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Residential Foundation Contractors Find New Opportunities by Expanding into Commercial Work

It is no secret that companies grow by diversifying, provided they are loyal to building on their core strengths. As such, it is no surprise that many residential foundation contractors have begun applying their proven poured wall concrete expertise to the commercial market. By expanding into new markets, many have found they can off-set the typical high and low cycles of the economy. However, this market extension also is a win for building owners as these contractors are improving the quality of commercial foundations.

“When it comes down to it,” says Jim Baty, CFA Technical Director, “this is a near automatic decision for the residential foundation contractor. We have seen time and time again that the levels of quality that are produced in the average residential foundation exceed the quality that is provided in most commercial foundations. Therefore, the contractor that looks into this market and sub-contracts with the commercial builder can find, at times, unlimited potential for growth. Currently, commercial building is out-pacing nearly every segment of the building industry while we are beginning to observe a softening of the residential market in many regions.”

Case in point is Tim Parrish, President of Harrisonburg, Va.’s Cornerstone Foundations. Founded in 1988, Cornerstone Foundations was only the second poured wall company in their area. They quickly earned a reputation for being the company that was willing to tackle any project – big or small, complex or mundane. This zeal for work also includes bidding commercial projects.

“We were fortunate to develop a relationship with a mid-size commercial general contractor that did not have its own concrete crew,” said Parrish. “This relationship gave us an opportunity to work our way into the commercial world and its quirks with a bit of a safety net.”

Another example is Kirby Justesen of Formco Foundations in West Jordan, Utah. A member of the concrete business for 25 years, Justesen formed Formco Foundations in 1992 serving the Salt Lake City, Provo and Park City areas of Utah. Justesen moved into the commercial arena to meet the needs of the marketplace. When the Olympics came to Salt Lake City in 2002, the resort business dramatically increased in the area and contractors wanted basements for their facilities. Justesen took his firm’s experience in the residential market and applied it to the commercial market by diversifying his company to handle changes in the marketplace.

THE MARKET DIFFERENCES

Parrish alluded to the many differences between the residential and commercial markets by referring to the quirks. A majority of commercial projects for which residential contractors get involved in are either stem walls for slab-on-grade/pre-engineered metal buildings or site retaining walls. Since basements are often a necessary evil mandated by the engineer to make a building work on a particular site, the projects are typically much more complicated than a standard residential project. And, this complexity requires a new knowledge-base and approach for the contractor. For example, Parrish said their crews needed to learn to read site plans with elevations and lots of details, as well as better understand the different codes.

Commercial work typically entails a great deal more planning and coordination since more things are needed to go through the walls. “We have encountered utility inserts of all sizes including pipes that were already in place that we had to form around,” said Parrish. “Further, we have had to learn to read the mechanical and electrical plan details as well. If we had not learned this skill, we would not estimate enough labor to cover for all those types of inserts. Even when we knew what had to go into the walls, we still had to learn to work with other tradesmen that may want to install their own sleeves at their own pace.”

Another example for the additional coordination that is required on commercial projects is the start time for pours. Typically, wall pours would have to begin earlier in the day, so that the superintendent could be at the site.

“We learned that, for commercial projects, we needed to plan extra time on the job as there are typically more disruptions,” said Parrish. “Even though these are usually large job sites, we often have to stop work to relocate trucks and equipment to allow access for other trades.”

Visits by OSHA representatives also are more common for a commercial job, which increases safety awareness. While safety is paramount on any project, commercial presents more stringent regulations on safety and inspections, which can increase the time needed to complete the job. Additional disruptions can occur by asking for clarification on a detail. Oftentimes, the architect or engineer may need 24 – 48 hours to provide their answer. Justesen notes that commercial projects often require shop drawings for rebar since additional rebar is often needed for commercial projects, so proper time needs to be allotted for this.

There also are marked differences in schedules and workforce. Although commercial work is often referred to as having a “tight schedule,” Parrish said residential work is actually more time sensitive. In fact, it is common for residential contractors to be under the gun to get a wall poured that day or they lose money or the contract. In contrast, since commercial work is more complicated, it requires a slower and more methodical approach. This, however, can be frustrating to crews if they are used to performing production work. But, simply throwing larger crews at the project can backfire as superintendents are accustomed to smaller crews and they can get easily overwhelmed. A superintendent may be used to a four person crew instead of an 8-12 man crew that is typical in residential work.

