Commercial Contractor of the Year

It was the summer of 1914 when the Reed Brothers, A.O. and Harry, left Illinois and founded a new plumbing and heating company in a small, sleepy seaside town in Southern California. Today, there are two words that would never come to mind when describing either San Diego or A.O. Reed & Co.: small, and sleepy. San Diego has grown into one of America's finest cities, and A.O. Reed has been there every step of the way.

"Sometimes I look across San Diego Bay at the city's skyline, and I'm amazed at all the buildings we're involved with," says Steve Andrade, who assumed the company presidency from his father, Ed, in 1991. "I think everyone in our company feels proud of the major role we've played in making San Diego what it is today, and is excited about the role we'll continue to play in the future of the city and the region."

The All-Star Team
Andrade and his team at A.O. Reed have good reason to be proud and excited. The recent building boom in downtown San Diego, spurred by the new 42,000-seat Petco park, home of the Padres, helped push the company's revenues over $100 million for the first time in its history. The $105 million top line in 2006 breaks down this way among the company's four divisions:
• $76.5 million new construction
• $15 million light commercial
• $12 million service
• $1.5 million retail store.

Yet, despite the company's size and the fact that as many as 500 union workers could be employed by A.O. Reed on any given day, an upbeat, family atmosphere still permeates the company. It can be felt in the office, the yard, the shops, and on the job sites. These are serious professionals at work here, but first and foremost they're just good people — and the fact that so many good people ended up together at the same company isn't entirely a coincidence.

"We're committed to taking care of the people who work here both financially and personally," says CFO Clyde Blyleven, who has been with A.O. Reed for 18 years. "Steve has a policy of always being on the lookout for the ‘all-stars' of the industry, convincing them that this is the right place to be, and then keeping them happy."

That happiness comes from more than just good compensation and benefits — although A.O. Reed is well-known in the San Diego area for being no slouch when it comes to those important elements. What makes people happy to spend their careers with A.O. Reed is the family atmosphere and the feeling that comes from working with others who are all striving to be the best.

Service Operations Manager Adam Vaczek says he has noticed a "positive energy" during his 10 years at the company. "Management follows a simple program of appreciation, recognition, feedback, and a fair wage," he says. "And all the employees know we can rely on each other. Whatever it takes, we know we're going to get the job done."

Scott Corbin, general superintendent of plumbing/piping, who has been with the company for 19 years, says, "We're homegrown here. Our apprentices become journeymen, then we only keep the cream of the crop and weed the others out. You're only as good as your help.

"Also, the management here is accessible," Corbin adds. "You can come up with an idea and make a difference. There's not a big gap between the management and employees."

Sheet metal shop Superintendent Ed Locher has been with A.O. Reed for 30 years. He agrees with Vaczek and Corbin that the positive atmosphere at the company comes from the top. "It all starts with the management," he says. "They insist on the highest quality, and they're realistic about what it takes to get that level of quality. Some companies might think if a job takes one man 10 hours, 10 men could do it in one hour. A.O. Reed isn't like that. And it's amazing what this company will do to make things right for a customer. When you see that level of commitment to customer satisfaction from management, it shows everyone that the customer is what this company is all about."

The Heavy Lifting
Responsible for nearly three-quarters of A.O. Reed's revenue, the new construction division has grown steadily under Operations Manager John Norling. When he joined the company 15 years ago, new construction's revenues were in the range of $45 to $50 million, compared to $76.5 million in 2006. According to Norling, this desire for steady, measured, and most importantly profitable growth has been one of the company's keys to success.

"We don't run around trying to get every job that's out there," Norling says, adding there are still times when – thanks to San Diego's strong economy — he's tracking and scheduling as many as 30 simultaneous projects.

"Our Vice Presidents of Pre-construction Services, Les Osterberger and David Clarkin, are always ready with ideas for projects they'd like us to pursue," says Andrade, "but we only want the company to take the projects we can put together with the right team. We never grow for growth's sake. We only pursue the opportunities that we have the resources to handle."

