Mark Green: What areas of construction do your companies engage in? Please describe the entities in Murphy Construction Group, their size and their general operations.
G. Michael Murphy: We’ve got three groups. Scott & Murphy self-performs commercial concrete work, bridge and heavy concrete construction, grading and excavation, and industrial concrete construction. Scott, Murphy & Daniel is our building side of the operation, doing design/build, building construction, general contracting and construction management. Since 2012, we also have Hartz Contracting in Owensboro; they do building construction and concrete construction in Owensboro and surrounding counties.
MG: What is the current range of Murphy Construction Group projects from smallest to largest? How many projects do you have in progress?
MM: In terms of prime projects, we have 50 projects underway. We actually have a lot more than that, because we do a lot of small projects for our regular customers; over 60 percent of our business is existing customer base. And the range is from $100 to $25 million. If we have a customer call us this morning and they need a new doorknob put on the door of their office, within 24 hours we’ll have that doorknob replaced. Sometimes it can be no charge, if it’s a good customer and it’s a minute job that one man can do. We find with those customers that have been our customers for a long, long time, we’ve got to be able to take care of the little things as well as when they have the big opportunities come along.
MG: What is a typical project? What’s your sweet spot?
MM: $5 million is probably an average project for our 100-mile radius. Over the last couple of years our largest projects probably were a $25 million project and a $30 million project, but $5-10 million seems to be our average good project that we like to do.
MG: What were those two large projects?
MM: The latest one is associated with the Quiver Ventures LLC aluminum project here in Bowling Green (a $150 million automotive sheet metal production joint venture by Europe-based Constellium and Japan-based UACJ Corp). We’re working for Fluor Construction, one of the largest contractors in the world, performing the excavation and concrete work for that project. That project is still active; we’ve probably done in excess of $25 million on it.
Then ShopHQ, which is now EVINE, is a local shopping network warehouse. We put a 350,000-s.f. addition onto that existing facility. That project was over $15 million.
A lot of our building construction projects are automotive-related.
MG: Characterize the status and activity level of the construction sector today in comparison to the past five years and historically. Is it at a high point?
MM: We are at a high point. In 2009 everybody took a dip, and we did also. Over the years, we have been very fortunate, mostly because of keeping existing customers. We have done better than average through time. We’ve really not ever had any bad years, but we’ve had some slim years. With our workforce, people who have been with us on average 20 years, we try to maintain their jobs and not have any layoffs; we may overstaff a job to make sure those employees continue to work. That will contribute to a lower-profit year, but in the long run it pays off for us in years like this, where everybody’s at their max and doing their thing and doing a great job.
Before 2009 we were pretty constant around $60 million a year in revenues. We dipped in 2009, just for that one year, to about $50 million, and then we steadily grew back. Then in 2013 a spike started; our revenues grew about 20 to 25 percent, and it did that for another three years. This year, we had already exceeded every previous year’s revenues in August. The projected revenues for this year will probably be about $130 million.
MG: What is the latest forecast for construction activity over the next five years in Kentucky?
MM: We’ve really been watching that, because we’ve stepped up to handle the volumes that we’re dealing with now, and we want to be cautious how we do that. We see it continuing to grow, and that’s based on the automotive industry. State and national elections will have a lot to do with how that continues. Also, we keep hearing about interest rates starting to climb and don’t know what the effects of that are going to be on us and on the automobile industry and everyone in business. We’re cautiously optimistic that it is going to steadily grow.
MG: To what degree is construction service treated today as a commodity bought at the lowest price?
MM: Price is key in what we call the hard-bid market – any type of government entity procurement like a state highway or state facilities. If you have a bond and you’re the low bidder, you get the job. It’s always been that way.
In private markets, owners and customers value quality, ability, knowledge and performance – along with price, of course. But over the past 20 years, for everybody, price has really tightened; that is a big factor in everyone’s business. In the private sector, there’s a lot more consideration than just low price. In the government sector, if you are financially stable, can furnish a performance and payment bond, and you’re the low bidder, you get the job. It doesn’t really matter what the history of your quality and timing is on a project.
A lot of times it does feel like that’s where maybe we got knocked out of an opportunity. The owner and the low bidder may later wish they had not had that project, but that’s just the nature of that animal.
MG: Basic construction inputs such as wood, stone, steel and craftsmanship remain consistent, but tools and technology are changing dramatically. What new tools are affecting your operations most?
MM: It’s getting harder to find good, skilled help in this industry, so the more you can lean towards technology and automation, you can reduce labor but still do the same amount of revenues. Probably the biggest recent change in our industry is global positioning systems. A lot of our equipment operates off of GPS now: the machine grades a site automatically. That means less field engineering and surveying, reducing labor. The operators do not necessarily have to be as skilled in operating that piece of equipment because of the automation. They use GPS now in all types of equipment: excavating, grading, and now even machines laying the curb and gutter and sidewalks and things like that. It’s really a neat new tool for us.
Other equipment continues to modernize, and become more costly. A backhoe 20 years ago was $25,000; today it’s $65,000. We have nearly 400 vehicles and pieces of heavy equipment. It takes a lot longer to pay for them, but they do more and that’s good.
Another technology that saves time is smart phones and computers. If a field superintendent has a question, he can reach his project manager in a minute. They can send plans over their computer such as critical grade and alignment information. What can take place in a day’s time used to take weeks sometimes.
I’ve seen road materials improve. Concrete is still concrete, asphalt is still asphalt, but there are additives and different types of mixes and materials that go into each of those, and they make them better, longer-lasting, more durable. That’s a very important thing
MG: Do you prefer to own or to lease equipment?
