Articles and News

National Brokers vs. Self-Performing Contractors

Greg Stine, Marketing Director, Reliant Commercial Construction
03/03/2010

Walking the floor at trade events like the upcoming PRSM2010! conference, it's interesting to talk to service providers and look at booth graphics and literature. There are clearly two distinct business models being offered to Retailers:

  • National Brokers
  • Self-Performing Contractors

In the jumble of lights, fancy graphics, and pretty people, it becomes easy to see these different models vying for the attention of visiting Retailers:

"HVAC, Electrical, Lighting, Sign Maintenance, General Repairs, Retail Construction… we support over 500 employee and vendor associates across the country, specializes in nationwide facility maintenance, high-volume rollouts, resets, retrofits, new stores, store-in-store and tenant build-outs…" – I read "broker".

"HVAC Service with our own technicians in AL, AR, AZ, CA, CO, CT, DE, FL, GA, IL, IN, KY, LA, MD, MI, MS, NC, NJ, NM, NV, NY City & Long Island, OH, OK, PA, PR, SC, TN,, TX, VA, WV & WY…" – I read "self-performing contractor", but then: "…All other areas are serviced by our Service Alliance Partners…" – Oops, broker.

I'm currently working with Reliant Commercial Construction, a self-performing handy-man service provider that covers the Southeast US. A few years back, I worked for a national broker that manages all the services required to perform rollouts and continuous renewal programs for mass retailers - regardless of project size.

Looking from the outside, these businesses may look very similar. But from the inside, the two business models couldn't be more different.

Clearly, both business models have their merits, otherwise Retailers would choose one over the other and render it extinct. Speaking with Retailers, it's one of the topics I find most interesting about the facilities management industry. Here is my take on strengths and weaknesses of both models:

Benefit or Characteristic National Brokers Self-Performing Contractors
Core Competency The leaders (owners, founders, etc.) of national brokers tend to come from the sales and project management side of the business. The best tend to be very good at handling clients and managing vendors. They often think big and have aggressive business models. The leaders of self-performers tend to come from the trade (work) side of the business. They tend to be very good at getting the work done. They often have conservative business models (focusing on the work) and grow incrementally.
Cost The perception by Retailers is often that brokers are more expensive, because of the extra layer of mark-up between the Retailer and the actual worker. Brokers try to control costs by hiring low-overhead subcontractors at lower rates. They do have fewer levels of mark-up and can be more flexible with pricing. The more stable self-performers are actually often comparable in cost to brokers because they are maintaining a stable employee base, paying well and providing benefits to ensure a reliable workforce.
Project Management This is the core strength of their entire business. Good brokers reduce the amount of project management required by the Retailer by covering the entire country or a wide range of services. Retailers tell me they choose brokers when they don’t have the time or resources to manage self-performers. While most self-performers manage their projects well, often better than brokers, by definition they don’t do it all or cover the entire US. This means that Retailers must work with more companies to maintain their facilities.
Quality of Work The best national brokers do a fairly good job of controlling quality. They are good at remotely selecting, qualifying and managing a large collection of small or regional contactors. But when this model breaks down, quality is its weakness. Brokers who lose control of quality end up spending a lot of their time cleaning up messes and mistakes made by their vendors. Self-performing contractors typically deliver a more consistent level of service quality. By nature, these companies have usually evolved from the contractor (worker) side of the business, and they know how to hire and manage their employees – and do the actual work of their trade.
Stability National brokers can grow quickly and can shrink just as fast. There’s often big money involved and sales people with valuable accounts will often leave brokers to start their own companies (this is how many brokers you see at PRSM and other industry events got their start). Self-performing contractors are typically much more stable than brokers. They tend to not think in scalable ways and their businesses are rooted in doing the work, not the latest big account. The actual work force is also much more consistent than a typical broker. A Retailer hiring self-performing contractors is much more likely to have workers that are taking care of the same facilities for many years.

Most of the Retailers I speak with who are relying on national brokers express a wish to have the internal resources that would allow them to work exclusively with self-performers. There is a belief that the quality and reliability is better, and that there’s a greater possibility of reducing costs. But with reduced internal budgets due to the recession, facility management staff is stretched thin and brokers serve a valuable need.

In the past few years, 3rd party project management systems have become available that are attempting to allow Retailers to more easily manage a group of self-performers. Examples of these companies are Service Channel and Facility Source. It will be interesting to see if the emergence of these types of companies shifts the balance in any way between brokers and self-performers.

In the mean time, it looks like there is clearly a place in the market for both business models to grow and compete for Retailer clients in the US.

 

 

Copyright © 2010 by Reliant Commercial Construction. All Rights Reserved.