As Andrade noticed from his view across the San Diego Bay, over the years those opportunities have ended up reading like a "who's who" of San Diego landmarks: the 27story San Diego Marriott, the 39-story Hyatt Regency, the 750,000 sq.ft. Emerald Shapery Center, the 34-story America Plaza, the 27-story Columbia Centre, even the Del Mar Racetrack Grandstand the the Sea World Penguin and Shark Encounters, just to name a few, trusted A.O. Reed for their mechanical systems. In addition, A.O. Reed also serves a growing share of the sprawling Los Angeles market, counting the 1.5M sq.ft. LA USC Hospital, the 27-story 801 Tower in downtown Los Angeles, the 649,000 sq.ft. Fox Plaza in Century City, the University of California at Irvine, the six-acre Santa Clara County Convention Center, and Disney's California Adventure among its clients.

Norling credits the company's good rapport with customers, strong union relationships, and the depth of its knowledge base as the key to its success. "We promote from within, and everyone mentors those who are coming up behind them in the next generation. No one holds back any information and it really pays off."

CFO Clyde Blyleven picks up on the importance of Norling's statement about having a good rapport with customers. "By keeping our core management team in place, we're able to establish long-term relationships with key partners," Blyleven says. "This means in most cases long-term customers are doing business with long-term employees, and no matter how big we get we never forget that at its heart this is a people business. That also applies to the very important personal relationships we have with our suppliers."

As Norling noted, positive union relationships are another cornerstone in A.O. Reed's foundation. The company is a member of the Sheet Metal and Air Conditioning Contractors' National Association (SMACNA) and the Mechanical Contractors Association of America (MCAA). It works mainly with Plumbers and Pipefitters District Council 16, and with Sheet Metal Workers' Local 206 in San Diego and 105 in Los Angeles.

"The unions here in Southern California are aware that there's an unlimited pool of labor in Mexico that can come up every day, so they're very progressive and proactive," explains Andrade. "We're fortunate to have such a skilled, highly trained workforce to help us maintain our high quality standards, and our long-term union agreements allow everyone to focus on the work rather than labor negotiations."

Quality Through Pre-fabrication
One way A.O. Reed ensures the high quality of its installations is with its sheet metal and piping fabrication shops. The company's 35person sheet metal shop custom fabricates all the necessary sheet metal and fittings – anywhere from one to two millions lbs./year — and ships it to the various job sites ready to install. A spiral duct fabrication machine allows A.O. Reed to meet the growing demand among architects and building owners for stylish, exposed ductwork.

Meanwhile, at the piping fab shop, 15 to 20 pipefitters and welders crank out pre-assembled plumbing and piping fixtures for more than 25 projects on any given day.

Not only does pre-fabrication allow for close quality control, it also speeds the job along for the field installation crews, a fact that's very much appreciated by the project managers. "Two things really set A.O. Reed apart on a job site," says Project Manager Ben Tepper, "the quality of our people, and the pre-fab. We couldn't do what we do in the field as well, or as quickly, without those guys in the shops."

Loyalty Inside and Out
While new construction projects take center stage at A.O. Reed, the company's light commercial division, service division, and retail store hum along smoothly, operating basically as businesses within the business.

The $15 million light commercial division handles projects from $50,000 to $1 million. For these "cradle to grave" projects, one person serves as the salesperson, estimator, and project manager, and generally handles from three to seven projects at a time. Light commercial also handles A.O. Reed's testing and balancing services.

Robin Callaway, vice president, light commercial operations, has been with A.O. Reed for 27 years. He offers one word as the key to A.O. Reed's ongoing success: loyalty. This loyalty, he says, comes from both inside and outside the company.

"About 80% of our business is repeat business with existing customers, so we have a customer base that's loyal to us," Callaway points out. "And because we truly offer a career path here, not just a job, we have a level of loyalty from our people that's really rare, especially at a union company. In some cases we have the second and third generations of families working here.

It makes for a very closely-knit company, not only within our division, but in how the various divisions work together to achieve our common goal of providing the best mechanical systems and the finest customer service."

