Even as the deep recession hit the construction industry in 2008, Larry Davis, owner and president of L.E. Davis Construction of Harrison, Ark., led his company to a 60 percent annual revenue increase for the year, its best year ever. When the recession deepened in 2009, Davis Construction continued at its record pace.

That kind of performance helped L.E. Davis Construction win the Contractor of the Year title last year in an annual program sponsored by Equipment World magazine. Davis (at left in above photo, with GM Scot Matlock) shared his methods in GroundBreaker magazine shortly after winning the award, and his insights bear repeating here as the industry slump continues.

Structured to Succeed

“Diversification is key to insulating ourselves against a bad economy,” Davis says, referring to his company’s ability to take on most any type of construction project, thereby increasing its odds of finding work. Recent projects include subdivision homes, a condominium, a 30-mile pipeline to a water treatment plant, a new bank building, plumbing installation for a new school and restoration projects at commercial buildings damaged by a severe ice storm.

To keep a sharp focus on individual projects while tackling such diverse jobs, Davis split his company into four divisions: residential, commercial, plumbing and utilities. Such divisions are common at large companies, but L.E. Davis has just 20 employees. To make the structure work, Davis had to assemble the right collection of leaders and machinery.

Having proven her skills while managing design-build residential projects, Davis’ wife, Linda, who is also vice president and secretary, became residential project manager. David Brantley, who had displayed management ability while working as a company carpenter, and Brian Warner serve as commercial project managers.

Grant Novak, experienced in utility construction, convinced Davis that the company had the equipment needed to begin bidding for utility contracts. Thus the utility division was created in 2002, and Novak was named project manager, assisted by Brett Criner and Chance Winford.

Deciding that repeated problems with scheduling and warranty work by plumbing subcontractors reflected badly on his company, Davis formed a plumbing division and hired veteran plumber David Parker as manager.

The divisions can work together on a particular project or operate independently, with a current example being the plumbing division’s work as a subcontractor on the new school.

General Manager Scot Matlock helps oversee and coordinate the divisions and site work. The work, costs and revenue of each division are tracked, although the divisions are not separated as legal entities. Matlock notes that the structure allows workers to move freely between divisions as needed. And, he adds, “We keep our overhead down by teaching people different skills instead of hiring a person to do just one job.”

Properly Equipped

The wide range of projects requires a similar array of equipment suited for the different types of work. For example, Davis purchased a Cat^® 303 Mini Excavator to pair with the company’s Cat 246 Skid Steer Loader for the plumbing division. “The two machines make a good combination,” Davis says. “They make things easy to haul and they work inside buildings better than larger machines.”

When it became clear that bigger machines were needed for many projects, Davis turned to The Cat Rental Store operated by his equipment dealer, Riggs Cat, based in Little Rock, Ark. He was able to arrange, for example, a rent-to-purchase agreement for a Cat 315 Excavator for the commercial and utility divisions.

The company fleet now consists of the 315 Excavator, two Cat D5 Track-Type Tractors, a pair of Cat 420 Backhoe Loaders, the 246 Skid Steer Loader, the 303 Mini Excavator, a Cat 360 Telehandler and a Cat 433 Vibratory Soil Compactor. To supplement the fleet, the company invests about $50,000 per year at the Riggs’ Cat Rental Store, according to Davis.

The reliance on Cat equipment stems from Davis’ strict attention to cost-accounting. He initially used a different brand of equipment after assuming control of the company upon his father’s retirement from the business in 1980, and he began tracking the revenue and costs associated with each machine. He set aside the revenue for future equipment purchases in a pay-as-you-go approach.

Tracking Dollars

Davis remembers having two non-Cat backhoes, each of which required the replacement of the transmission and rear-end twice in a two-year period. The repairs cost $7,000 for the rear-ends and $12,000 for the transmissions. While one of these rented backhoes was down, it was replaced with a Cat Backhoe from the Cat Rental Store, which offered the best price and service, he says.

Matlock adds, “The operators loved the Cat Backhoe. When we were ready to go back to the other one, the operators rebelled and told me that I would have to operate it.”

Davis explored a rent-to-purchase agreement for the non-Cat machine, but the dealer would credit only 80 percent of the rental fees toward the purchase price. Riggs’ Cat Rental Store was willing to allow 100 percent. Still leery about the perceived additional costs of rent-to-purchase agreements, Davis met with a Riggs representative. “We determined that it would cost us only 1 percent more for a rent-to-purchase agreement compared to a straight purchase,” he says.

The company has been using Cat equipment exclusively ever since. “We’re perceived as a class operation because we have Cat equipment and we keep it clean and looking good,” Davis says. “Plus, we’re not down as much due to breakdowns, and there are fewer repairs to pay for. And when we’re ready to sell a Cat machine, there are people standing in line to buy it.”

He adds, “Our contention is that Cat doesn’t cost as much in the long run, and we intend to be here for the long run.”

With that in mind, the company was looking toward construction management on public works projects to take advantage of economic stimulus funds.