Top Grade Construction

Source: Construction Digital

Date :07/08/2007 10:57:26

Top Grade Construction was able to foresee impending trouble with the homebuilding market and quickly adapt by developing its public works capabilities

Written and produced by James Buchanan & Chris Culkeen

For construction companies, maintaining a steady source of revenue year after year can be a challenge when considering the economic vagaries of the industry.

Most recently, homebuilders have seen their prospects go from the-sky’s-the-limit to a significant decline in a head-spinning amount of time.

Therefore, it is important for contractors and subcontractors to anticipate building trends within their sphere of work and develop ways to mitigate the impact of slow times.

The answer to this dilemma for Top Grade Construction, Inc., a civil engineering contractor in Livermore, Calif., has been to diversify the segments of the industry it derives its revenue from. When one eases there should be another to pick up the slack.

“The company has three revenue streams within which we do all of our work,” says Brian Gates, VP of business operations for Top Grade, which is a civil contractor specializing in paving and grading. “The first is residential sites. We work with the major home and land developers here in northern California to do mass grading as well as the fine grading, rock, and paving for streets, sidewalks and the like,” he says.

An additional revenue channel is commercial, industrial and institutional projects. In this respect, the company is a subcontractor working for many of the large general building contractors that focus on the building of large retail outlets, schools and company campuses.

The third revenue stream for Top Grade is public works. Top Grade works with all of the city, county and state agencies, with projects ranging from street overlays or redesign to heavy highway improvements.

Gates adds that in the past the company has been primarily private-works focused. However, approximately four years ago, Top Grade decided to expand its focus in the public works arena, which demonstrated considerable foresight.

Gates says that in 2001-2002, 90 percent of the company’s work was for non-public projects, but that has now shifted to approximately a 60/40 split, private versus public. One reason for this shift is the market itself. In particular, the residential market has dropped significantly over the past two years.

This means the company has had to supplement its residential revenue stream with another and, as it turns out, the public revenue opportunities in California are going to be rather strong, he says Asked why he is so optimistic about the company’s prospects of earning significantly more revenue in the public works realm, Gates points to the passing of Propositions 1A and 1B in the November 2006 California election.

According to Gates, in the 1970s California was ranked as one of the states with the best roadways in the country, but is now ranked 48 out of 50. To address the state’s infrastructure needs, this past fall the people of California voted to pass propositions 1A and 1B, which will bring a very big investment to improve transportation infrastructure.

The recent vote created the opportunity, but it is the effort made by the company four years ago to build up its public works capabilities in anticipation of increased public sector spending that could pay the biggest dividends for Top Grade.

In 2003, the company began the process of putting together a team of experts focused exclusively on public works. The net result, Gates says, is that Top Grade has created a very strong public works estimating and project management staff, led by its chief estimator of public works, Reza Yazdi, and public works area manager, Kelly Turner.

“The investment we made several years ago has really worked well for us, and now with the state having approved the most money ever to improve the state’s road system, our vision seems to have been proven correct,” he says.

All told, the company did very well last year with all three of its revenue segments as it managed to grow by a phenomenal 78 percent.

Asked what he attributes such a significant one-year increase in revenues to, Gates says much of it was simply due to bringing more business in from more customers. Thirty percent of it, though, could be attributed to the company landing its largest job in the Top Grade’s history – a $130 million residential development with SunCal Companies.

However, such strong growth does not come without any strings attached.

“The significant growth we experienced in 2006 has forced us to step back and evaluate how we are managing our business,” says Gates. “Any time you almost double your revenue, it forces you to ensure the magnitude of the growth did not negatively impact your business in terms of how you keep your employees safe and not overworked as well as how you service your customers. We are now in the middle of standardizing business processes and developing metrics to forecast the growth.”

One big step the company is taking to try to gain some insight as to managing its success, is to upgrade its enterprise software. According to Gates, the company has been using much of the same software since its founding 17 years ago.

He says the company needs to examine the types of data it will need in order to develop metrics that will help Top Grade capitalize on its success. To this end, Gates says the company purchased this past January an application suite from Oracle, and has spent the last six months implementing it company-wide.

Gates says the company is also embarking on a change from an entrepreneurial environment to more of a managed environ-ment with increased accountability, defined roles and responsibilities, and developing more data for decision making at the management level.

As the company continues to compete for business, it must also compete in a rather tight labor market.

“We have to work to ensure that we are able to attract the best and brightest talent,” says Gates. “This means that we need to bring on the strongest talent on the estimating and field operations sides in particular. We have to build out our staff and the capabilities of our staff.”

Being able to grade out large development tracts for homes and lots for big box retail outlets requires accuracy and meeting the specs of the customer.

“At about the same time we began to build out our public works staff we made the decision to invest in GPS technology for all of our equipment,” says Gates.

The company made the strategic decision to pursue GPS early in the technology’s development in order to find innovative ways to put what they saw as an emerging and important component to the company’s industry to best use.

“We invested more than $4 million in GPS equipment and technology and almost all of our major dirt moving equipment has GPS technology on it,” says Gates. “We have also made sure that all of our staff [are] trained to use it, which together is a major competitive advantage in our mind. There are many of our competitors that are using it, but we are heavily invested in it and have so thoroughly integrated it and explored its uses, that GPS is now how we do life every day.”

He goes on to add, “We receive the plans and CAD files which our modeling department takes and builds 3D models from; site surveying and calibration then takes place, and from there, cards are built for each piece of equipment using GPS.”

Increased accuracy in the company’s work also makes Top Grade more efficient.

If technical integration and the expertise of the company’s personnel are two legs of its three legged stool, the third would be managing its customer relationships, says Gates.

“We constantly hear through customer feedback how strong our customer relationships and service are,” he says. “Overall, what we are told is how easy we are to work with.”

Though the company is taking aggressive steps to consolidate its past growth, it seems as if repeating last year’s growth rate may be a bit more difficult.

“We are definitely going to grow, but not by 78 percent,” Gates says. “We expect a steady growth rate.”

He goes on to add that the company will sustain growth through continued investment in its public works department, in order to increase its ability to compete in the infusion of projects that will develop as a result of the passage of propositions 1A and 1B. Gates also believes that the residential market will bounce back relatively soon providing the company with a reinvigorated source for new business.

He also says the company is embarking on an initiative to vertically integrate the business.

“We do the grading and paving, but have a certain amount of work that we have to subcontract out, so we are looking at what potential business ventures could help out with that,” says Gates. “For example, we have to subcontract out for materials, so how do we venture into the materials business. In this area, we have a division that we are looking to start up. Then there is trucking, we have to bring these materials to the job.

And then there is hazardous materials and remediation work.”

The company also sees growth in what Gates describes as large special projects, not unlike the huge development deal that upped the company’s revenues by approximately 30 percent alone.

These could be large highway jobs, corporate campuses, sports arenas, or power plants.

Acquisitions are talked about, Gates says, but the focus is more on the vertical integration.