The New Kid of the Block
The new kid on the block at A.O. Reed is the service division. For many years service was a part of the light commercial division, set up specifically to handle warranty calls. That changed in 1996 with the arrival of Adrian "Ed" Blum as service manager. Ed came from Monsen Engineering, Contracting Business' 1990 Commercial Contractor of the Year, and brought not only his years of experience but also his New Jersey attitude to bear on the task at hand.

"With the support of Ed and Steve Andrade, we restructured the service division into a fullservice HVAC and plumbing group that has grown steadily over the past 10 years," Blum says.

In 2006, the service division brought in $12 million, and has grown at an average rate of 17% per year. Andrade even cites the decision to commit to service as one of the factors that "put the company over the top" in the San Diego market.

Blum, who has just been promoted to manager of special projects, says the concept is simple: a good service division keeps you close to your customers. This is good for them, as it keeps their systems operating at peak efficiency, helps identify small problems before they become large ones, and increases equipment life. It's also good for the company: service brings in

steady revenue that's unaffected by the peaks and valleys of the construction market, and keeps the A.O. Reed name in front of customers. "If you get a chance to impress a customer with your service, the odds are good they'll consider you — maybe to the exclusion of anyone else — when they need a new system," Blum says.

Service Operations Manager Adam Vaczek adds: "I have a sign on my desk that says, ‘It's not rocket science.' We sell a needed service, and we look out for our customers' best interests."

Jaimi Lomas, who is stepping up from sales manager of the service division to fill Blum's role as general manager, says she plans to continue building on the culture that Blum has established. "When it comes to our business, San Diego is still a relatively small town," she says. "People know each other, and they talk. We've established that A.O. Reed will always do what's right for the customer and never walk away from a problem, and it's important that our customers know that."

The key, Lomas adds, is (as always) people. "The one-to-one relationship is very important, so retention of our technicians is the key to retention of our customers. It's up to us to keep our service technicians focused, challenged, and learning so they'll look forward to coming to work each day."

Today's Link to the Past
The final piece of A.O. Reed is the retail store. Although it's only a small part of the company's overall sales numbers at $1.5 million, the store is basically a San Diego icon, going back to the days when the Reed brothers ran their plumbing and heating company from a storefront in what was then the city's modest downtown. Not many $105 million HVAC companies operate a store where anyone can walk in to buy a bathroom fixture or a furnace filter, but it's all part of the personal touch that sets A.O. Reed apart.

"I have people come in who remember coming to A.O. Reed's store with their grandfather," says Stan Nosel, manager of the retail store and a 29-year veteran of A.O. Reed. "It's part of what makes the company what it is: family-owned yet professional, and dedicated to taking care of its customers and its own people."

Steve's Keys to Success
In the background of all that goes on at A.O. Reed is company President Steve Andrade. The low-key Steve provides the steady hand that guides the ship through the often stormy seas of the commercial HVAC market. He offers five keys that have made A.O. Reed a powerhouse, and that serve to keep it on top:
1) Insist on quality. "This might go without saying, but we want our customers to know that we're always there for them, and that they can count on us for high quality work, every time. Our people understand this, too. What we do isn't masonry or woodwork. It's a living part of the building that affects everyone in the building."


2) Ensure a safe environment. "We instill in everyone that safety is king. I was a plumber in the field for many years, and I know the hazards we face in our profession. We care about our employees. If it's not safe, don't do it."


3) Let go. "I'm a true believer that autonomy makes people like their jobs, so I let people do what we hired them to do. It's important to set goals, make your expectations clear, and review what's best for the customer. But once that's done, I give my people the power. I'm there for them if they need me, but I won't step in unless I see someone going down an obvious wrong path."


4) Provide the right tools. "Listen to your people, and give your teams the tools and materials they need to do a great job."


5) Share the praise. "One of the great things about my job is the feedback I get from the building owners and developers around town. It's very gratifying to me, but it's even more gratifying when I share that praise with the team members."

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