THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, October 3, 1994 TAG: 9410030237
SECTION: BUSINESS WEEKLY PAGE: 12 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY CHRISTOPHER DINSMORE, BUSINESS WEEKLY STAFF
LENGTH: Long : 207 lines
Federal contracts to Hampton Roads companies last year doubled to $2.1 billion, according to an analysis of 1993 federal contracts for Hampton Roads Business Weekly.
Although defense budgets are falling, the surge in federal contracts helped cushion Hampton Roads, where 590,400 worked for the region's companies a year ago, down slightly from 591,100 the year before.
While the outlook for defense contractors nationwide appears grim, Hampton Roads has ridden a construction boom as the military closed bases elsewhere and moved operations to its stronghold in Tidewater.
``This downsizing thing is going to be a boon for Hampton Roads,'' said Brian Geary, president of Blueridge General Inc., a Norfolk-based construction firm. ``Even though the budget's getting smaller, Norfolk's a good place to be.''
The heavy spending may be bound to let up, but for now there's a shortage of skilled construction workers.
Meanwhile, the shrinking Navy fleet means less work for the region's ship repairers. Adding to the shipyards' troubles, Navy budget cutters are steering an increasing stream of ship repair contracts to so-called ``down-river'' firms. These companies offer less expensive repairs because they don't operate the large riverfront facilities that shipyards do.
The analysis of the 1993 federal contracts, which became available for public review this summer, told an old story.
Slightly more than half the federal dollars, or $1.08 billion, spent in the federal fiscal year ended Sept. 30, 1993, went to the region's shipyards and the other ship repair companies.
Overall, $2.1 billion in new contracts were won by companies either based in or with offices in Hampton Roads. That was an improvement over the $1.07 billion in 1992, but it's difficult to gauge the exact impact.
The annual figures can be dramatically distorted by the huge multiyear contracts for major shipbuilding, overhaul and conversion won by Newport News Shipbuilding.
For example, in 1988, companies in the region won more than $6 billion in contracts, but more than half of that went to the giant shipyard. It won $3.4 billion in contracts to build the aircraft carriers John C. Stennis and United States that year.
There's no doubt, though, that federal contracting, defense contracting in particular, is a critical element of the region's economy.
Nearly 800 companies throughout the region engage in federal contracting.
The shipyards alone constitute 4 percent of the region's employment, said John Whaley, director of economic services for the Hampton Roads Planning District Commission. If you add in other federal contractors, the direct impact on employment may be closer to 6 percent.
Because they tend to be high-paying, these jobs have a strong multiplier effect, Whaley said. The demand for goods and services created by these high-wage workers creates other jobs in the community.
Between 12 percent and 14 percent of all jobs in the region are directly or indirectly associated with federal contracting, he estimated.
After the Navy, the second-largest contracting agency - a distant second - was the National Aeronautics and Space Administration, which is not surprising given the space agency's presence at Langley Air Force Base in Hampton. NASA dished out 6.7 percent of the region's contracts in the 1993 federal fiscal year. The Army was third.
After shipbuilding and repair, construction was the second-largest service provided by area companies. About 15 percent of the contracts let went to companies for construction and building maintenance of all types from road building to installing heating and air conditioning. Engineering services and computer-related services were the third- and fourth-largest services provided by local companies.
Construction companies throughout the region had one of their best federal contracting years last year, and all say it's a pale comparison to the federal fiscal year that just ended.
``We've done better this year than I've ever done before,'' said Blueridge's Geary.
Blueridge, which employs more than 100, won $13.0 million worth of contracts last year, up 31.2 percent from the 1992 federal fiscal year.
Among this year's awards is a $5.2 million contract from the General Services Administration to replace the red brick on the Federal Building in downtown Norfolk with precast concrete panels, Geary said. And that's just one of several new jobs. ``We've quit bidding. We've picked up all the work we can do,'' he said.
The spate of work means skilled employees are hard to come by, said Robert Chianelli, president of CBC Enterprises Inc., a Norfolk-based construction firm.
``We employ in excess of 300,'' he said. ``Finding good, qualified mechanics in all types of trades. . . is difficult these days because all the good ones are employed.''
CBC, which won $9.5 million in contracts last year, is well ahead of that this year, Chianelli said. Among its federal jobs this year is a $4 million modernization of the commissary at the Army's Fort Lee near Petersburg and a $3 million renovation of bachelor's officers quarters at Little Creek Naval Amphibious Base.
Both Geary and Chianelli attribute the construction boom to the military's adjustment to the post-Cold War world.
``A lot of what's driving it is the base realignment and military restructuring and the growing strategic importance of this area,'' Chianelli said.
Hampton Roads' boom has attracted outside contractors to the region. Harkins Builders Inc., of Silver Springs, Md., won a $37.5 million contract to design and build 388 units of junior enlisted housing and other improvements at the Navy's Ben Moreell Family Housing in Norfolk.
