A strong trunk + branches

Granite Construction builds on a California base

Excavators Article September 26, 2003
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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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