THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, December 19, 1994 TAG: 9412160762
SECTION: BUSINESS WEEKLY PAGE: 8 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY MYLENE MANGALINDAN, BUSINESS WEEKLY STAFF
LENGTH: Long : 189 lines
Lou Haddad, the 6-foot-4, dark-haired president of Armada/Hoffler Construction Co., looked out at more than 100 employees, colleagues and guests at the firm's annual awards banquet in the Waterside Marriott Hotel.
``After so many years of being considered the upstart, we've finally gained a measure of respect,'' he said from a ballroom of the hotel his company built. They figured that we wouldn't go away.''
Indeed, Armada/Hoffler Construction, a young, $133 million Chesapeake firm, has grown into a regional general contractor and one of 200 top construction companies in the nation - all within 11 years and through a recession.
How did a tiny firm started in 1983 by businessman Daniel A. Hoffler become the largest Virginia-based commercial contractor and the 165th largest nationally in contract volume, ranked by the trade journal Engineering News Record?
The answer lies in the company's foresight. It diversified its client base, product type and geographic capabilities, and managed to rein in costs with subcontractors.
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Separating the construction firm from the larger Armada/Hoffler Development Co. in 1987 was one of the firm's defining moments, said Haddad, a congenial man whose background includes construction supervision.
The split allowed the building arm of the Armada/Hoffler empire to market itself to other clients. Before, the construction division worked solely for the development company.
``We decided, either through dumb luck, foresight or genius, that we had two problems,'' Haddad said. ``One, we were getting to such a size that we were nervous depending on one client. And we were getting so big, because the development company was so successful, that we were concerned with keeping that staff busy. So we decided to market ourselves to other people.''
By opening itself up to other customers, Armada/Hoffler established its client-driven philosophy: Pursue prospects aggressively. Address clients' concerns. Be accessible. Always err on the side of the customer.
The strategy paid off handsomely. More than 80 percent of the firm's work is negotiated, meaning that clients give Armada/Hoffler work instead of asking it to compete for contracts.
Clients like Chicago-based Homart Development Co., Home Quarters Warehouse Inc. of Virginia Beach and San Diego-based Price Club rewarded Armada/Hoffler with repeat contracts.
So convinced was Steve Fulford, chief operating officer of hotel developer Stormont Trice Corp., with the firm's commitment to customers and quality that he vowed to be a permanent customer.
``I've committed to using no other contractor,'' he said. ``They're a developer's contractor. A developer has tough budgets that they can't exceed or they won't make any money. They can achieve a difficult budget with value engineering.''
After two years of courting Atlanta-based Stormont, Haddad wooed the regional developer away from a national construction firm. Stormont awarded Armada/Hoffler the contract to build the Waterside Marriott Hotel in downtown Norfolk, although the Chesapeake contractor did not have any experience building a high-profile hotel of that size.
Armada/Hoffler not only kept the project on budget, its budget was $2 million lower than the next lowest contractor, Fulford said, and it opened the hotel two weeks earlier than planned.
Armada/Hoffler is completing its third project, an executive conference center at Emory University in Atlanta, for Stormont and joined it in a fourth project.
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In its zeal to please customers, however, Armada/Hoffler has gained a reputation in the industry for a tough and aggressive approach.
Its stance has soured some subcontractors from working with it. Controversy and anecdotes of manipulative practices like ``shopping prices'' - when general contractors ask for bids that cut below subcontractors' costs - follow the company.
But many subs say they endure the tough working conditions because Armada/Hoffler is too big to ignore. While lawsuits are not uncommon in the construction industry, Armada/Hoffler has drawn its share on its rise to the top among Virginia contractors, subcontractors say.
Its fiscal conservatism has translated into complaints of nonpayment and late payments, sometimes resulting in mechanic's lien filings in Chesapeake Circuit Court.
The liens, which are settled before litigation, range from demands for reimbursement from project backers to subcontractors seeking more money for work completed.
Several subcontractors, specialists like painters or steel fabricators who actually complete the work under Armada/Hoffler's supervision, have contended that Armada/Hoffler asked for additional work on projects but refused to pay for it unless written approval was submitted.
``Lou (Haddad) is a tough guy,'' said one subcontractor who disagreed with the construction company before but still works with it occasionally. ``If you don't cross your t's or dot your i's, you could lose. You need everything in writing.''
