Three leading contractors share with us their thoughts on the industry.

The roundtable participants – Eric Neubecker, Sanders Slevatz and John Schmitt – pose for posterity.
When you want information, often the best course of action is to go straight to the source. We wanted an insider’s look at what it’s like to operate successful, well-run shops and examine the industry from that perspective. Last spring, National Driller hosted a roundtable discussion to accomplish just that. We spoke to three Michigan contractors, Eric Neubecker, Raymer Company Inc.; John Schmitt, J.P. Schmitt & Co.; and Sanders Slevatz, Earl Sanders and Son; who shared with us what issues they as contractors consider most relevant to their work as well as their insights into the industry at large.

The roundtable discussion opened with a question to the participants, asking them to identify their most pressing issues and the sort of things that impact their businesses; the dialogue took off from there. Although the conversation pertained to some issues specific to Michigan, much of what came up applies to the industry as a whole and what contractors across the United States encounter.

An overwhelming concern to these contractors, the ability to find and hire good employees is much like it is elsewhere. Sanders Slevatz describes the situation very well. “It’s not easy to find people,” he explains. “Most of our new employees that come in and stick with us are men who are in their late 30s to early 40s. We don’t get many young guys anymore who come in for this type of job — work in the mud, sweat, cold and grease.”

Eric Neubecker agrees. “The biggest problem today is finding qualified people who want to work in this industry,” he says.

But even if a contractor is ready to hire, other factors come into play and must be considered. Neubecker, for example, encounters a situation every spring that impacts his workload and adds a challenge to his hiring practices. He might be ready to hire but the weight restrictions imposed on the roads every spring affect what work he can take on and when he can hire.

“In the spring of the year, the roads have load restrictions placed on them because of the frost,” Neubecker explains. “It’s driven into the ground and when it thaws, it makes it really unstable, so the roads tend to break apart under heavy loads. So the county seat has placed load restrictions on roads.”

Flaunting the restrictions can have serious consequences, where penalties include paying heavy fines for the first offense and impounding the rig could follow for a second. The restrictions are imposed around the first of March and depending on the type of winter weather Michigan has seen, could be lifted soon thereafter or could extend for some time.

“The restrictions cut your legal load in half, and you can’t take half a drilling rig off,” Neubecker continues, indicating why the number of people on a crew is limited during this time and therefore why hiring takes place after restrictions are lifted. “It’s not like you’re hauling concrete and can run a light load; you don’t have that luxury with a drilling rig. It’s always been a problem, every spring.”

Slevatz doesn’t encounter a problem with the weight restrictions because his rigs fall under the gross vehicle weight, and Earl Sanders and Son hires year-round, as needed.

When hiring new employees, “we don’t so much look to hire people who are qualified as much as we look to hire people who want to come to work and work,” Slevatz relates. “We’re fortunate that our main drillers, one of them has been with us 30 years, his son has been with us for 20 years. Another one of our drillers has been with us for 15 years, and our least experienced driller has been with us for 10 years. So they all came up through learning by doing. We’re fortunate; we don’t have a lot of turnover. We’ve done things in the last five to 10 years to try to keep the people we have; we’ve been fortunate enough to keep wages going up.”

Sanders Slevatz considers what’s being said.

Ensuring Insurance

Like many who own and operate businesses, especially those in the trades, the roundtable participants cite insurance coverage as a sizable area of focus for them.

“We all have full medical coverage, which is one of our huge problems — medical benefits, health insurance,” Slevatz states. “We’re looking at a 33 percent increase in our health insurance this year through Blue Cross Blue Shield of Mich-igan. So we had to go out and shop. We tried to avoid PPOs, or point-of-service type health insurance, but we can’t. We’re go-ing to go to that.

“It’s one of our main expenditures, but you have to have it to be able to keep good people. In our area, there’s a lot of development, so there are a lot of jobs for these guys making eight to 15 dollars an hour doing construction-type jobs. Unless you go that extra mile for them, you’re not going to keep them.”

However, the effort to ensure good insurance coverage, going that extra mile, is different now than it used to be.