Dallas-based Centex Bateson Construction Co. Inc. won the biggest plum, a $153.8 million project to build a new hospital to replace Portsmouth Naval Hospital.
That contract is the reason Newport News-based W.M. Jordan Co. Inc., for years one of the region's largest construction companies, did not land many federal contracts in 1993. Indeed, with just $4.2 million in federal contracts last year, W.M. Jordan was not even among the region's 50 biggest contractors.
``We spent about six months on the bid for Portsmouth Naval Hospital, and we didn't get it,'' said John R. Lawson, the firm's president.
But W.M. Jordan has bounced back. Among its new contracts this year are two with a combined value of $23 million to build new bachelor's enlisted quarters at Norfolk Naval Air Station and Norfolk Naval Shipyard in Portsmouth.
If only the region's shipyards were so lucky. As the Navy has reduced the fleet, Navy repair work has fallen off, leaving the shipyards scrambling for work.
The fallout is inevitable. Newport News Shipbuilding said in April that its payroll will fall from 21,000 to between 14,000 and 15,000 by late 1996. Norshipco is scrambling for Navy and commercial repair work and is exploring new ventures such as prison barge construction to keep its nearly 2,000 employees working.
Metro Machine Corp. is trying to maintain its Navy repair work and develop a double-hull tanker construction project.
One shipyard, Jonathan Corp., sought Chapter 11 bankruptcy protection from its creditors while it reorganizes its debts. New contracts won by Jonathan fell by nearly half to $24.6 million in the 1993 federal fiscal year from $44.8 million the previous year.
Other ship repair companies are doing just fine. Earl Industries Inc. chalked up 54 percent growth in new contracts in the 1993 federal fiscal year, to $23.4 million from $15.2 million the year before. Dreadnought Marine Inc.'s new contracts nearly quadrupled to $18.1 million in the 1993 federal fiscal year from $4.8 million the year before.
Both Earl Industries and Dreadnought Marine are down-river contractors that work wherever the client wants them - at a Navy pier or in another shipyard.
The growth of such ship repairers can be traced to the Navy's desire to reduce its overall costs and budget constraints.
``The actual bill that they see at the end of a job is less if they use a down-river,'' said Jerrold Miller, president of Earl, which employs about 200.
That's because Earl doesn't have to pay for electricity and other services at the pier where it does its work, Miller said. It also does not have to pay the mortgage on an expensive riverfront facility.
``I'm not saying it's a cheaper way to go,'' he added. ``Just that the bill the purchasing guy pays me at the end of the job is lower.''
Some shipyards resent the Navy for giving so much work to the down-river companies. They've invested tens of millions of dollars in their riverfront physical plants. But the Navy, because of budget constraints, is now turning to less expensive outfits for work that the shipyards say should go to them. The Navy should support them, they argue, so their facilities will be there in times of greater need.
``The down-river companies, with minimal investment, are taking the business due to the shortsightedness of the Navy trying to save a buck,'' said Doug Forrest, vice president of Colonna's Shipyard Inc., an Elizabeth River yard that he said would cost $100 million to replace.
``The Navy has chosen a very myopic and shortsighted approach to repair, with indifference to the traditional requirements to have a strong ship repair base in order to service its fleet,'' Forrest said.
But Miller disagrees. ``I don't know of any repair job that a shipyard can do that we can't do,'' he said. ``We don't have a dry dock, but if the Navy puts a ship in a dry dock, we've got the guys who can do the work.'' MEMO: Lise Olsen, computer-assisted reporting specialist at The
Virginian-Pilot and The Ledger-Star, contributed to this report.
[For related stories, see page 13 of the Business Weekly for this
date.]
ILLUSTRATION: A BOOM IN FEDERAL CONTRACTS
On the cover: Photos by D. Kevin Elliott (top), Paul Aiken (middle)
and L. Todd Spencer (bottom)
L. TODD SPENCER
John Crowley, vice president of Earl Industries Inc., in a company
van driven to job sites. Earl is one of the mobile "down-river"
contractors that can work whenever their client wants them.
"I don't know of any repair job that a shipyard can do that we can't
do," says Jerrold Miller, president of Earl Industries.
TOP CONTRACTING AGENCIES IN HAMPTON ROADS
STAFF
[For a copy of the chart, see microfilm for this date.]
TOP 50 LOCALLY BASED CONTRACTORS
STAFF
[For a copy of the chart, see microfilm for this date.]
SOURCE: This report is derived from information gathered by the
Federal Procurement Data Center, a federal agency that tracks
federal contract awards, modifications cancellations and other
activities. The national database includes only primary contractors
and lists orders over $25,000.
KEYWORDS: MILITARY DOWNSIZING FEDERAL CONTRACTS by CNB