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Thursday, Mar 28, 2024

It’s a Hard Bid Life for Tutor

Tutor-Saliba, by far the largest construction company in the Valley, became a subsidiary of Perini Corporation, the ninth largest general contractor in the nation on Sept. 5. There won’t be much change in the Sylmar executive suite, though, because for the last 11 years, the CEO of both companies has been Ron Tutor. Tutor joined A.G. Tutor, the company founded by his father, in 1963. In 1972, a partnership with N.M. Saliba Company created the early form of Tutor-Saliba which became a corporation in 1981. Ron Tutor was, and still is, president. Over the past 36 years, the company has focused on public works and heavy civil construction. Notable building projects include the recently completed UCLA Replacement Hospital; the Hyperion Wastewater Treatment Plant; the Bradley International Terminal and the Van Nuys Flyaway replacement building. On the civil side, Tutor-Saliba was responsible for a major portion of the Alameda Corridor roadway project, runway and taxiway improvements at LAX, and much of the Red Line subway. The company has been involved in lawsuits and contract disputes with several of its public sector clients, in the process receiving what Tutor considers to be more than his fair share of bad press. In this interview, Tutor spoke candidly about the merger, the state of the construction industry, gave us a tutorial on the nature of public works contracting and explains why ‘change orders’ is not a dirty word. <!– Public: Ron Tutor takes his company public with Perini merger. –> Public: Ron Tutor takes his company public with Perini merger. Question: What’s going to be changing for Perini and Tutor (due to the merger)? Answer: In merging the two companies, the merged company becomes one of the largest, if not the largest, construction companies in the United States. The headquarters will come here to Sylmar, where I am. Q: How many people will that bring? A: Probably another 30 or 40. We’re building a new headquarters also for our building group in Las Vegas, so probably the headquarters will distribute staff between Sylmar and Las Vegas. I may be premature in determining which is the headquarters at this point. I’ll be located here (in Sylmar), as we’ve just built another addition here. We’ve acquired the building across the street so this will significantly increase our employment here. We’ll probably go to 150 or 200 salaried people here in Sylmar. Q: Are you going to keep Tutor-Saliba as a separate entity? A: Tutor-Saliba will be a separate subsidiary of the ultimate holding company and it will be in charge of and drive all of our public works programs on a national scale. Perini has a large public works operation, but compared to the whole it’s a small part. Q: We don’t know a lot about Tutor-Saliba’s financials because you’ve been a privately-held company. How does Tutor-Saliba fit in as far as the size of Perini? A: Well, if you’ve read anything in the proxy or the 10k, we received 45 percent of all of Perini, so that puts you in perspective of the value and size of Tutor-Saliba In other words Tutor-Saliba’s value was very similar to that of Perini. (Perini reported $5.1 billion in revenues for the end of the second quarter of 2008.) Q: You’ve had your headquarters in Sylmar for how long? A: I built this in 1982 so I’ve been here 26 years on this site. Q: And you’ve never had any interest in getting a big penthouse in Century City or downtown? A: That’s not me. I live in the Valley, I was raised in the Valley. I live in Hidden Hills. I’m not a West L.A. guy. I went to Van Nuys High School. I graduated from USC. I’m a Valley guy. Q: What side were you on in the Valley secession debate? A: I didn’t believe the Valley should secede. I think it would have been madness. It’s just weakness you have strength in size. For the Valley to have broken away from the City, I think would have devastated the Valley. Q: You have been pursuing a lot of international work. A: Well, we’ve had a large operation in Guam and the Philippines since I bought Black Construction in, I believe it was 1995. And you have to remember I’ve been running Perini since 1997. We have a large operation in Iraq and Afghanistan we’re pursuing work of very significant size in Dubai and in fact I’m going there in two weeks to spend a week there and see just exactly what the status is. But yes, it’s not a mystery that the U.S. is in an economic malaise, to put it mildly, and foreign work will be one area that will support our ongoing operations. Q: Did you see the audit that Laura Chick did recently of the Los Angeles Police Headquarters Facility Project? (The audit focused on the City of Los Angeles Bureau of Engineering contracting procedures, faulting the department for failing to receive more than one bid for the construction contract Tutor-Saliba’s among other things.) A: I did gloss over that. Q: Your firm has been in the news for change orders and things like that and the LAPD audit talks about the fact that there’s a systemic issue in the building department and the contracting process that’s set up for that to happen. Do you have any comments? A: Yeah, it shows you how incredibly ignorant everyone is about what the system is. Nobody gets it or bothers to take the time to understand it, ask intelligent questions, so everybody shoots from the hip, whether it be the media, who’s the most clueless, or the politicians who have marginally more information. If someone would stop and understand how public works functions, it’s very simple. The government produces a set of documents and asks for bids on those documents. The bids are based on what’s shown on those documents. We