In February, Kaiser Electric, a Fenton, Mo.-based electrical contracting firm specializing in commercial, industrial, health care, and communications, completed a 10,000-sq-ft tenant build-out for CIC Group, Inc., St. Louis, a holding company of commercial and industrial businesses. As the electrical and low-voltage subcontractor — working under developer and general contractor Duke Construction, Indianapolis — Kaiser Electric provided electrical and structured cabling services for the tenant finish portion of the project, including installation of specialty lighting and a dimming package, fire alarm systems, and audiovisual (AV) teleconferencing capabilities.
Tenant build-outs similar to this one are becoming more common as the recession continues, says Steve Giacin, president of Kaiser Electric. Difficulty in securing financing for new construction projects has forced commercial and industrial clients to make do with their existing locations, while some tenants are voluntarily staying put in the interest of launching a green initiative and saving money through conservation. In addition, reductions in workforce often require changes to tenants' building system configurations. “It's either how to make the space flow better after they've let people go or fit more people in the same space,” says Giacin, noting that about half of Kaiser Electric's projects are retrofits or system upgrades versus new construction.
As a result, the electrical contracts soliciting bids are smaller than in the previous few years. “Three years ago, 10,000 sq ft would have been a small project, but now it's a good-sized project,” says Mike Mohrmann, service department manager for Kaiser Electric and project manager for the CIC Group project. “It seems like the smaller work is still extremely busy. It's more competitive, of course, but it's busy.”
Even on smaller projects, two divisions of the same firm working on the same project can be a distinct advantage. Approximately 45% of Kaiser Electric's electrical projects also include an element of structured cabling, such as public address, telecommunications, video, nurse call, fire alarm, or access control. Therefore, its communications division affords the company a larger piece of a much smaller pie. “In some cases, it's actually of bigger value in the project than the electrical,” Mohrmann says. “It's gotten to be quite a big hitter in our arena.”
Almost every day, it seems like construction industry agencies release a new metric that measures the most recent lows to which activity has fallen. The structured cabling market has also experienced its own highs and lows within the last two decades, largely echoing the housing and Internet technology boom-and-bust cycles. Yet, there are predictions for a shorter, shallower recession for the low-voltage market.
In the 1990s, the structured cabling market experienced several years of double-digit growth, totaling more than 40% in some years. “When companies moved from the mainframes to desktop PCs for everyone, that created a need for all the cabling,” says Giacin, whose company began offering communications services 14 years ago.
Then in 2001, the market experienced a severe decline, from which it has never fully recovered, according to FTM Consulting, the Hummelstown, Pa.-based research firm that focuses on the structured cabling systems market. Now, however, it is on the brink of slower yet steady growth. In its recent study, “U.S. Structured Cabling Systems Market,” FTM Consulting indicates the market will grow at a compound annual growth rate of 20.1% during the next five years, expanding from $6.4 billion in 2008 to $16.0 billion by 2013.
Structured cabling in data centers will be the main driver for this growth, along with Voice Over Internet Protocol (VoIP), which will require much cabling to connect it to the existing LAN networks, currently the largest structured cabling market. By 2013, FTM Consulting estimates VoIP cabling will overtake LAN in that capacity. “The good news is that the market, at its current $2.5 to $3 billion level, is a substantial market over the next five years,” says Frank Murawski, president of FTM Consulting.
Because of this, electrical contractors with structured cabling divisions report being able to weather the downturn a bit more easily. “We have a lot of low-voltage work backlogged, which has helped us,” says Steven Witz, VP of Continental Electrical Construction Co. (Continental), Skokie, Ill. “[The recession] has affected the electrical a little bit more.”
A separate piece
Despite this healthy prognosis for the low-voltage market, the general industry perception is that few electrical contractors offer structured cabling services in addition to their electrical services or that somehow smaller, specialty firms are better at the work than larger ones (What a Low-Voltage Client Wants). BICSI, Tampa, Fla., a professional association supporting the information transport systems (ITS) industry, which covers the spectrum of voice, data, electronic safety/security, and AV technologies, estimates that only 10% of its current active membership (both corporate and individual) deal, in some capacity, with both electrical and structured cabling. That's around 1,300 members and/or companies. The majority of BICSI members are specialist low-voltage firms.
To overcome this bias, some electrical contractors are launching high-profile campaigns for their low-voltage divisions. Tri-Phase Electric, American Fork, Utah, recently launched a new Web site to promote its low-voltage services. While its customers are familiar with the firm's industrial and commercial electrical services, they may not always be aware that Tri-Phase Electric also has offered low-voltage services for the past 10 years. On a larger scale, Continental plans to grow its low-voltage division over the next five years, branding it as Continental Technologies. “We're trying to make it easier to find us through re-branding ourselves in that way,” Witz says. “We've hired some new people, and we think this is an area that can really grow.”
