by Harold MacDowell
In the 1970s, our company watched as the large chiller manufacturers grew their service fleets and took away our big central plant customers. Access to training and vital service information grew more difficult to obtain. In the 1980s, thanks to the Air Conditioning Contractors of America (ACCA) and a few brave contractors, access to training and information improved. In the 1990s, the situation deteriorated as the manufacturers once again limited access to information on chiller conversions.
The decade ahead indicates a possibly disturbing trend as big manufacturers may leverage brand identity and facility owner relationships to morph into mechanical contracting. We have watched all three big chiller manufacturers dabble in energy-based retrofits and small turnkey central plant upgrades in the recent past. But, in the last several weeks, we have seen two large (over $5M contracts) central plant upgrades awarded to a major equipment manufacturer who will be the prime contractor providing turnkey Design/Build services to the owners. This contract will include engineering, chillers, miscellaneous equipment, piping, labor subcontracts, a complete automation system, ongoing maintenance, and financing if needed.
If that sounds a lot like mechanical contracting, that’s because it is.
When we met with the manufacturer from whom we buy several million dollars of equipment each year, we were reminded why we have a love/hate relationship. They build great equipment, which we need. We love that. They’re very focused on the owner/end user as a customer — not the contractor. We hate that.
The same manufacturer said that their goal is to sell up to $30 million per year of these types of Design/Build contracts in our local market.
Our firm does not want to lose access to these types of projects, big or small, to any manufacturer. Therefore, we want to alert you to watch for this trend in your market. We’d also like to share our plan to defend against these potential “mechanical broker” competitors. Manufacturers build great equipment in factories. Mechanical contractors build great projects!
Here’s our plan:
- Put more professional sales people on the street to build and maintain relationships
- Deliver successful projects with great customer satisfaction
- Buy less equipment in the future from manufacturers who compete with us.
Most importantly, mechanical contractors must win the battle for the end user/owner relationship. If we lose this battle, we’ll lose the war. To win, we’ll have to build relationships and offer turnkey Design/Build solutions to owners. If we sit back and wait for traditional channels to make our phone ring, we’ll all die a slow death, or be relegated to labor brokers. That’s a long way down the food chain from being a solutions provider.
Don’t forget, if we lose customer relationships to manufacturers, they’ll be more likely to get service after the sale once the project is complete.
Our best defense is a good offense. We need to do what we do best and focus on project delivery. If we continue to deliver successful projects that meet our customer’s needs (quality, price, and customer satisfaction), we will be able to maintain our market share against these Goliath-like competitors. We need to prove to our customers that they’re better served by contractors who are willing to select the best equipment for the job regardless of who manufactured it.
The best way to get a manufacturer’s attention is to reduce the flow of nutrients to its heart — the factory. If we move our purchase orders to less confrontational manufacturers, the aggressive ones will be more likely to listen.
Do the math, and you can see why our customer relationships are so attractive to chiller manufacturers: $30 million per year times 20 of the largest U.S. cities equals $600M per year. This doesn’t even include ongoing mechanical equipment and control system service and maintenance work.
Please call your local manufacturer’s representative and ask how much owner-direct mechanical construction they want to do this year. I hope you don’t get shocked like we did. If we all speak up, there’s still time to slow down this train. If you have similar stories from your market, please feel free to contact me at 972/888-9371, or e-mail email@example.com. n
Harold MacDowell is a managing director of TDIndustries, an employee-owned national mechanical and electrical construction, facilities management and service firm headquartered in Dallas, TX. The company was Contracting Business’ 1995 Commercial Contractor of the Year.