A strong trunk + branches

Sept. 26, 2003

With reported revenue for the first six months of 2003 of $771.6 million, Granite Construction Inc. is one of the largest highway construction contractors in the country. The company got its start in California in 1922 and has expanded from there in two complementary divisions: the Heavy Construction Division and the Branch Division. The company is headquartered in Watsonville, Calif.

With reported revenue for the first six months of 2003 of $771.6 million, Granite Construction Inc. is one of the largest highway construction contractors in the country. The company got its start in California in 1922 and has expanded from there in two complementary divisions: the Heavy Construction Division and the Branch Division. The company is headquartered in Watsonville, Calif.

In addition to building roads, tunnels, bridges, dams, mass transit facilities and airports, Granite produces sand, gravel, ready-mix concrete, asphalt and other construction materials.

The Heavy Construction Division handles large, complex projects around the country with contract amounts generally greater than $50 million and durations of two years or more. The Branch Division performs smaller jobs with shorter durations in local markets in the western U.S. Despite the small size of the typical project, the Branch Division, which includes the construction materials business, accounts for about 60% of total company revenue.

"The two businesses are pursuing, in many instances, similar work," Bill Dorey, president and chief operating officer, told Roads & Bridges. "The primary difference is the size of the work. So, from the standpoint of the skill sets, they are similar, but the level of sophistication required to manage the work is sometimes different because of the size of the project."

The branches benefit from the resources of the Heavy Construction Division, resources that might not be available to other local competitors. On the other hand, a branch may have more detailed knowledge of a local area, and those details may be helpful to the Heavy Construction Division on a big project in the area.

There are some projects that the Heavy Construction Division performs that the Branch Division does not get into, such as transit stations and segmental bridges. The Branch Division has a more basic roads and streets orientation.

In fact, Dorey sees more of a growing importance to transit construction:

"We've been involved in light-rail systems and similar transit-type projects for years," he said. "But there seems to be more emphasis coming out of the federal government towards taking that transportation system and making it a bigger part of the overall system in the country. And as a result we're seeing more of that work out for bid. And we are in fact doing quite a bit of that work today."

Do it yourself

Dorey said owners have gotten more demanding about specifications and quality-assurance/quality-control (QA/QC) programs.

"I think that the expectation from the owners is different than it was 10 or 15 years ago, and if you want to be successful in the business you have to be in a position to provide the owner with high-quality product."

One of the steps Granite has taken to meet quality expectations is to develop its own laboratories for testing its construction materials.

"Over the last 10 or 12 years, we've spent millions of dollars developing an infrastructure of laboratories and people to staff those laboratories at our construction materials facility that provide us with I think one of the best quality control systems in the United States. We're very adept today at performing pavement designs in-house, managing the quality of our products, far more sophistication than we've ever had in the past. What has driven us to do that is a requirement on the part of our customers that we take the responsibility for providing materials that in fact are superior."

Having an in-house quality-control program has yielded both internal and external benefits for Granite.

"From the contractor standpoint, there's a number of benefits," said Dorey. "One is that we rarely have material that goes out the gate that doesn't meet the specification, so we have almost no problems associated with the materials that we manufacture and sell today. It really saves us money to start with. It enhances our reputation, and I think our customers recognize that if they do business with us they will rarely have any problems with what we're selling them. And certainly from the standpoint of meeting the specifications and providing the owner with a quality product that's going to last, there's no question there's a benefit there to the owner as well."

Another aspect of the quality issue is that more owners are asking contractors to warranty their work, and Granite is preparing for that too.

"I wouldn't say we're seeing a lot more of those, but as time goes on we are seeing more," said Dorey. "We're seeing different kinds of warranties. We're seeing longer periods of time that owners are asking us to be responsible for our work."

Building its own laboratories and a QA/QC program paid off for Granite on the Highway U.S. 70 Hondo Valley paving work in New Mexico. "We did the pavement design in-house," said Dorey, "and we believe that our capabilities to do that contributed to our being selected as the successful contractor on this project."

Granite is part of a joint venture on the Hondo Valley job with Sundt and Hamilton. They are widening 40 miles of highway from two lanes to four, laying 600,000 tons of asphalt.

