedule details during the planning stage to convince their boards of directors to release needed capital. “We can help an owner with design and preconstruction at a very early stage,” Bean says. “On top of that, we will take risk for the cost and schedule. Owners really like that we’ll take on that responsibility.”
Being able to provide all project services in-house is another competitive advantage for manufacturing contractors. Though O’Neal started out as a design firm in 1975, it strategically grew into a full-fledged engineer, procure and construct (EPC) project delivery firm.
In 2009, Mitsubishi Electric Power Products required O’Neal’s full slate of services for a new 350,000-square-foot power transformer and components manufacturing plant in Memphis, Tenn. “The U.S. electrical grid is old and in disrepair, so Mitsubishi is coming in to serve that market,” Bean says. “We engaged with them to do preliminary design and preconstruction. We helped them look at their plant in Japan and showed how they could replicate it and improve it if they decided to build in the United States.”
That process took two years, including defining the $200 million project cost upfront so the site selection firm could decide on a location in the Rivergate Industrial Port. O’Neal broke ground this fall, and production should start in spring 2013.
“This is easily one of the most heavy industrial facilities built in the United States in the last 10 years,” Bean says. “The floor slab is more than 3 feet thick and it has heavy sub-foundations.”
Because the industrial transformers will weigh more than 1 million pounds when produced, the facility requires close access to trucks, multiple rail systems and barges. The plant also has a state-of-the-art testing facility with the ability to simulate lighting strikes, requiring a complex electrical design and construction components.
Given all the process equipment needs of manufacturing facilities, MEP work is crucial to the success of industrial projects, adds Maxcy. JESCO has its own MEP and millwright divisions so it can better control those key installation processes. It also can self-perform concrete work, fabricate and erect structural steel, and do pre-engineered buildings and tilt-up installations.
“These elements, plus our reputation for performing quality general construction work, open up so many doors,” Maxcy says.
In June 2010, JESCO negotiated a construction management contract to build German-owned Schulz Xtruded Products’ (SXP) first North American manufacturing plant in Tunica County, Miss. The 190,000-square-foot, steel-framed facility produces hot extruded seamless stainless steel pipe. JESCO followed the owner’s rigid just-in-time delivery process for equipment foundations, as well as constructed a 65-foot-tall hot mill area, a 45-foot-tall cold mill area, tilt-up wall panels and a single-ply roof, plus multiple craneways throughout. The contractor delivered its portion of the project in July, giving SXP time to begin producing pipe by late October.
“Much of the steel pipe in the United States is welded, but this is seamless hot extruded stainless steel. It’s a really unique process,” Maxcy says. “This was a very significant project for the state and for the Delta region of Mississippi.”
Capitalizing on Repeat Business
Two years ago, JESCO brought another significant project to the South when it became the first non-Japanese construction company to build a plant for the Japanese-owned North American Lighting. Successfully completing that taillight manufacturing facility went a long way toward JESCO securing a $15 million contract with North American Lighting on a follow-up job for headlight production. After enduring 171 percent of the annual rainfall expected in north Alabama between March and August, JESCO kept the schedule on track for production to start in January.
JESCO also recently completed the second phase of work on a steel dust recycling plant for SDR, Inc. in Millport, Ala. The facility recovers valuable metals such as zinc and lead from about 120,000 tons of dust per year, resulting in a residual aggregate free of any hazardous materials.
“Recycling and waste-to-gas processes will provide a number of construction-related opportunities in the years to come,” Maxcy says.
One segment that hasn’t seen much action for a few years is building product manufacturing. O’Neal was able to snag a rare contract thanks to an existing relationship with Johns Manville, which produces roofing, insulation and engineered products. The companies first joined forces in 2008 to research and develop projects, which lead to a job in the roofing division.
“The building products market has seen quite a downturn, but Johns Manville is preparing from a technology and market share perspective to catch it on the uptake,” Bean says.
Johns Manville bought an existing facility containing manufacturing components the company was interested in using. O’Neal’s task is to up-fit the 1970s building, install the latest technology and coordinate the logistics of equipment delivery, much of which is coming from Europe. Work is expected to wrap up in the third quarter of 2012.
Like most renovation and restoration projects, hidden problems tend to rear their ugly head. Hill & Wilkinson discovered this earlier this year on a project it won with the help of Hixson, a Cincinnati-based architect and engineer.
“Whenever they get a job with a client, they call us and we put in a proposal,” Driscoll says. “This one is in our backyard (Oak Hills, Texas). It’s exciting and it’s fast track.”
The owner, Dean Foods subsidiary WhiteWave, wants two lines for organic milk and coffee creamer to be ready to push product out by the end of the year. Hill & Wilkinson started gutting the existing building in May and quickly discovered the steel slabs were placed on rotted wood.
“We had to shore up the building, take out wood and put in grout,” Driscoll says. Despite the structural fix, and the procurement of major equipment from Utah, the project remains on schedule.
Having a solid industry partner in Hixson has proven valuable to Hill & Wilkinson, but the firm also works internally to secure repeat business. Its special projects group focuses on performing smaller jobs, such as a $5,000 office remodel or an ADA-compliant bathroom conversion, for industrial clients it wants to work with long term. “The group gets into the manufacturing plants and starts building that relationship so when a big contract comes up, they think of us,” Driscoll says.
Planting the contractor’s name and services in clients’ minds is crucial; the more projects completed, the deeper the roots grow.
“It’s incumbent upon construction companies to deal with sales and marketing just as much as the actual building of buildings,” says Gray, who acquired a decade-old relationship with Siemens when he took over as CEO of Gray Construction nearly two years ago. The firm had just completed a wind turbine facility for Siemens in Kansas when an opportunity arose to bid on a 460,000-square-foot gas turbine facility in Charlotte, N.C. Gray’s team drew a big bull’s-eye on the project and came up with the winning proposal. Crews turned over part of the building in two months (in August) and completed the rest in October.
“I’m so proud of what that team accomplished in such a short time,” Gray says. “Siemens is a global company and could be a customer for life. In the future, we can show potential new customers this project and we’ll climb in credibility.”