Health has allure for Fluor

HUGE FIRM ENTERS THE MARKET WITH EX-HCA EXECS

By John Mugford

 

New entrants seem to be jumping into the red-hot healthcare real estate market almost daily. But, when a Fortune 500 firm launches a healthcare division with four former HCA Inc. executives in a Nashville, Tenn., office – now that’s news.

Nationally and internationally, Fluor Corp. (NYSE: FLR) is a powerhouse in the world of construction, design, engineering, procurement and other real estate-related activities.

The Fluor name might not be a household word. But, with 2004 revenues of almost $9.4 billion, the Aliso Viejo, Calif.-based firm ranked 241^st on last year’s Fortune 500 – ahead of better known companies including Bear Stearns, H.J. Heinz and Apple Computer. Now, after a year of double digit growth, the 30,000-employee, firm is poised to leapfrog into the Fortune 200 with projected revenues of $11.9 billion in 2005.

However, if you mention Fluor in healthcare real estate circles, you might get a blank look. The company with offices in 25 countries has never been involved in healthcare projects.

Until now, that is. Count Fluor among the latest companies to jump into the growing marketplace of firms adding divisions in healthcare real estate-related services. The firm announced its entry into the healthcare market Jan. 3.

HCA connection

The folks involved in Fluor’s new venture say they’re not just another firm jumping on the bandwagon. They say that the size and scope of the company, its worldwide name and the four people it has hired to lead the healthcare concentration will help Fluor Healthcare, as it is called, stand out among the crowd.

In launching its healthcare office, Fluor has brought in four former executives who oversaw construction projects for hospital system powerhouse HCA (NYSE: HCA), the Nashville, Tenn.-based for-profit system with more than 200 hospitals and a Fortune 100 ranking.

The new team at Fluor Healthcare is headed by Thomas Gormley, who was vice president of design and construction at HCA for 10 years and is well-known in the industry for serving on a variety of boards and industry trade associations, such as the American Society of Hospital Engineers (ASHE) and the Health Facility Institute of America (HFI).

Mr. Gormley brought with him three HCA executives who were with him for most of the past decade: Steve Brecker, Mike Noli and Drew White. The foursome also worked together years ago for McDevitt & Street, a Charlotte, N.C.-based general contractor that was acquired in 1990 by London-based Bovis, and became McDevitt Street Bovis. Bovis was itself acquired by Australia-based Lend Lease Corp. in 1999, resulting in the formation the firm’s Bovis Lend Lease unit.

An owner’s rep

Near the end of last year, Fluor landed a variety of enormous non-healthcare jobs, such as providing front-end engineering and design for a $2.2 billion expansion project at a refinery in Louisiana. Its international jobs included a contract to provide engineering, construction and procurement services for a $1 billion gas company project in Qatar.

But, the main focus of Fluor Healthcare, according to Mr. Gormley, is to act as a healthcare system’s representative on construction projects. The most likely client, he says, will be smaller to mid-sized hospital systems with anywhere from a few hospitals to 20, or more.

Even though Fluor Healthcare has the resources of a Fortune 200 company at its disposal, Mr. Gormley says the division does not necessarily plan to hire Fluor as the main construction contractor, design firm or other major construction-related service provider for projects.

“Where we believe we can distinguish ourselves is that the company behind us has a balance sheet of nearly $12 billion, and the fact that our overall process will be from an owner’s angle,” Mr. Gormley says. “We will not be a program manager who also just happens to be an architecture firm or a general contractor.

“We’ll provide value because many health systems don’t have the resources to oversee construction projects from start to finish. We’ll provide them with that and from a perspective of people who have lots of experience representing a hospital owner.”

Mr. Brecker adds that typical projects, which will include ground-up construction of new facilities as well as expansions and upgrades, will typically range from about $100 million to upwards of $1 billion.

“Certainly those bigger projects are complex, but with the combined experiences of our team of people and with the vast resources of a company like Fluor behind us, they are certainly something we can handle,” says Mr. Gormley, who has been in the industry for a total of about 30 years, including 18 years of working closely with Mr. Brecker. “Our goal is to provide certainty on quality, cost and schedule.”

In their 10 years at HCA, Mr. Gormley and his team oversaw about $9 billion worth of projects, he says.

