After years of planning and restructuring, Clark Pacific, the West Sacramento based provider of prefabricated systems, has completed a phase of transformation as a one-stop shop for general design, engineering, architecture, field operations and manufacturing.
The shift reached a milestone in June when the company launched a new digital feature for its pre-engineered parking structures. Called PARC Configurator, this tool allows designers and owners to test and compare designs, adjust parameters (floor height, building length and width, etc.), receive feedback and get estimates in real time.
“The Configurator, because it’s loaded with our standards and defined by the market, all of the engineering and estimating and things that take weeks to compile, we can do in days,” says Aaron Alhady, general manager of the company’s Design-Build, Parking Division.
In general, more construction companies are taking this approach: shifting away from independent contractors to create internal divisions that handle every step of the process. This is called vertical integration. Companies choosing to vertically integrate see this all-in-one business approach as a solid strategy against the unstable nature of the construction industry. They say it keeps costs and scheduling competitive while standardizing the quality of service.
“In today’s construction markets, costs are going up, labor is hard to find, so many projects are going on and quality’s continuing to wane,” says Alhady, a construction veteran who joined Clark Pacific in June. “We’re headed in the exact opposite direction.”
You can’t just push a button and magically be vertically integrated.
It takes time to gather the right people with a high caliber of experience, knowledge and ability to work interdependently. It was the industry’s demand for manufactured products and specialized services that influenced Clark Pacific’s transformation, Alhady says. The company also partners with other consultants and key trades in the areas of civil engineering, mechanical, electrical and others to deliver on its one-stop-shop value. Creating its parking vertical was a three-year process that required assembling experts to focus on parking and leverage best practices, resulting in what Alhady calls a “pride of ownership.”
“If you’re a big-time general contractor and you lose the bid, you’re done. Whereas for us, we’ve got multiple bites at the apple.”
~ Ken Harms, vice president of business development, Kitchell Capital Expenditure Managers
Market demand was also the driving force for the evolution of Kitchell, the contractor for the renovation of Sacramento’s Memorial Auditorium and the Community Center Theater. Based in Phoenix, the 69-year-old company began in 1950 as a general contracting company. Clients kept requesting additional services, so the company expanded. Over time, by listening to its customers, Kitchell began offering engineering and architectural services, then construction services such as construction manager at risk and design-build project delivery methods, then facilities maintenance and management services.
“The benefit of our vertical integration is that we can be of service to our customers from start to finish on most any project,” says Ken Harms, vice president of business development for Sacramento-based Kitchell Capital Expenditure Managers, founded in 1978 to provide program and construction management services.
Strategy is important when vertically integrated firms bid for projects. On public-sector projects, there may be a conflict of interest to provide more than one service. For example, if a company is providing engineering services on a project, it probably won’t be allowed to be the builder as well.
“You could potentially conflict yourself out,” Harms says. “You have to understand the rules of the game for each opportunity.”
On the other hand, a construction company that has many divisions can multiply its chances to get involved.
“If you’re a big-time general contractor and you lose the bid, you’re done,” Harms says. “Whereas for us, we’ve got multiple bites at the apple.”
There is also the risk of the divisions working independently and not in the best interest of the overall business. The solution?
“Overcommunicate,” Alhady says, adding that Clark Pacific has a leadership group that uses business and market analytics and develops standardized processes to keep all the moving parts in sync.
At Rowe Fenestration, a material supplier based in Sacramento, there is a small concern that a big construction firm might poach its talent, but the company hasn’t lost any of its 12 workers, says Bob Sharman, principal at Rowe. In fact, he adds, since most companies don’t fabricate their own exterior envelope systems (e.g., glass windows) unless it’s a really big project, the company hasn’t really been affected by vertically integrating firms. Because of the comfort and flexibility of remote working, Sharman doesn’t expect anyone to leave for a larger firm.
“Everyone has a home office,” Sharman says. “They have the opportunity to take kids to school, go out to lunch. That’s a lifestyle that’s hard to trade in for a corporation. They’ve gotten offers, but, fortunately for us, they turn them down.”
This summer, DPR Construction is wrapping up its replacement job for Yosemite Hall (formerly Webster Hall), a four story, 101,000-square-foot student-housing project at UC Davis. Across the street from Yosemite Hall, an Emerson Hall replacement project, which is twice the size, is up next.
Student housing projects are usually very dense, with a lot of rooms, spaces, walls, doors and ceilings. A lot of this framing is typically done with wood, performed on-site with a subcontractor. But DPR Construction, based in Redwood City, proposed a new model. Its Digital Building Components division uses digital tools to prefabricate building elements and handle all engineering and design work. In winning the job, Digital Building Components created a building information model, a 3-D structure embedded with information about the actual structure. For instance, the model will have data such as the materials, thickness and finish for a wall.
This highly detailed building information model is downloaded directly to the fabrication machinery, which builds frames in modules rather than individual studs and pieces, says Nils Blomquist, DPR Construction’s business unit leader for Sacramento.
While the student housing project is a form of vertical integration, DPR hires design firms for many of its design-build projects and subcontractors for much of the construction trades. According to Blomquist, DPR doesn’t feel the need to fully integrate on all projects.
“We’re not so much focused on doing vertical integration for its own sake,” Blomquist says. “But we’re looking for ways to optimize delivery of projects so they’re consistent, fast, cost-effective and safe. That may lead to vertical integration, or it may not.”
Russell Nichols is a freelance writer who focuses on technology, culture and mental health. His work has appeared in The Wall Street Journal, The Boston Globe, Governing Magazine and Government Technology. On Twitter @russellnichols.