John Schmitt, J.P. Schmitt & Co., Manchester, Mich., and executive director of the Michigan Ground Water Association, discusses how the way of doing business has changed over the years and how it has affected things like choosing insurance carriers. “What it comes down to,” he explains, “is at one time you signed on with a guy and you dealt with him and your dad dealt with him and maybe your kids would deal with him or that agency. You just can’t do that anymore. You’ve got to shop.”

For several years, the Michigan Ground Water Association has endorsed individual insurance agencies and agents, Schmitt goes on to say. It recommends the agency it feels will save members money and switches carriers when need be. For anyone responsible for choosing insurance coverage, he suggests shopping around and getting competitive bids.

“It’s the case that you’re going to keep looking and make it a full business decision. If somebody can do the job, and do it better at a lower price, you’re going to have to do it. Your heart may be pulling you one way, but you’ve got to use your brain,” Schmitt advises. “It’s not going down, it’s not getting any cheaper, whether it’s liability or vehicles or workman’s comp or the coverage on your building.”

With regard to workman’s comp, he emphasizes the benefit of having a good experience record and safety programs in place.

Running a business in Michigan has a special effect on workman’s comp, as Eric Neubecker explains: “Michigan historically has had a higher rate than surrounding states because of the auto industry. It’s still the same.” He states that a company’s experience level as well as having no or few claims can help keep rates down.

Choosing the right company to insure your business and making sure your safety operations run smoothly aren’t the only things to consider. It’s also important to think about what type of coverage you need. These contractors have found that protecting their premiums is equally important as other factors.

Although eating the expense rather than filing a claim really isn’t palatable to anyone, the alternative of being reimbursed for a smaller amount only to find your premiums have been raised or that you’ve been denied coverage is even less so. Neubecker suggests being self-insured for some situations. “[For] some of the minor stuff, you need to be self-insured on it and just cover it rather than make a claim for trivial things. The same way with trucks and collisions, it’s not worth making a claim on your insurance for minor things.”

A case in point: Schmitt relays a story of his once nicking a hidden gas line and having submitted the $600 insurance claim for its repair. When his policy was up for renewal, because of the incident, the insurance company denied him coverage, forcing him to find another insurer. “I’d have been smarter to just eat the darn thing,” Schmitt acknowledges, “but I learned the hard way. So Eric is right; if you’ve got a fender bender or some minor thing, you’re better off to self-insure.”

Neubecker, part of the fourth generation of Raymer Company Inc., Marne Mich., established in 1890, has a good understanding of what it takes, not only to manage insurance needs but also to run a strong business. With 27 employees at the company, including his brothers, mother and himself, and 16 drilling rigs that consist of rotary, auger and cable tool rigs, Raymer Company runs the gamut in the type of work it performs. Using five to seven drilling crews every day, with three to five service crews to support them, the company does residential, municipal, industrial, commercial and environmental drilling. Given the amount of equipment and people the company has to insure, he’s no stranger to navigating insurance needs.

Contractors are better off to rely on the insurance companies for catastrophic things, Neubecker further asserts.

Eric Neubecker listens intently.

Dealing with Suppliers

One thing all contractors have in common is having to do business with suppliers. Despite current economic trends, or perhaps because of them, contractor/supplier relations have improved, at least from these contractors’ perspective.

“Personally, I think it’s such a competitive market for them, that they’re a lot more accommodating today than they were in the past,” Neubecker shares.

Sanders Slevatz echoes Schmitt’s notion that the drilling industry is seeing a change in the way it’s doing business and sees the implications in his dealings with suppliers.

“We have seen the cost of goods that we turn around and sell — pipes, pumps, tanks, those sorts of things — have actually been coming down since I started,” Slevatz shares. “It was the case where my father knew Bill and knew Don, and that’s who he bought from. They said, ‘OK, you need it?’ ’Yeah,’ and he bought it. Well, it was a different atmosphere when my dad was running the business. He was running the business, drilling wells, doing service, doing it all.”

Slevatz has been working in the family drilling business, Earl Sanders and Son, Lawton, Mich., now in its 60th year, since he graduated from Western Michigan University in 1992. Focusing on residential, some commercial and agricultural work with 4-inch to 12-inch wells, his shop runs four cable-tool rigs year-round with two service crews and employs 13 people full-time. “My sister and I run the day-to-day operations; my parents still own the company, but they’re spending less and less time around the business,” Slevatz reveals.