“We think that speaks to the level of experience that we can provide to clients,” Mr. Gormley says of the team now at Fluor. “And what we’ve learned through all of this is that this is still a relationship business. You learn how to find the companies and contractors with the right people – ethical, honest people – who can do the job in a timely manner and on budget.”

Setting up shop

Like hundreds of other healthcare-related firms, Fluor Healthcare has set up shop in the Nashville area – its office is actually in the suburb of Franklin.

“Nashville is the mecca of healthcare systems and healthcare-related firms in this country,” says Mr. Gormley. “When we were working with the people at Fluor on launching this, we talked about where to set up this office. We told them we needed to be right here in Nashville.”

While at HCA, the four executives were responsible for new construction projects throughout the hospital company’s vast system. That entailed hiring construction firms, architects and other contractors involved in construction projects. Mr. Gormley was also responsible for such activities as ADA compliance and facilities maintenance.

At Fluor Healthcare, the executives will perform many of the same duties for their client health systems, adding such services as site analysis, selection and planning, and overseeing projects from start to finish. “From soup to nuts,” as Mr. Gormley says. He adds that he plans to have someone from Fluor on site from the start to the finish of a project.

“We’ve certainly developed a list of contractors and companies that we believe can get the job done for the best value,” Mr. Gormley says. “It’s a rather select list, but one that we feel strongly about. For each project, we know how to put together a team that can get the job done. And that includes hiring local firms when it works out for the best.”

As an owner’s representative, Mr. Gormley says he does not believe in squeezing contractors on the front-end of projects.

“It looks to us like more and more program managers are using a heavy-handed approach to pricing projects,” Mr. Gormley says. “We don’t take that approach. We always ask this question: If you’re hiring someone build a house for you, do want the contractors to know from the outset that they’re not going to make any money? We think the homeowner would be concerned about the quality of the work, and so would a health system.”

The move to Fluor

While he was at HCA, Mr. Gormley reports that executives at Fluor Corp. asked him for advice about launching a new division in healthcare, an industry that appealed to the conglomerate because of its growth projections and solid year-to-year performances, even during economic downturns.

The discussions led to Fluor offering Mr. Gormley the job of launching the new division, with the ability to bring in his own people.

“This is an exciting chance to start something new, almost like starting your own company but with incredibly vast resources behind you,” Mr. Gormley says. “That’s what the attraction was for us, and to really be able to provide something for health systems that need people on their team with our experiences.”

Fluor is certainly entering an industry with plenty of competitors, including new competitors. For example, Birmingham, Ala.-based BE&K Inc., which concentrates on the paper processing industry, in the last year or so launched its own healthcare concentration called BE&K Construction Healthcare Group. Its office, too, is in the Nashville area.

In launching its new division, BE&K, like Fluor, recruited and hired executives with healthcare project experience, several of whom were previously with Bovis Lend Lease. According to BE&K’s healthcare officials, the division has lined up several contracts and could reach $150 million in annual revenues quite soon.

As for Fluor Healthcare’s relationship with HCA, Mr. Gormley says the executives left on what he believes were friendly terms.

“We won’t compete with HCA. They have enough volume and enough good people to continue to do what they’re doing,” Mr. Gormley says. “Besides, they’re their own hospital company – a quality company at that. We’ll continue to have plenty of good friends there.”

A representative of HCA could not be reached for comment before press time.

Initially, Fluor Healthcare will focus on domestic clients and projects, perhaps venturing into Canada as well. As of recent weeks, the foursome at Fluor Healthcare was setting up its office and nailing down its strategy. But that didn’t mean the four executives were ignoring potential projects, as Mr. Gormley reports they were “investigating a $500 million potential project in Vancouver for the Canadian health system.”

As Fluor Healthcare grows, Mr. Gormley says he could see the division pursuing projects around the world, perhaps in places with strong needs for newer and better healthcare facilities, such as China or former communist countries in Eastern Europe.q

FLUOR HEALTHCARE

Franklin, Tenn

STATS

■ Ownership: Fluor Healthcare is a unit of Fluor Corp. (NYSE: FLR) of Aliso Viejo, Calif.

■ Employees: Four professionals

■ Headquarters: Nashville, Tenn.

■ Services: Project and program management for for-profit, not-for-profit and university healthcare clients.

CONTACTS

■ Contacts: Thomas Gormley, Steve Brecker, Mike Noli and Drew White

■ Main Phone: (651) 771-7355

■ Web Site: www.fluor.com