by Chuck Lewis and Robert Wilken
Let's cut right to the chase and get to the bottom line: the building automation systems (BAS) and controls business can be a full-time business or a service offered in conjunction with the other services you offer. For TDIndustries, the latter is the case.
We don't view the controls business as a standalone initiative. Our BAS and controls business fits nicely in our strategic plan as a feeder and support mechanism for our other offerings. It isn't a driver -- it's a value add that supports our core businesses.
How does that work? First, TDIndustries is an all commercial construction and service business. We do HVAC, plumbing, security/access control, fire/safety, building automation controls, electrical, and refrigeration. Almost 60 years old this year, TDIndustries produces $240 million in revenue with 1,500 employees.
The company provides a full spectrum of services to customers over time. We define this as a life cycle -- the time we take care of a customer or a facility. Our goal is to provide a lifetime of services to a facility or a customer -- no matter the delivery method or market segment.
To take that one step further, we want to sustain ourselves with that customer by providing whatever they need.
With that as our goal, our customers needed us to be in the BAS business. In the early 1990s we made it part of our strategic plan, with five reasons for getting into the BAS business:
- We wished to grow the service business. We found we were losing customers to controls subcontractors. Now we keep them and get extra work as a result.
- We needed more flexibility, knowledge, and cost control on Design/ Build projects.
- We desired the ability to better evaluate and manage control subcontractors. We sub-contract more than we do ourselves. Being in the business, we know more about pricing, expertise, etc., and can better judge those we hire.
- A seperate BAS group was necessary if we wanted to do performance or energy contracting. If we couldn't control the customer's control system, we couldn't provide them the services they wanted or protect our own investments.
- To be able to create new careers through building automation. BAS offers a cleaner, less physically demanding environment, and provides access to higher level technology for our employees.
Making it Happen
After developing a strategic plan and understanding why we wanted and needed an in-house BAS business, TDI hired four key people:
- A managing director
- A project manager/ software programmer
- An installer
- A start-up and commissioning technician (who was already an employee).
We then went through a three-month process to select a manufacturer/partner. Our initial list of potential partners contained 30 manufacturers. We narrowed that down to seven or eight companies that we felt would work. In the end, we chose Controls Systems International (CSI) and became a value-added reseller for them.
And then we needed work.
The first step toward finding work in the BAS business was to begin calling in favors from good customers for opportunities to do controls work for them. The key here is to ask. A number of our customers gave us that opportunity and that's how our controls business got started.
Then we began looking at opportunities from internal leads -- from our service, construction, and retrofit/renovation businesses.
To build the BAS business, we HAD to do superior work. TDIndustries' BAS group adopted a policy of having no bad jobs. The goal is to be slightly profitable -- just above breakeven over the entire book of annual business (automation, installation, construction).
Control companies can be notorious for sticking it to customers on the investment and support side. From the beginning we knew that other people could do work as well, if not better, than us. We want customers to stay with us because they love us, they trust us, because we take care of them.
Our initial vendor, CSI, had 25% marketshare in the Dallas-Ft. Worth area and maintains a branch office there. This didn't matter because TDIndustries wasn't and isn't interested in going after that market. We didn't go after their customers, we didn't look to compete with them.
Our strategy was to leverage our other businesses and provide a controls option to support them. From the beginning we adopted a consistent and honest posture with outside controls companies. We made sure they understood that we wouldn't compete against them. If we were taking a price from them on a job, we wouldn't take a price from ourselves. And we have not done that.
Everything that TDIndustries does, including controls work, is done under the TDIndustries name. Sometimes it might be a different address, but never a different name.
Regarding BAS, we have positioned ourselves as an integrator because we felt that's what our customers wanted -- they want us to be savvy, to be able to integrate all these diverse systems (lighting control, power monitoring, energy management, fire and safety, and so on).
Because our strategic plan is to use the BAS business to support our other market intiatives, we maintain no dedicated outside salesforce for BAS. Once again, we're not working to grow our marketshare.
However, we made an early commitment to continuously re-evaluate the technology and the vendor we partner with. We looked at other options just to make sure we know what is on the horizone and can plan accordingly. We're in this for the long term and don't want any surprises down the road.
Re-evaluating our vendor relationships and the technology has helped us to be sure that we have the right solutions for our customers and our employees. Originally that evaluation was every three years. Now it's every three months. That's how the BAS industry works.
Today, we have dealership agreements with a number of different controls systems vendors.
How do we deal with the overhead and cost of training our technicians on so many systems? First, we carry two primary controls product lines and we focus our efforts and training resources on those systems. We train technicians on the other product lines based on customer needs and situations. It's not our desire to maintain every system out there. From an open protocol standpoint, we stay on the Lonworks side of the world. BacNet is a legitmate protocol and we work with it and around it, but focus on Lon.
Running the Business
We recover capital investments, estimating, and business development costs to job costs. Eighty percent of our overhead is captured because it's internal. So we know from day one and job one how the business is running.
Each project is set up separately in job cost, even if it's part of a larger mechanical or service project. This way, we can track projects individually and know how we're doing against budget.
Our BAS gross margins range from zero to 30%. That's what we sell them at. We try not to go over 30%. That's after roughly 12% recovery cost from overhead. From a manpower standpoint, TDIndustries subcontracts much of the controls wiring work. Even though the company has an electrical contracting group, BAS requires specialty electrical wiring. That's why we subcontract to controls contractors who specialize in it.
We can be more competitive and control costs better using a sub who specializes in controls. This isn't ALWAYs the case, but is how we mostly do things.
And Finally ...
If you're considering getting into the business, selection of the controls manufacturer you plan to align with is a most important decision. When we were first looking at this, we didn't want to work with a manufacturer whose product helped them compete against us. We wanted a partner, not someone looking to control us.
Be careful who you hire. Your people have to be trustworthy. If you can't find someone with good character, you'll have problems.
From a technology perspective, you have to be on the bleeding edge. Everything must be new, all the time. It's a reality because the controls systems themselves use bleeding edge software and you want to be able to offer your customers the very latest in controls system technology.
For TDIndustries, the BAS business is one that ties in nicely with all our other product offerings and helps to make TDIndustries the success it is today.
Chuck Lewis is the building automation systems manager and Robert Wilken is the managing director off the BAS group of TDIndustries, Dallas TX. TDIndustries, a Design/Build mechanical construction and service firm, is a past winner of Contracting Business' Contractor of the Year Award.