will build exactly what you say in words and what you design on the drawings. If you come in and make a change, or if there’s a mistake on the drawings by omission or error, you have to pay. In public works, changeorders are a part of the process because there’s no such thing as a perfect set of drawings The owner sets aside a contingency for that which is not perfect, since there’s no perfection. There’s an underlying statement or sense that says “just bid what’s shown. Don’t allow for what you don’t know.” Changeorders is not a dirty word. It’s never an issue between us and the agency issuing the documents, their engineers and ours, because we all understand the system. It’s the politicians and the media who are so incredibly ignorant of the system. They think because there are changes, it’s flawed. Q: Do you think the process should change (as suggested in Chick’s audit)? There’s the CM-at-risk methodology and other types of ways to try to bring teams together earlier on. A: CM-at-risk is a totally different system. It has much more significant flaws that relate to total cost. The only benefit of the CM-at-risk is that you, in theory, bring in a construction manager that’s there through the design (but) it doesn’t eliminate the changes. It’s more transparent, but to me it’s riskier from the owner’s perspective. I mean, after all, if we give them a lump sum bid if they don’t like the price, if it’s way over budget, they throw the bids out. They go back to the drawing board. We’ve been doing business with the City of L.A., we’re by far their largest contractor, for 40 years. The City Engineer’s office has always been excellent. They’ve always performed no matter how much political flak they get. And yes, they’re a city agency. Do they operate like a private agency? No. But they’re good. We’ve never sued the City of L.A. in 40 years which no one else can lay claim to. And the LAPD (headquarters building currently under construction) will be a resounding success as was the LAX Runway job. Of course, when you have enormous successes, you don’t read about it. Q: You know blood sells, right? A: It’s a fascinating system where we are absolutely, by far, the largest and most successful construction company in California, let alone Los Angeles, and we never read a good word about us. But I’ve grown to accept it as part of doing business in this city. There’s an underlying assumption that if you’re enormously successful you must be dishonest. Cynical as it sounds, that’s the world that we live in. Q: The economic malaise, as you put it, how do you see that impacting the construction economy in the next couple of years? A: The good news is, we have a lot of backlog and a lot of contracts in place that will take companies like ourselves through 2009 and maybe into the summer of 2010. There will be, in my sense, a period of time to where it will be difficult. When you pick up the paper and read that AIG, our insurance company, is perceived to be bankrupt and Wachovia’s bankrupt and WAMU’s bankrupt if it doesn’t shake anybody’s resolve, I don’t know what does. I mean, I’m born in 1940: I’ve never seen anything that’s even marginally close to what we’re going through. Will we get through it? Of course. But it’s rattled everybody. Q: In 2010, when a lot of these projects are wrapping up, are we going to see the construction industry in a funk? A lot of the subcontractors are struggling now. A: I don’t know. I’ve been through this for over 40 years. It always seems we have work, no matter how difficult things are, there’s always business. If the private sector’s down, the public sector’s up. There’s always this sort of thing. It’s hard to predict right now. I believe if we’re fortunate overseas which it appears we will, because of that overseas volume, I don’t think we’ll be dramatically affected at Perini and Tutor and there’s an underlying assumption on my part, like on yours and most, that by 2010 money will get put into all of these desperately-needed public sector projects and maybe that will balance out some of the shortfalls in the private sector. But it’s really hard to predict. Q: What do you think the Valley should be doing now as a business center? A: It’s hard to speak in a generic sense of “the Valley,” but businessmen be careful about being too leveraged and bank dependent. I’ve always warned, be very careful about leverage and bank dependencies. When you need borrowed money to survive, typically it won’t be there. Grow from earnings, not from borrowing. Q: You have no debt right now? A: Very little. Almost nothing. The only debt we have is we have some real estate down on a couple of our buildings. I think our cash-to-debt is like 30 to one. I’ve had an inherent fear of debt. Everybody used to say I was crazy now I don’t look so crazy. I lived for the day and 10 years ago I paid off all of my houses. I thought the idea was ultimately to get to the point you didn’t have one. And I used to think, well my way won’t grow as fast as others, but it’s a lot less risk. You have a responsibility to all your employees that work in the company and help you build it to not jeopardize their livelihood by rolling dice with the entire company, which is what’s happened in America today. You’ve had a number of CEOs in very large companies that took enormous risks with their companies they never should have taken it’s disgraceful the way they left their companies in disarray and all their people that worked there, they damaged. And they can make all the excuses in the world; it doesn’t make them any less personally culpable. This stuff doesn’t just happen because of circumstances. Invariably it goes back to executive judgment.

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