PHOENIX - Emerging markets. Are you familiar with the phrase? If so, you may have been one of the many HVAC contractors, building owners and union leaders that descended on Phoenix last October, braving 100-degree temperatures, for a conference on these new business opportunities.
In a struggling economy, relationships between labor and management can sometimes be strained because of cutbacks and layoffs. In the building-trades industry, however, when times get tough, many employers and employees band together to protect jobs, boost profits and increase business opportunities.
The National Energy Management Institute, an affiliate of the Sheet Metal Workers union and the Sheet Metal and Air Conditioning Contractors' National Association, recently hosted a two-day conference to teach those in attendance how they can capture new work opportunities. Over the course of the conference, NEMI released its research on emerging HVAC markets and conducted workshops with industry experts.
Clark Ellis, a senior consultant at FMI Corp., kicked off the conference by asking contractors to remember the economic boom five years ago.
The go-go '90s"In 1998, business was booming," Ellis said. "You had more work than you could handle. With this tepid economy, all that has changed, which is why we're here today."
Erik Emblem, executive director of NEMI, saw signs of the economic slump in early 2001 and said he realized the importance of finding ways to expand business opportunities for sheet-metal contractors. At the request of the officials from NEMI's Emerging Markets Task Force, he contracted with FMI Corp. to analyze the market. During its research, FMI focused on three markets that it said offered significant growth potential: building commissioning, energy management and indoor air quality.
"These three markets share one important goal: reducing total facility cost," said Jay Bowman, head of FMI's research group. "HVAC contractors can significantly lower a building owner's total out-of-pocket costs, from operational to legal, by utilizing these practices."
Despite the tremendous cost-savings that commissioning, energy management and indoor air quality can deliver, few contractors are taking advantage of these opportunities, he said.
Throughout the conference, NEMI and FMI continued to stress that these three areas are ripe for development by HVAC contractors. According to Bowman, building commissioning, energy management and indoor air quality are relatively new ideas.
"They have been in active practice in the U.S. for less than 25 years, and widespread use only since the late 1990s," he said.
Commissioning"Building commissioning" refers to the systematic process of verifying that the performance of the facility and its systems, meet the specified design intent and operational needs of the occupants. This potentially lucrative business is now grossly underdeveloped, according to Bowman. Commissioning new and existing buildings currently generates about $200 million in annual revenue, but there's potential for much more. The building-commissioning market has the potential to expand 50 to 100 times its current amount, he said.
An extensive knowledge of all building systems, including HVAC, building automation, controls, lighting, life safety and transportation systems, is critical in building commissioning, experts say. This can present a challenge for HVAC contractors who may not be familiar with every system. However, HVAC contractors who educate themselves will reap enormous financial benefits, according to Ellis. Carl Lawson, a consulting engineer who has commissioned projects for local, state and federal governments, told attendees building commissioning promotes on-time projects, established budgets for energy and maintenance and reduced change orders.
Donald Winston, a professional engineer with the Durst Organization in New York City, spoke on behalf of building owners.
"You have to clarify that, even though quality work can be more expensive in the short term, the long-term savings on maintenance will easily return their investment," Winston said.
Unfortunately, some building owners choose to have a job finished quickly and cheaply, he added. A contractor's job, said Winston, is to make sure the owner understands the benefits of doing the job right the first time. Not only does this create business opportunities for HVAC contractors, it also increases owner satisfaction and will help ensure repeat business, he said.
‘Exploding' growthEnergy management and retrofitting, spoken of frequently in the 1970s and 1980s, is another potential market of exploding growth, according to FMI. Energy-management expert Robert Cox, a senior project manager with the Farnsworth Group in St. Louis, encouraged HVAC contractors to work directly for building owners, rather than a general contractor, in performing energy-management services.
"Don't let others hire you and mark up your services. Work directly for the owner," Cox said. "You'll find higher profit margins and larger projects. You will also be able to develop long-term service agreements. There are many funding opportunities available from state and local governments for work relating to schools, hospitals and convention centers. There are billions of square feet in buildings that have deferred maintenance needs. You are coming with the solution to that need. Owners appreciate your vendor independence. You aren't locked into any sales agreements with another company, so you'll install any kind of equipment the owner wants."
Additionally, replacing outdated HVAC equipment will become extremely lucrative for the industry during the next 20 years as the government establishes stronger environmental regulations.
"Since HVAC and mechanical contractors are the preferred providers of energy retrofit services by building owners, this market presents an attractive opportunity to the sheet-metal industry," Ellis said.
Monitoring IAQMany of today's indoor-air-quality remedies stem from the energy-conscious building practices developed during the past 25 years, Ellis said, adding that building owners rarely pro-actively monitor air quality. This can lead to occupant complaints and, in some cases, litigation. However, he added, this is slowly changing as many building owners have decided to place a higher priority on indoor air quality.
"The threat of bioterrorism, toxic molds and the response of insurance providers and the legal community are the most common catalysts for an IAQ investigation," Ellis said.
IAQ offers two income possibilities for contractors: diagnostics and remediation. Industrial hygienist John Tiffany is frequently called as an expert witness in mold lawsuits. He told the contractors there is still no protocol for sampling.
"You simply have to be more careful on sites," Tiffany said. "Keep drywall away from water. The key to mold is moisture."
Another speaker, Waco, Texas, resident Greg Long, is a former president of the National Air Duct Cleaners Association who specializes in IAQ remediation. The projects often call for cleaning or replacing ductwork and replacing fans, filters or ventilation systems. He reiterated the potential for growth for these services is massive.