by Wendell Bedell
Despite rumors that its demise is imminent due to interlopers such as design-assist and design-bid, Design/Build is still alive, well, and lucrative in the commercial HVAC replacement business.
One recent study pegs the Design/Build commercial HVAC equipment replacement market at $3.5 billion annually, and projects it to continue growing at 3% per year until 2010.
Some of the building owner buying trends that are driving demand for Design/Build services include:
- Customers are becoming more sophisticated and changing their way of viewing their building requirements. They're becoming less concerned about lowest installed first cost, and more concerned about life cycle costs and value.
- Customers are placing more emphasis on productivityrelated indoor environment conditions such as temperature, mold, humidity, drafts, noise, and ventilation, and they're increasingly holding contractors accountable for responsiveness, liability and risk protection, and their ability to demonstrate work performance.
- High-tech buildings and high-tech HVAC equipment are becoming the norm.
- Customers are more aware of the effect of comfort on worker productivity and tenant turnover.
- Customers are becoming more involved in the selection process and look for partner-oriented contractors.
A Professional Void
Unfortunately, amidst all this opportunity, there's a professional void in Design/Build and equipment replacement installations.
Aircuity, Inc., a manufacturer of HVAC-related "building optimization" equipment, recently studied a series of reports generated by its Optima System, and identified some significant revenue opportunities for Design/Build contractors. These statistics are based on a sampling of commercial buildings equipped with Optima Building Performance Monitors, from June, 2002 through April, 2003. The reports were screened to include only test data from key Design/Build contractor markets such as commercial office buildings, educational facilities, and light industrial buildings.
- 90% of all buildings have installation problems due to any combination of improper equipment sizing, duct distribution sizing, duct insulation or sealing, balancing, system charging, or system calibration
- 80% of all buildings have comfort and over-ventilation problems
- 40% have humidity control problems
- 20% have indoor air cleanliness problems.
To try to shed some light as to why these poor HVAC system installations exist, Building Services Institute conducted a survey of more than 650 commercial contractors (all of whom claim to be in the Design/Build business) and found that most of the respondents:
- Don't use consistent or accurate load calculation measurement tools to right-size the capacity of the HVAC equipment and/or duct distribution system
- Don't have proper installation delivery processes that ensure verification of system performance
- Don't have enough liability insurance coverage
- Don't conduct staff safety or work method improvement training
- Don't use appropriate Design/Build delivery processes to identify and provide the solution that meets the customers personal, business, technical, and timing objectives
- Don't back up all of their work or performance claims with written installation guarantees, warranties, and assurances
Have poor contract proposal agreements, payment or liability protection terms.
Will Real Design/Build Contractors Please Stand Up?
Although Design/Build contractors may feel they need to compete on the basis of cost, customers can be educated to make their choice on the basis of value. Since most competing contractors derive their capabilities by pulling from the same local area labor and resource pool, contractors who differentiate their offerings win over those competitors that dont.
Design/Build contractors can win more business at higher prices over the competition by implementing three types of differentiation strategies: service delivery-based, technology-based, and branded service offerings.
Service delivery-based. This is the creation of a complete set of services that accurately identify and provide efficient installed solutions that meet the customers personal, business, financial, technical, and timing requirements.
This strategy starts with a survey/ data gathering process, and includes a thorough analysis of a customer's business requirements, business objectives, and financial requirements, before it even considers the customer's technical requirements.
Technology-based. This strategy incorporates the use of technology imbedded in the project that validates proposed offerings and verifies installed performance via an unbiased third party expert.
This differentiation strategy provides you with an unbiased quality control verification of performance versus the typical contractor that uses internal task-based verification.
It enables you to meet today's customer demands to hold their Design/ Build contractor accountable to deliver all work as specified.
It also enables you to verify project performance or compliance to specifications by providing system commissioning for your installations or for those done by others.
It also enables you to identify and recommend energy and operating savings by identifying and optimizing ventilation rates to match occupancy requirements.
Branded service offerings. This consists of branding your company's Design/Build offerings with a service name that matches the customer's or target market's perceived requirements.
For example, you title your presentation to the customer, The Guardian Installation Solution Program: Partnering to Make Your Goals a Reality. Guardian, in this case, represents one example of any name you choose to make your company stand out from the crowd.
Such a program would then include a selling process that differentiates your company through that branded name, and helps the customer see that your company will identify and provide the best solution (e.g., We will conduct the Guardian Installation Solution Survey to ensure the customer's personal, business, technical and timing objectives are met, and We will back up all of our work with unsurpassed written Guardian Installation Solution guarantees, warranties, and assurances).
A branded installation solution enables you to communicate a common theme about your delivery process in all your marketing and selling messages, and makes it easy for the customer to understand your unique solution proposition.
Positioning your company as a bestin-class contractor that guards the customer from risk and liabilities provides your company with a professional, quality image.
Remember, it's about differentiating yourself from the competition. A key branding word or phrase can make your company stand out in a potential customers mind.
The Best Strategy
The best plan is to implement all three of these strategies at the same time. Each strategy enables increasing levels of value creation.
Try any one, two, or all three depending on what your customer needs. Over time, you'll develop a real "feel" for the differentiation strategies that will allow you to land more Design/Build work. You'll be able to do better work for your customers, at a higher profit margin than your competitors. Isnt that what Design/Build is all about?
Wendell Bedell is president of Building Services Institute, Inc. He can be reached at 877/557-1611 or [email protected]. For information about Building Services Institutes residential and commercial business development education series, marketing methods, pricing software, MaxValue business development membership program, or PowerMax professional coaching service, call 800/240-2823, or visit www.bsig.net
Wendell Bedell will be a speaker at the 15th Design/Build Seminar, which will be held December 8-10 in Orlando, FL. The event will feature dozens of seminars, panel discussions, and business opportunity sessions for Design/Build contractors. For more information about the 2004 Design/Build Seminar, see page 65 or contact Kelley Whetsell at 330/558-0012.