The lack of awareness of electrical contracting firms' additional services may stem from the concerns regarding structured cabling installation by non-specialized firms. According to Spectrum Strategies, Inc., Parker, Colo., a consulting firm providing new business development and project management support services to cable TV operators, telephone companies, electric utilities, transportation authorities, and private network operators, granting a low-voltage wiring contract to an electrical contractor instead of a firm that specializes in its installation is like visiting a podiatrist instead of a cardiologist when you have a heart attack. “Why is it that people expect very well-qualified electricians to perform services totally outside their expertise and training when it comes to specialized, low-voltage wiring applications?” asks Dan Carter, president and general manager of Spectrum Strategies. “After all, by National Electrical Code requirements, the high-voltage electrician is trained and licensed to work with the 120/240V grid wiring systems. These systems have little commonality with integrated phone, data, CATV, environmental control, and other intelligent low-voltage systems.”
Common objections to hiring an electrical contractor to perform both the electrical and structured cabling installation include a lack of knowledge about cabling techniques, systems integration, and the use of the wire once it has been installed. Specialists are required to be familiar with the regulations, codes, and standards that apply to cabling and products being installed (Licensing for Low-Voltage Contractors Varies by State). “The majority of conventional electrical contractors simply lack the necessary tools, test equipment, and experience to ensure that specifications have not been compromised,” Carter says. “Moreover, today's applied control system technology requires knowledgeable and trained personnel in the delicacies of, not only physical wiring, but also programming, tuning, and test diagnostics.”
For this reason, several contractors in the St. Louis area attempted to enter the voice/data/video (V/D/V) market and failed, says Mohrmann. “They didn't train their people or have the right equipment,” he explains “There's so much testing that has to be done on these cables. They have to be installed and tested in a certain way. There's a lot to it now.”
A member of BICSI, Kaiser Electric considers its separate communications division as a specialist low-voltage company. The firm employs a full-time, in-house Registered Communications Distribution Designer (RCDD), and trains its technicians through Local 1 IBEW. “You need somebody who can talk the technical lingo with the company's IT people,” Giacin says. “The end-user's IT people are in a different world. For me to go out there and talk to those people, they would think that I had no idea what I was talking about.”
The training, including that through manufacturer systems, is reserved for the staff of the communications division. “We do have some electricians that work for our company who are very well versed in the communications side of the business because they've performed that work in the past,” Giacin continues. “But with the different wage rate and the different classification for the communication worker, it's cost-prohibitive for those guys to do that for us, unless they're already on the job — and it's 95% electrical with a couple of communications or low-voltage pieces.”
Kaiser Electric recently announced a partnership with NetCom, Inc., Fenton, Mo., which has been providing communications cabling services in the St. Louis metro area for more than 20 years primarily in the education, health care, manufacturing, retail, and commercial markets. Kaiser Electric hopes to leverage the company's 30 employees and fleet of 14 vehicles into more competitive pricing and expanded product and service offerings in communications design, installation, and service. “We are really excited about the partnership,” says Giacin. “With this partnership, we are able to expand our in-house communications department and offer customers more competitive pricing within the marketplace and a better product to the end-user.”
The communications division bids on its own contracts. “Electrical and low-voltage are separate divisions,” Mohrmann says. “They're usually separate contracts.”
There is considerable disagreement as to whether one point of contact will be able to save the client money. Low-voltage specialists may be able to offer product discounts, do not work under traditional electrical contractor cost structures, and probably have lower overhead so they can offer lower prices; however, they are unable to provide multiple job discounts, which some say are overrated anyway. “The high costs of building construction do not necessarily mean that the developer or property manager actually get the results they paid for or expected when it comes to specialized, low-voltage wiring needs,” Carter says. “Today, there are proven alternatives to the age-old problems of conventional structured wiring and control systems that, over time, have created cost-inefficient operational islands. The shortcomings in conventional, assembly-line installations of home and business electrical wiring are well known, and the associated problems manifest themselves in higher capital and operating costs.”
