Bridge to Survival

REVIEW SUMMARY
Company. Prince
Contracting LLC
Industry. Construction
Key. Fearless shift to meet market demands.

You can hardly drive around the Tampa Bay region without hitting road construction brought to you by Prince Contracting.

While a pain for drivers, it is a life-source for the Tampa-based firm. In fact maybe most major road-construction and bridge-building projects in the area are done by Prince. And the company is now doing them throughout Florida, with major projects in Orlando, Southeast Florida and even Macon, Ga.

But it wasn't always so.

Until the onset of the recession and collapse in real estate, Prince Contracting was almost exclusively focused on private-sector residential work. From its inception in 1983 by Chester Prince -- who has retired and now lives in Palmetto — until about 2007, Prince built 55 golf courses and did large-site development work for major developers such as Pulte Homes, D.R. Horton and K.B. Homes.

The company did everything to prepare a site for development: clearing, earth-moving, sanitary sewer, drainage, roadwork and so on. But there was a growing sense during the real estate bubble that the firm needed to diversify.

However, it was not until the burst that the need became urgent.

“We recognized what was happening in the private sector and we started actively pursuing the public sector,” says John Watson, president of Prince. “We wanted to get a little better diversified.”

Like everyone in construction, it was a rough road. But the timing was particularly challenging for Watson. After being hired out of Florida State University as an entry-level engineer in 1993, Watson was named president Sept. 5, 2008. Ten days later, Lehman Brothers filed for bankruptcy, the financial markets froze and suddenly no capital was available for construction.

“Congratulations, you're in charge, and then we face this,” Watson says with a wry smile, reflecting on those events.

At about the same time, Portugal-based Soares Da Costa (SDC) bought Prince in 2008. The international construction conglomerate allows for autonomy and liked the direction Watson was taking the company. Everything remained headquartered in Tampa.

As vice president, Watson had been deeply involved in the discussions for diversifying. He put those into high gear and created a three-pronged business plan to remaking Prince. The plan involved becoming a design-build contractor, expanding geographically and getting into bridge-building.

It was a lot of work and fair amount of risk. But it has paid off for Prince. In 2007, it won its first public-sector projects and since then the company profile has flipped completely.

“Since 2008, every single project we have won has been a public works project,” he says. “Every single one.”

The shift is showing in the firm's revenues. Prince posted $159 million in revenues last year, a 49% increase from 2010 and more than double from 2009 — enough to move the company into first place in the Business Review's Top 50 Contractors list (See Special Sections tab).

Business plan: work hard
Design-build is a sort of one-contractor-does-all arrangement where a single company is responsible for designing and constructing a project, from beginning to end, partnering with architects, engineers and everyone else. It has been around for a long time in the vertical construction industry, but is somewhat newer in the horizontal industry, where Prince works.

Recently, local governments began looking for more design-build work to save money and transfer risks to one company.

Prince saw it as an opportunity for potentially better profit margins, which had all but disappeared during the recession, and perhaps an area where it would face less competition. But it was a steep climb.

“We were not a design-build contractor and we've worked really hard to become a design-build contractor. It's not so easy,” Watson says. “We had to spend a lot of effort to break into the marketplace.”

But success is building as the company has won three design-build contracts. All three are in the Orlando area for the Florida Department of Transportation. Two are finishing up and the firm just won the third.

Prince also has expanded geographically.

“This was a pretty bold, aggressive move considering the market conditions we were facing,” Watson says. “But we knew we were going to be limited in the public sector.”
So he decided the company needed to bid new work in other markets. It diminished the success rate of getting jobs — not surprisingly -- but was necessary and has borne fruit.

The company had been doing work throughout much of Florida before the crash, although not much in Southeast Florida. But it now has a three-year Interstate 595 project in conjunction with a Spanish company to build reversible express lanes along 4.3 miles beginning at the I-595/I-75 interchange, along with reconstructing State Road 84.

Plus it has two I-75 jobs in Macon, Ga., including a 3.65-mile widening of I-75 and 7.2 miles of new four-lane highway in the Macon area from the Georgia DOT.

Prince recently opened an office in Dallas as part of its geographic expansion. “It's a huge market. They spend over $1 billion a year in infrastructure,” he says of the Dallas-Fort Worth metroplex.