On the job

Among Granite's recent contract awards is a $62.3 million contract with the New York State Department of Transportation. The project involves widening the Taconic State Parkway in Yorktown Heights, N.Y., from two lanes to three between the Rte. 35/202 interchange and the Rte. 6 interchange. The project also includes the removal and replacement of six bridges, 400,000 cu yd of excavation and 165,000 tons of asphalt. Construction was scheduled to begin last month and be completed in May 2006.

Another recent contract award has Granite constructing dual six-lane bridges spanning the Potomac River in Alexandria, Va. The $115.5 million contract from the Maryland State Highway Administration went to a joint venture of Granite and Corman Construction Inc., Annapolis Junction, Md. Granite's part of the contract is worth $91.2 million. Each bridge will be about 2,300 ft long, with six lanes of traffic plus shoulders. The joint venture will demolish the existing six-lane bridge and ship 460 precast concrete segments by barge from a yard in the Baltimore Harbor area to be assembled on the site. "Erecting these precast segments with temporary post-tensioning will be the highlight of construction," said a statement from Granite. "After the structural steel plate girders have been erected on top of the arch piers, the concrete bridge deck will be installed." Work on the bridges was scheduled to start in April and be complete in late 2008.

Granite also was recently awarded a contract by the North Carolina DOT to widen 2.1 miles of I-85 from two to five lanes in each direction near Durham, N.C. This $66.6 million segment of reconstruction connects to two segments of I-85 that Granite is already reconstructing. It will include replacement of three permanent bridges, one temporary widening bridge and two temporary prefabricated modular steel bridges. The job also includes construction of a pedestrian box culvert, two drainage box culvert extensions and 14,000 linear ft of retaining and noise walls. Work was scheduled to start in late June and be completed in late March 2006.

Granite's second-quarter report notes a decrease in new awards for the Branch Division but an increase for the Heavy Construction Division.

"There's a lot of large work out today," said Dorey.

He also sees more design-build projects out for bid than ever before.

"From the standpoint of the jobs themselves, in a lot of this larger work, we are required to incorporate a QC/QA program that we manage into our proposal, into our obligation as being the contractor. So we've developed those skills, either in-house or with alliances, partners and so forth to provide us with those services."

He noted that the design-build method has the advantage of having a single point of contact for the contracting agency during the design and the build stages. He also thinks design-build saves time and money. Design-build also offers advantages as far as flexibility to respond to changes and unexpected conditions.

Another source of flexibility is renting equipment, and Granite rents up to 20% of its equipment fleet, but only when necessary.

"We think that owning the equipment provides us over time with the flexibility that we need in our business," said Dorey. "And it provides us with the opportunity to operate with the lowest cost that we can. Having said that, there are times when we have needs for equipment that it wouldn't be prudent to buy, either because it's a short-term need or a particular piece of equipment that for whatever reason it makes sense to rent. In those instances we rent."

Bill Wagy, the company's equipment manager, told Roads & Bridges, owning "gives us quite a bit of flexibility in being able to put the assets where we need them in a very short period of time if we have to. If you had to rent something it's always problematical what's out there."

To be continued?

Whether the work would continue was somewhat in doubt at press time, with the Transportation Equity Act for the 21st Century expiring on Sept. 30 and no new authorization bill to take its place and continue federal funding. Dorey was optimistic, though, that Congress would take action when it reconvened after Labor Day.

"I'm confident that the federal government will somehow not allow a funding gap to occur. I think it's too important to the country and I'm confident that they'll figure out a way to keep the contractors working. Because the transportation system in this country is too important to allow those activities to come to a stop. In addition to that it would be too expensive. The prospect of actually shutting down work would be a monumental expense that would be a waste of money. I don't think that's going to happen.

"The bigger question is whether there is going to be an adequate allocation of funds going forward in the next highway bill. I'm concerned that the politics of 'no new taxes' is going to prevent an adequate bill from being passed. I think that would be so short-sighted. We have such a need for transportation improvements in our system around the country. It would be a real disappointment to me if the administration did not recognize that adequate funding needs to be developed to provide the country with appropriate improvements to the transportation system and maintenance on the existing system. That is very likely going to require an increase in the gasoline tax. I'd be very disappointed if our representatives in Congress fall short of doing what is required in this area.

"I believe that if we don't keep up with the investment we make in our infrastructure, the infrastructure will begin to deteriorate. It's already doing that. It's too important to the country to allow that to occur."

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