However, there are some advantages to hiring an electrical contractor with a low-voltage division to install the structured cabling and V/D/V portions of your project. Results of a recent study by Bull's Eye Research, Fond Du Lac, Wis., indicate that certain types of low-voltage work are less profitable than others, such as panel building, maintenance, installation, and start-up. The most profitable portions of the job are custom programming, system consultation, networking, SCADA, and system design. “One can argue that what may be a low-profit job for a [specialized systems integrator] may be high profit for an electrical contractor, because the cost structure is so much different,” says Tom Bullock, president of Bull's Eye Research. “A systems integrator will employ a lot of engineering graduates, while an electrical contractor workforce will be more predominately technicians with associates degrees or less.”
Furthermore, working with only one subcontractor eliminates added points of contact. When a developer or general contractor hires a low-voltage installer separate from the electrical contractor, additional coordination and time on the clock is required for project planning, scheduling, and budget. “It's much easier for the whole progress of the project if one contractor does both the power and the low voltage,” says Mohrmann, who also performs low-voltage estimating services for the firm. “The coordination between the two systems is pretty critical, so it's really nice when there's one person taking care of the entire project that way. We can confirm schedules for pulling cable, rough-ins, testing, punch down, or equipment deliveries.”
Giacin agrees. “The communications work is a very persnickety thing with owners,” he explains. “They don't like a lot of hands in it. They like consistency.”
In addition, the multiple job discounts may also apply to the schedule in the same way they work with the budget. But what gives Continental a real edge over its competition, according to Witz, doesn't relate to the economy — it's Continental's ability to bid both electrical and low-voltage components. “It's always good if you have a single point of contact,” Witz explains. “You don't have to administer new contracts for every little piece of work. You can just have one contract that covers everything. That's a value-added differentiator for us.”
Continental offers both electrical and low-voltage engineering/design services under one roof, but through three different offices. “We have low-voltage people in all three of our offices,” Witz explains. “We often tie electrical and low-voltage together, but a lot of times the builder or developer wants to break it apart. We'll go with the flow of their idea of a job.”
Sidebar: What a Low-Voltage Client Wants
Cutting-edge technologies; fair cost for design, installation, and turn-up services; ergonomic planning; improved device integration capabilities; and a variety of advanced voice/data/video (V/D/V) services are all on the short list of desirable traits for low-voltage systems integrators. But when it comes down to choosing a firm, what are clients actually looking for? According to a recent report, “What End Users Are Looking for in Automation System Integrators - 2009,” released by Bull's Eye Research, Fond Du Lac, Wis., potential clients are basing their searches on company size, engineering specialties, corporate and professional affiliations, and industries/geographic areas.
The report, which highlights the results of a 2008 survey of 15,000 online searches performed on more than 1,800 systems integrator listings on the Automation Integrator Guide at www.IntegratorGuide.com, indicates that potential clients in certain geographic areas perform more searches than in others — and that smaller, specialty firms are preferable to larger ones.
Searches for systems integrators occur more frequently in the South/Southeast and Upper Midwest than in the West and Northeast. In addition, potential clients search for smaller specialty firms over larger companies with multiple divisions.
End-users most often searched for particular specialties, and these were listed by smaller companies more frequently than larger companies. “They were looking for someone to do something specifically, and if they went with too large a firm they felt they would get lost in the shuffle,” says Tom Bullock, president of Bull's Eye Research. “So they would rather have a firm that specializes in a particular area but is not necessarily a very large firm.”
For more information on this report, visit the Bull's Eye Research Web site at http://bullseyenet.com/AutomationSI.html.
Sidebar: Licensing for Low-Voltage Contractors Varies by State
A few years ago, St. Louis County and St. Louis City began requiring licensing for low-voltage design and installation work. This opened the door for Kaiser Electric, Fenton, Mo., already a licensed electrical contractor, to begin offering communications installations to its customers. “Some of the competition couldn't pass the test, so they were washed away,” says Mike Mohrmann, service department manager for Kaiser Electric. “That gave the electrical contractors in St. Louis the opportunity. We were already licensed to do this work.”
Licensing requirements for structured cabling contractors vary state by state and, in some cases, the local jurisdiction determines licensing. According to the National Electrical Installation Standards (NEIS), the following states require the contractors to also hold an electrical license: Connecticut, Delaware, Hawaii, Idaho, Kentucky, Maine, Maryland, Virginia, New Mexico, and South Dakota.
The following states do not require any licensing at all: Arizona, Colorado, Indiana, Iowa, Kansas, Mississippi, Missouri, New Hampshire, North Dakota, Ohio, Pennsylvania, and Wisconsin. In these cases, contractors are required to check with their local jurisdiction.
For more information on state licensing requirements for low-voltage contractors, visit the NEIS Web site at www.neca-neis.org/state/specialty_licensing.cfm.