According to Parrish, it is worth training existing crews rather than simply hiring other workers with experience in commercial concrete work. That is because those with residential experience tend to have greater time sensitivity, which allows for more profitable commercial work. The longer schedules can have benefits though in terms of employee morale as crews often enjoy being at the same location for a few weeks as compared to having to move around frequently for residential projects. Residential work entails a great deal of scheduling of both equipment, and manpower.

However, schedule still drives a commercial project. Justesen explains that commercial general contractors often feel intense pressure and stress to ensure the project remains on schedule. “Commercial work demands timeliness and insists that the schedule is kept to ensure that other trades can perform work when they need to,” said Justesen. “While these projects are more complex, so more time is necessary, adherence to the schedule is critical because your work is tied to the overall contract time.”

LOOKS DO MATTER

As the old adage goes, “the customer is always right.” That begs the question, who is the tougher customer – the home or business owner? According to Parrish, the commercial builder and the building owner are typically looking for a much nicer wall than in a residential situation and accuracy is essential. For example, a commercial wall that is only an inch out of plumb can have drastic impacts on the rest of the building. If an 8-foot tall wall is out of plumb, it is easy to correct, but if a 20-foot tall wall is out of plumb, the error becomes more exaggerated. Further, commercial buildings often use a pre-made steel package that has very little room for adjustment.

Justesen concurs, stating that accuracy is critical in a commercial project. “Our experience with high-tech instruments such as the Geodimeter Total Station for layout helps ensure that our jobs are as accurate as possible,” said Justesen. “Since we use these instruments for our residential projects, our crews know how to process the information in the office to get it to the field crews quickly and correctly.”

There are typically more inspections in commercial work and they expect a higher level of quality. The building owner hires a private inspector to perform a pre-pour inspection as well as test the concrete during the pour. They watch the water-cement ratio very closely and the foundation contractor usually has to submit a typical concrete mix design to the engineer before they begin the job.

While the customer preferences may be different, there also are differences in the customer profile and this is a factor that should not be overlooked. Although it depends on the size of the company involved, a written contract is typically standard protocol when working for a commercial general contractor and the terms are often quite unfavorable to the sub-contractor. Payment is often much slower and a retainage can often be held for 18 months or more. Those who have made the transition to commercial work recommend planning for this time-span and even increasing their bid to cover the length the money is held without any interest paid. Further, making changes on a commercial project is typically more complicated and a lengthier process as compared to residential work because it involves the general contractor, engineer, architect and owner.

TRANSITION FOR SUCCESS

For those interested in making the transition to commercial work, Parrish recommends you carefully perform a cost justification before diving in. Justesen agrees and notes that it is important to know that costs are going to be different than a residential project because commercial projects are not as productive. Although light commercial work is somewhat similar to residential in that the same forms can be utilized, there are distinct differences. For example, smooth-faced forms are preferred for commercial projects, though some contractors have had success with brick patterns. Further, the mix designs specified are often more difficult to work with, because some engineers will only allow certain mixes that have low slumps, larger aggregate and strict limits for hot and cold weather concrete.

“We had to educate ourselves on what it took to get a workable mix design and then we had to educate builders and engineers,” said Parrish.

Parrish also recommends that residential contractors capitalize on their strengths – speed and quality – when making the foray into the commercial market. Those who have made the transition are careful to point out that commercial work is not simply a pot of gold waiting to be found. There is a lot of effort involved for both production and management on both the front-end and once the job has begun. However, diversification does enable companies to weather economic storms.

“Being active in both the commercial and residential markets has been a good niche market for us,” said Parrish. “We have had up to 30 percent of a year’s work be commercial in nature and when residential slows down, commercial is often still busy.”

Now is the time to enter the commercial market, because commercial building owners want to maximize their space as much as possible, explains Justesen. “We have seen many owners of apartment buildings putting the parking underneath the building, which is a good utilization of basements. Basements provide cost-effective space, which is important to every owner.

”With all that is at stake in entering a new market and trying to learn how to diversify, participation in an association like the CFA can be the most important first step in the process,” says Baty. “The primary goal of the CFA for market development is networking. Providing the most efficient means and greatest opportunities to capitalize on the networking that comes with membership is paramount during the planning of each and every event as well as our online membership benefits.”

Jim Baty, Technical Director, Concrete Foundations Association
jbaty@cfa.org

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Concrete FACTS, a publication of the Concrete Foundations Association, is THE voice for residential concrete industry news, market intelligence, business strategies, technical solutions, product information, and other resources for professionals in the cast-in-place concrete industry. Subscriptions to Concrete FACTS is available to anyone involved or interested in the residential concrete industry as a service to your industry. Please contact CFA Headquarters to find out more about your free subscription or Email Us