Demanding Contractor Nails Down Big Projects and Profit
The reconstruction and widening of a two-mile stretch of the Ventura Freeway as it winds through Woodland Hills has begun. Although much of the work will be done at night, the 16-month project is sure to test the patience of motorists who use the busy highway. Except for Ronald N. Tutor.
Tutor is president of Tutor-Saliba Corp., the construction firm in charge of the $18.3-million project, the first of four phases in a $90-million plan to improve 24 miles of U.S. 101 between Thousand Oaks and Universal City. Tutor also happens to live in Hidden Hills, an affluent town that borders Woodland Hills to the east.
“I kid our guys. I say they’ve got the worst inspector going because every night when I’m coming home at 11, 12 o’clock I’m going to stop and see what they’re doing,” Tutor said with a grin.
Tutor is an aggressive, demanding and outspoken boss who views construction as a trade where nice guys finish last. Coming in first means having to constantly battle the developers, architects, subcontractors, government agencies, property owners, equipment suppliers and other parties involved in a construction job--each of which has demands that could cost money and eat into Tutor-Saliba’s profit.
No Room for Timid
“There’s no such thing as a timid, successful general contractor,” Tutor said. “There’s probably more confrontations and conflicts in construction every day than in any other business I can imagine. You’ve got to have the ability to attack people who confront you.”
Tutor has won his share of battles. His company, based in Sylmar, is one of the largest general contractors in California and it ranked 70th nationwide last year with $305.3 million in contract awards, according to Engineering News-Record, a trade publication. The company has also had projects in Arizona, Utah, Colorado and even New York City, where it is working with Perini Corp., another major contractor, to renovate a subway line for $180 million, Tutor said.
Tutor-Saliba (pronounced sal-EE-ba) built the Tom Bradley International Terminal at Los Angeles International Airport in a $125-million project, and four years ago renovated San Francisco’s cable car system for $30 million. Tutor-Saliba is doing $124 million worth of work on the Metro Rail subway project in Los Angeles.
Tutor-Saliba also has built high-rise apartment buildings, office towers, warehouses and multilevel parking garages. The privately held firm employs between 800 and 1,400 people, depending on how many jobs it is handling.
Fourth Lane Addition
The Ventura Freeway project calls for Tutor-Saliba to add a fourth lane in both directions from Topanga Canyon Boulevard west to Valley Circle Boulevard. The firm also will replace 3,200 feet of pavement at the Valley Circle interchange and will add a fifth westbound lane from Topanga Canyon to White Oak Avenue in Encino.
Tutor said he owns more than 50% of Tutor-Saliba, and that it has two other minority owners--his father, Albert Tutor, 77, and Naseeb Saliba, 73. The elder Tutor and Saliba, who specialized in building freeways, each owned their own construction firms until they merged in 1972.
Because the firm is privately held, Tutor, 47, will say little about its financial status. When a visitor recently asked about the amount of Tutor-Saliba’s capital, Tutor shot back, “That’s none of your business.”
He did reveal, however, that the firm’s annual revenue is between $200 million and $300 million. He also said Tutor-Saliba’s net profit margin was “a little better” than the industry average, which is a razor-thin 1.5% or less of total revenue. Thus, on annual revenue of say, $250 million, Tutor-Saliba might earn $2.5 million to $3.75 million.
Why are the margins so narrow? “Because we’re too competitive as an industry,” which leads to cut-rate prices, Tutor said. “We all bitch about our profit margins but everybody’s reluctant to be the one raising prices because we’re all used to doing a certain amount of work.”
Ronald Tutor got into the business after earning a bachelor’s degree in finance from USC in 1963. After graduating he still wasn’t sure what he wanted to do, so he accepted his father’s offer to join the family firm. “After a year I thought I liked it, and I just stayed on,” he said.
“I think it suited my personality,” Tutor said of construction, which he said has made him a millionaire. “It really is a business that’s risk-oriented, which I enjoy, and I always had a relatively aggressive personality. It’s not a business that’s subtle by nature.”
Neither is Tutor. Four-letter words punctuate his sentences. “Since conflicts are such a major part of this business,” Tutor said, “if you’re not a very strong person and you’re not willing to fight when it’s necessary, you just get trampled.”
Tutor is “very tough and tenacious,” said Michael V. Reyes, president of Urban Pacific Group, a developer that has joined with Tutor-Saliba to build an apartment complex, Del Prado, in Los Angeles. “Thank God we’re on the same side of the table.”
Marriage Disintegrated
Tutor even acknowledged that his strong drive and long hours spent at work helped destroy his 16-year marriage, which ended in divorce last year. “You pay a price for success and he did,” Tutor’s ex-wife, Cheryl, said. “You have to be with it almost 24 hours a day to be successful. He is aggressive but he’s very honest, up front and very fair.”
Others haven’t always seen it that way. Tutor or his firm have been involved in about 100 lawsuits since 1977, according to records in Los Angeles Superior Court, and Tutor estimated that his firm spends between $300,000 and $400,000 a year for lawyers. Many of the suits relate to workers compensation and general liability claims, but several also involve breach-of-contract allegations by one or more parties involved in a big construction project.
Litigation is common in major construction, if only because several parties are involved in a project and each has its own contract to uphold, said Kirk S. MacDonald of Gill & Baldwin, Tutor-Saliba’s law firm. “I would be very surprised if you find there’s a difference in the number of suits per contract dollar” at Tutor-Saliba compared to anyone else, he said.
But a dispute doesn’t have to involve millions of dollars for Tutor to defend his ground. According to another suit in Superior Court, he built driveway curbs, a fence and other fixtures around his house two years ago that the local homeowners association found violated its rules for the neighborhood’s decor. The group asked him to remove the fixtures. He refused and the group sued him. The case is pending.
One of the reasons Tutor-Saliba’s profit margins are higher than average is that about 75% of the company’s business comes from public works projects, which offer more profit potential than private jobs, Tutor asserted.
When a contractor is hired for a private job, the result is usually a negotiated contract in which the owner pays all the costs of the project plus a fee to the contractor. That means the contractor’s profit is fixed, and the fee is usually 4% or less of the project’s total construction cost, Tutor said.
Different Ground Rules
In a public project, however, the government agency contracting for the work agrees to simply pay whatever lump sum the contractor bid for the job. The building costs are the contractor’s problem, and any cost overrun comes out of the contractor’s profit.
But if the contractor can save money on a public project, that fattens his profit. Tutor-Saliba tries to cut costs in large part by hiring few subcontractors and doing most of the work itself.
On the Ventura Freeway project, Tutor-Saliba has an additional incentive. The California Department of Transportation, looking to limit the noise and disruption, has ordered Tutor-Saliba to complete the renovation of the Valley Circle interchange in 120 days. If the firm takes longer, it will be penalized $6,000 a day--a common figure in public works. But if the firm gets the project done early, it will be rewarded $6,000 a day up to a total of $180,000--an uncommon reward, according to Tutor.