Bridge to profits
“Everybody thought we were crazy to start building bridges,” Watson says.

And the company's entry was unconventional. It did not buy a small bridge-building company. The firm hired some engineering expertise and wanted to use a concrete sub-contractor who had done some bridge work and other work for Prince. But the contractor had cash-flow problems and wanted to do just the labor.

Watson was not comfortable with that because it put all the liability on Prince with the sub not being bonded.

“So I said, why don't you and your guys come work for me?” It surprised the sub, but it worked. “We cut a deal and hired the guy and hired his crews.”

The first bridge job was reconstructing a small span on U.S. 301 in Riverview over Little Bullfrog Creek. After that, Watson hired an executive with bridge-building experience. The largest bridge job is the 403-foot, curved structural steel bridge under way for the New Tampa Boulevard extension of I-75 in Hillsborough County.

The decision to expand into bridge-building had two objectives. Prince was looking for a competitive edge and the company saw a lot of bridges that needed to be built or re-built. More work, less competition.

“They help us be more competitive on projects that had both roadway and bridge work so we didn't have to rely on subcontractors to be competitive,” Watson says. “Now we have more than a dozen bridges under construction. It's been hugely successful for us.”

A final component that has been added to the Prince business plan is using public-private partnerships (now commonly known as P3.) This is the area in which being bought by SDC is helpful. As a top 100 international construction firm, SDC has the deep pockets — and the connections — to make P3 a possible option.

The way it works is that private entities will provide funding for a public project, and then utilize several different options for being paid back, including tolls or other financing tools. The I-595 project is being done via the P3 structure.

Texas is a leader in the public-private partnership industry with several projects, which is another reason Watson wanted a presence in that state.

Going forward
Prince has 482 employees and expects to surpass 500 during 2012.

And while Prince revenues are soaring, profits are not. The company does not release its profits, but Watson does not deny what everyone in the industry knows -- margins are tight.

“The reality is that profit margins are under enormous pressure from the changes in the market place,” he says. “Although we are growing . . . it remains highly competitive.”
And the margins can change from project to project.

“We've have some projects that have been very successful, and we've had a couple other projects that have struggled,” he says. “We're not making the money we were before even though we were a smaller contractor, and that's a fact.”

Watson is hoping Congress will pass the federal transportation bill. The divided Congress has been approving patchwork, short-term extensions for the past few years. He thinks that an actual transportation bill with more long-term plans and funding would add stability to his industry.

However, Watson -- whose favorite books is “Atlas Shrugged,” by Ayn Rand —also knows you don't bet your business on Congress doing the right thing.

A lot of what Prince is doing is aligning itself for the future. Watson sees signs of a turnaround, but isn't willing to go too far in predicting anything. He just wants his company to be ready.

“We do believe we are in the right position to take advantage of the eventual economic turnaround,” he says.

That position is in the infrastructure segment.

The American Society of Civil Engineers' most recent report card on the nation's infrastructure gave America a D -- that is, the country is deeply behind on building roads, bridges, airports, drinking water supplies, schools, solid waste, rails, wastewater and so on.

“There's a huge infrastructure need...this is important to our industry,” he says.

The ASCE report concludes there is a five-year shortfall of $2.2 trillion and that $225 billion in annual investment above the normal amount is needed to put the infrastructure in “fair condition.”

For Florida, 18% of the state's bridges are structurally deficient or obsolete — a perfect demand-supply fit for Prince — while 13% of its roads are poor or mediocre and 47% of its urban highways are considered congested, according to ASCE.

Watson says this supports the P3 model Prince is pursuing. Investments need to be made, and if governments don't have the money and the bonding capacity, then involving the private sector in financing and building is the obvious direction.

Two of the most recent projects the company won included roads and bridges and one was a design-build in Orlando. And Prince has bid several large projects in the Dallas and Houston markets that include roads, bridges, design-build and involve the public-private partnership. None would have been available to Prince without the hard and sharp changes made five years ago.

Watson isn't going out on any prediction limbs, but he is confident that Prince is settled in a good position for many years to come -- if everyone keeps working hard and adjusting to the conditions.