Although subs complain about the tactics, they've found no shame in Armada/Hoffler's offices. In fact, officials at the Chesapeake company say they are vigilantly monitoring costs.
``We're profit-oriented. We watch our bottom line very carefully. We try to provide better service than anyone else,'' said A. Russell Kirk, president of the holding company.
``Our philosophy has been, we've got to protect our owners,'' Kirk said. ``But if we're going to err, we're going to err on the side of our customers,'' mainly because Armada/Hoffler depends upon them for future work.
``We may be a little tougher on subs because of that,'' he admitted.
Because Armada/Hoffler came from a development background, it holds the line more steadfastly than most.
``They're willing to make tough decisions. They've been very conscious of working in our budget,'' said Major David Newby, administrative assistant in the Chesapeake sheriff's office, which oversaw the new jail annex.
What helped make the firm budget-minded was its dependence on the Armada/Hoffler development company.
``We were used to not being able to send change orders for additional money because there was no one to send them to, because you worked for yourself,'' Haddad said.
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Expansion into different product types comprises another aspect of the company's formula for success.
Instead of building just offices, Armada/Hoffler now constructs everything from retail stores and conference centers to jails, schools and hospitals.
``You really can't afford to specialize; otherwise you live and die with that sector of the market,'' Haddad said.
To enter other sectors of the market, the company relied on the quality of its previous work and pushed its sales skills into high gear. It aggressively sought out ``hard bid'' work, a practice where cities simply choose the lowest bidder from a pool of general contractors that apply for a contract.
``We had seen them - although they hadn't done schools - locally where their record was good,'' said C. Fred Bateman, superintendent of Chesapeake schools, which hired Armada/Hoffler to build Oscar Smith High School, a $20 million state-of-the-art facility.
Armada/Hoffler had to differentiate itself when it left the development company. To get work in the retail market with companies like Price Club, it launched a 90-day program to build retailers' ``big box'' superstores in half the allotted time usually needed. The program took off.
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In 1991, Armada Hoffler reviewed its past work and discovered it had limited itself to the Hampton Roads market, a situation Haddad described as precarious.
``So we decided we wanted to expand geographically,'' he said. `And the way we did that was approach people that we did business with and say, `We're interested in going other places with you, we think we can service you better than people who don't know your systems in those particular areas.' ''
``Fortunately a lot of those people gave us a shot and then it just became a way of life,'' Haddad said. ``We totally evolved into a service company and being just fanatical about making sure our customer is happy. We made it so they would be embarrassed to go elsewhere. And that's what you have to do when you have work handed you.''
Internal encouragement of initiative and productivity enabled the firm to be geographically flexible.
``We're not top-heavy,'' said Chris Sanders, executive vice president. ``Because of the talent level of our project managers, we don't need people looking over our shoulders.''
Armada/Hoffler maintains a tight structure, encouraging its people to act entrepreneurially and produce more in a shorter time.
``They can build a project quicker than anyone I work for,'' said Mark Whitehurst, president of Southeastern Mechanical Inc. ``The faster a project is done, the more money we tend to make because there's less overhead or people sitting around.''
Armada/Hoffler compensates employees based on production. Individual goals are tied to company goals.
During the awards ceremony, Haddad challenged employees to surprise their supervisors with their production and initiative.
Employees seem to enjoy working for the firm. Turnover is low. In Haddad's 10 years with the company, fewer than 10 people have left voluntarily, Haddad said.
Its philosophy of serving people - whether customers or its 110 employees - has driven the company's diversification strategy.
``There's always the talk about Armada/Hoffler, that they're going to fall. But they're still here,'' said Gene Gerloff, president of Gerloff Painting. MEMO: Related story on page 11. ILLUSTRATION: Color photo on cover by Lawrence Jackson, Staff
Lou Haddad, left, and Chris Sanders...
Color photo by Lawrence Jackson, Staff
Armada/Hoffler is working on Chesapeake's new city jail.
Color photos
Oscar Smith High School, Cheesapeake
Sumitomo Machinery Corp., North American Headquarters, Chesapeake
Hampton University Convocation Center, Hampton
Waterside Marriott Hotel, Norfolk
Color map
by CNB