Doing More with Less

One thing driving consolidation in the building industry is the push for lower costs and increased productivity. New technology is part of that equation. For example, building information modeling (BIM) software has replaced the traditional two-dimensional paper blueprint drawing with a digital three-dimensional model that can be shared online. Likewise, three-dimensional printers are making it easier to create customized components.

Small and midsize companies often find it difficult and costly to adopt new technologies. For one thing, their use doesnt necessarily allow the company to charge clients more. Its more the table stakes you need to provide the project owner to win the work, says Timothy Sznewajs (pronounced SHNAY-vice), a senior managing director of investment banking for FMI Capital Advisors in Denver. This means such companies face tighter margins in an environment where average pretax profit margins have already shrunk to a mere 1 percent of sales. One consequence is that while bigger companies add technology and find ways to spread the cost over many projects, smaller companies with less than $50 million in annual revenues have trouble competing, says Sznewajs.

As well, new approaches to construction born of technological advances require an entirely new set of skills smaller firms may have more trouble mastering. When Skanska was putting in bathrooms at Virginia Mason Medical Centers new oncology wing, it built prefabricated bathroom pods offsite and then dropped them into the building with cranes. It also used prefabricated ceiling racks with electrical, mechanical and plumbing systems already installed.

Similarly, OneBuild, a Seattle firm founded by former Unico CEO Dale Sperling, builds entire one-bedroom residential modules, complete with kitchens, bathrooms and living rooms, at its factory in Oregon and then stacks them and connects them on a building site to create entire multifamily complexes. If such prefabricated structures increase in popularity, they could reduce the amount of business going to traditional subcontractors who take care of the plumbing and electricity in large buildings. Such companies could be forced to merge in order to have the resources to build their own prefab systems.