At the time it filed for bankruptcy on July 23, the Truland Group was the 10th largest electrical contractor in the United States and had roughly 1,000 employees working on more than 250 construction projects around the country — including some of the most high-profile developments in the Washington area.
Last Wednesday, there were few signs of a once-bustling business at two of the company’s Virginia offices. A security guard at the Reston office tower where Truland is a tenant said no one had shown up that day. The only person at the company’s services business in Alexandria was an auctioneer taking inventory in the event of a sale. A fleet of white trucks, each carrying the Truland logo, sat idle in the parking lot.
This is the new reality as Truland works its way through the initial stages of a Chapter 7 bankruptcy that could bring about the end of a family-owned business whose roots in the region date back more than 100 years.
Its shutdown is creating ripple effects across the region, impacting not just hundreds of laid-off Truland employees — many of whose paychecks have bounced — but dozens of construction companies that hired Truland to do electrical work on condos, office buildings, hospitals, hotels and schools. Many are now hustling to find replacement subcontractors and looking to recoup costs from Truland’s insurance companies.
Bankruptcies, especially in the volatile real estate industry, are not uncommon. During the 12 months ending in June, 20,001 businesses in the United States filed for Chapter 7 liquidation, according to statistics compiled by U.S. bankruptcy courts. But when it’s a company whose business was to play a key role in hundreds of developments at any given time, the effects of its demise are magnified.
“There are plenty of bankruptcies all the time, but here it involves hundreds of construction projects,” said Jason Gold, an attorney at Wiley Rein who is representing the trustee for the Truland estate. “It’s very important that the interruption to these projects be as minimal as possible so they can get completed and there won’t be costs involved with the delay, which is bad for everyone. We’re working hard to try to minimize these delays and costs.”
The attorney representing Truland president and chief executive Robert W. Truland, Chris Jones of Whiteford Taylor Preston, declined to comment. The attorney for Truland Systems, Stephen Leach of Leach Travell Britt, did not respond to multiple interview requests.
Bankruptcy experts say it is unlikely Truland will finish the projects it started.
“Filing Chapter 7 is pretty unusual because it usually means the company is dead already,” said Todd Zywicki, a bankruptcy professor at George Mason University School of Law. “It has much less flexibility to be able to spend money, borrow money, and do all sorts of things it’d need to do in order to complete its ongoing projects, which leaves all its subcontractors in a lurch as well.”
On July 22, the day before Truland filed for bankruptcy, an attorney for the company sent letters of default to at least 14 construction companies and government agencies it was subcontracting for, saying that Truland subsidiaries would no longer be able to pay for the completion of the projects because of “financial difficulties,” according to documents filed in U.S. Bankruptcy Court for the Eastern District of Virginia.
Those companies are in the midst of at least 21 construction projects that Truland was subcontracting for that it can no longer continue work on — including the Marriott Marquis, City Market at O Street, a building for NASA and the medical school at George Washington University — according to court documents.
The letters told the companies to contact one of Truland’s sureties, XL Specialty Insurance Co., for payment. An attorney for XL Specialty Insurance did not return a request for comment.
Among those seeking to recover costs is Hensel Phelps, one of the nation’s largest general contractors. Hensel Phelps hired Truland to outfit the electrical systems at the newly opened Marriott Marquis in Washington and North Campus Electrical Utility Plant at Fort Meade.
“ They were the electrical contractor on both of those two projects [and] both of those projects are substantially complete,” said William Thompson, the company’s vice president and mid-Atlantic district manager. “Their impact on us is going to be much more minimized than others in the market.”
Thompson said Hensel Phelps brought in another electrical contractor to finish the remaining work on those projects and to replace Truland on a third contract for a Silver Line rail yard and maintenance facility even before the July 22 letter. The company had an indication from “sources” outside Truland that the company was in trouble, Thompson said.
“We’ve worked with them for many years, and it’s a sad situation,” Thompson said. “They were definitely a large player in the market and had done a lot of good work in the past.”
Bethesda-based Clark Construction was using Truland as a subcontractor for 13 projects that are in different stages of completion, according to Brian Abt, president and chief executive of Clark’s Mid-Atlantic region.
Court filings show that those projects include CityCenter, George Washington University’s Science and Engineering Complex and the Inova Women’s and Children’s Hospital in Fairfax, and that Clark is concerned it may have to eat the costs of potential delays associated with Truland’s bankruptcy.
Clark is now working with Truland’s sureties to find replacement subcontractors to compete the work, Abt said.
“It is always disappointing to see a company such as Truland experience financial difficulties,” he said. “However, we do not see this as symptomatic of the market or the economy.”
Truland employees stopped work on the GW science and engineering complex July 21, and that could cost Clark $7,000 a day and lead to hundreds of thousands of dollars in contractor delay claims, an attorney for Clark said in a court motion filed late last month.
A spokesperson for GW said Truland’s shutdown is not expected to affect the anticipated opening of the complex in early 2015. The university is prepared to award the remaining work to a replacement electrical subcontractor, but did not say who that replacement would be.
Clark and Smoot Construction, which are jointly spearheading the construction of CityCenter, entered into contracts with Truland for eight components of the CityCenter development — including office buildings, condos and common areas — that add up to about $34.4 million, according to court documents filed by Clark’s attorney, who did not return requests for comment. It included plans for Truland to install $150,000 in light fixtures for the law firm Covington & Burling, the anchor office tenant for the development.
Truland has yet to outline the financial affairs that led to its downfall — the company has until Aug. 13 to file those documents with the court — but delayed payment for work Truland did on an National Security Agency data center in Utah may have been one factor. Truland could be owed as much as $50 million for the project.
A spokeswoman for Balfour Beatty, the construction company that hired Truland for the project, said the company has “worked hard as a team with all of our subcontractors on this project so that ultimately any issues will be resolved,” but did not specify how Truland’s bankruptcy filing will impact the remainder of that project.
Truland isn’t the only electrical contractor to struggle financially following the economic downturn. Developers were largely unable to secure financing for large real estate projects after the markets soured, forcing them to put construction on hold and keep subcontractors waiting in the wings.
But because contractors often work on projects over several years, the impact of the recession wasn’t immediately evident. Only two to three years after the broader economy bottomed out did contractors start to show serious signs of stress, and in some cases, buckle as a result.
“These cycles are long. It’s not like you see an immediate bounce back. They’ll finish off some of these projects and there’s nothing out there for them to win,” said Noelle Dilts, vice president of infrastructure equity research at Stifel. “That can persist for years.”
The National Electrical Contractors Association in Bethesda saw its membership decline 10 percent in the years following the recession as electrical contractors merged or shut down altogether, and many others put hiring on hold and cut full-time staff to bide time until new work emerged.
“They probably would tend to be smaller to mid-size firms,” said John M. Grau, the association’s chief executive. “They may close their doors or sell or merge with another company. A smaller company can just say, ‘We’re going out of business.’ ”
It’s not so simple for Truland.
“It’s always a tragedy when someone has a bankruptcy. I don’t necessarily think it’s a trend that says this is going to happen with a lot of contractors,” Grau said. “Things are coming around where work is going to increase and the problem will be more people able to handle the work rather than worrying about bankruptcy or closing the door.”
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