MM: We’ve leased some in the past, but we think buying equipment is the best way to go. If you take care of it, it lasts longer. We try to make sure equipment that we use the most is the newest, so it has the least number of breakdowns. Where we only occasionally use something, as newer equipment gets old we’ll move it down to what we call second-tier use. When we buy something, it’s because we need it long term. If it’s a short-term need, we’ll rent or lease. But if we see growth is there, we go ahead and buy.
MG: How time-, labor- and cost-intensive is the bidding process today?
MM: We have 24 project managers in our various divisions, and I would say that 40 percent of their time is invested in doing takeoffs and bidding projects. We are set up where the person that is going to manage the job estimates the job, and that way he is solely responsible for that entire project. If he’s successful with the bid, he finishes the project all the way to the end.
MG: What are the most significant cost factors for construction companies today?
MM: By far, health insurance for our employees: 12 percent of our overhead is our health insurance, the portion that we pay for our employees. We probably pay more than our competition, but we think that’s a big factor in having employees stay with the company. It has gone up every year for the last 10 to 15 years, in recent years significantly. I can remember back over 20 years ago it was only 4 percent of overhead. The great thing is that fuel’s gone down, so that has really been a help to offset that health insurance cost.
MG: How many employees have you hired the past five years, and are you able to find those with the skills you need?
MM: We have hired a net of about 75 employees. We have folks retire, and 75 would be the number of employees that we’ve hired, and that has been over the last two to three years rather than five years. The skill level today is not quite what it used to be. The difference between the Baby Boom generation and Generation X is that the baby boomers are probably a little more professional in what they do. This generation is probably more productive, but the challenge is finding those people. There aren’t as many people who want to work in construction today as there used to be.
MG: Has the skill set of today’s construction worker changed much from that of his predecessors of 25 or 35 years ago?
MM: Minimally. The more recent generation is more interested in their personal lives and doing other things, as opposed to the old professionals whose life was what they did and who took a lot of pride in what they did. Those people are still out there; it’s just finding them and developing them. This is an age-old problem.
MG: You are a fourth-generation contractor-engineer. What is your background and professional training, and how did you enter the field?
MM: My dad owned a local ready-mixed concrete operation and a small commercial concrete construction company. He passed away before I started college, and so I worked for engineering firms and small contractors while I was going to college. I was able to get a lot of hands-on experience through what I’d learned through the family business and during college. I went to Western Kentucky University and got a bachelor’s degree in civil engineering technology. Since then, I’ve always attended any technical or communication courses that I could. Along with the experience that I’ve achieved over the years, that has been my training.
MG: Continuing education has been an ongoing element in your operation?
MM: Absolutely. There are several of our managers who are members of the Associated Builders and Contractors, and then FMI, Field Management Institute, is another great company that has educational classes that you can go to regularly. So myself and my management staff stay schooled up on things like that.
MG: You have a long professional relationship with Jim “Scotty” Scott, founder of Scotty’s Contracting and Stone. You were an intern, an employee, division manager, co-owner and full owner of the concrete division. What was the impact and influence of “Scotty” on your career?
MM: I met him in college as an inspector for an engineering company. He was just starting his company. He was a very hard worker, very ingenious, very positive-minded – the kind of guy you wanted to be around. As I was coming out of college, he invited me to join his company. He offered all kinds of opportunities while he was growing his company. He was about hard work and perseverance, and that’s what you had to do to work for him because that’s the kind of guy he was. He was really a super mentor in this industry: his constant positive attitude, always looking for the good in everything, in people, building relationships, doing the right thing. He was a great person to watch and learn what you needed to do in this business.
MG: What is the status of the construction sector today?
MM: Looking back over my 40 years, and especially because we’re pulling out of the 2009 slump, it is tougher to start a new construction business today. There’s a lot of liability, a lot of initial costs. Banking has changed so much; it’s not as flexible as it used to be. There’s a plentiful amount of contractors, so it’s not like there is extra work out there for new companies to get in and compete. But they do.
MG: What’s the trend in company numbers and size?
MM: It just seems it’s in rotation. There will be companies that cannot stay in business because of their business practices or bidding procedures, but new ones are always coming in to replace them. There are not as many medium-sized companies. There are larger companies buying smaller companies and forming a bigger entity.
MG: Construction companies conduct large and expensive operations, sometime over a period of a year or two, before delivering a product for which they are compensated. What financial structures and relationships are necessary to be able to conduct business?
MM: We have to front-end the cost of a lot of the construction. And the larger the project, the more dollars you’re talking about. In our companies, we’ve put our profits back into our company. We do not take a lot of money out of our company; we invest in ourselves. And then we have good lines of credit with financial institutions that we have built a long-term relationship with. They’re part of our team; they understand how it operates, and they’re flexible.
MG: So finding a banking partner who understands your business is important?
MM: Very important. You get into situations on the larger projects, and big dollars in the middle do not get collected until the end – and because of retainages; or you’re doing a big volume of monthly work in the pay periods. We may pay for materials long before we get paid.
We try to take advantage of any discounts for early payment. And making sure our work is right and our paperwork is right reduces the time for turning an invoice in and getting paid.
MG: You have been active in regional economic development and work regularly in Tennessee. Are there public policy changes you recommend to make the Kentucky market more competitive in attracting and growing business?
MM: I’ve got to agree with other business folks who are for the “right to work” (legislation) in Kentucky. I don’t think it’s such a big deal for all the controversy around it. But it’s important to new business, and if it’s important to them it should be important to us.
Kentucky has done a good job on incentives for business and industry. In my career, the biggest example was Martha Layne Collins as governor, with Toyota. She was criticized initially, but that has been a wonderful thing for our state. Most governors have done a good job at economic development. Gov. Steve Beshear has done a great job; it’s evident in our building construction industry with all the industrial growth going on right now. The majority of that is expansions. I hope that continues to be a priority.