“When I came into it, nobody said, this is your job, go do it. So I just found things to do, and one of them was to start to look at what we were paying for stuff. For example, a 6-foot stainless steel screen we pay $20 less per screen now than we did 10 years ago. And a lot of that stuff is so competitive, these guys are working on such a thin margin, everybody’s selling the same product.”

Much like hunting for the best insurance agents, shopping around for the best suppliers’ business is necessary, too, and impacts which suppliers they select.

“In a way for contractors, it’s good,” Slevatz recognizes. “We can shop and work them against each other. We’ve developed a good system. With one of our main suppliers, we’ve been able to work out some special discounts and special deals by just giving them more of the business and actually not shopping so much. They’re looking to sell and part of that is to provide better service.”

Both Slevatz and Neubecker acknowledge that the supplier business is tough, one they wouldn’t want to enter, and indicate they expect many to drop out. “If they’re working on a 5 percent net, they’re lucky,” Slevatz estimates.

John Schmitt offers his thoughts on current trends affecting the drilling industry.

Legal Matters

Although employee issues and other aspects of running a drilling contracting business are a strong focus for the participants, the dominant concern throughout the discussion is legislation that affects the water well drilling industry. According to John Schmitt, regulations represent the greatest threat to the industry and are a cause for concern, not only for the drillers in their state but for the rest of the country as well. “If you haven’t got any work,” he maintains, “it doesn’t matter if you’ve got competent workers, good relationships with your suppliers or good material, good equipment, a good shop and a good history. It doesn’t matter if you’re first, second or fifth generation, you’re not going to work. There seems to be a changing attitude in the state capitals, and it isn’t limited to Lansing, Mich. It’s Springfield, Ill., Indianapolis, Ind., and every capital you can think of. I think that the control of water has become — although the politicians won’t tell you this — a land-use control tool.

Schmitt describes speaking to the legislators and asking them whether or not this was land-use control. They denied it but Schmitt strongly believes it is what’s happening.

“You read history and apparently the Indians were a problem 125, 130 years ago. And so we slaughtered the buffalo. Buffalo were the Indians’ way of life and that put a real hurt on the American Indian. I think the control of water is the buffalo in land-use planning. We have some very onerous legislation in the capital here in Lansing under the guise that we’re going to pump Michigan dry. This is bunk, we’re not going to go dry.”

Schmitt concedes the Great Lakes are down, but, emphasizing the cyclical nature of the water levels, he reiterates that a few years ago they were high and, in response, people were buying sand bags to bank the shoreline.

“But there are those that believe we should have western water law, in other words the laws of Colorado, Utah and the arid states. Here in the Midwest. I totally disagree,” Schmitt declares. “I don’t see the state of Michigan going dry, nor the states of Illinois, Ohio, Wisconsin or Minnesota. Arizona and Utah — yes, they’ve probably got some problems. But we’re not Arizona and Utah.”

Legislation under negotiations in the Michigan state senate would limit wells to producing only 70 gallons a minute, as proponents of the bill believe wells that produce more than that amount cause problems for surrounding wells. If the legislation passed, drilling a well also would involve doing a hydrogeologic study to show the effects on neighbors and water conservation. One of Schmitt’s concerns is the addition of hydrogeologist fees would drive up the cost of a well sky high. He suggests as an alternative solution that if lawmakers want to create effective legislation, reporting and studies on 1,000-gallon-a-minute wells would be reasonable.

Neubecker makes the point that requirements would be helpful in situations where there actually is a problem, but believes these pending requirements create more problems and don’t address the real issues at hand. The fundamental concern they all have about this legislation is that it doesn’t acknowledge the underlying issues that often cause problems with wells, such as age, improper installation, lack of maintenance or old pumps that may not have been running right for awhile and finally just stop working.

“There’s nothing in any of the legislation that says if [someone’s] well goes dry, maybe the well was installed 50 years ago and hasn’t been up to code for the last 33, 34 years, but there’s no consideration of that. There are still a lot of wells out there that were installed 40-50 years ago, are not up to code and wouldn’t meet the most basic minimum standards. But they still would be included in this,” Slevatz declares. “I have seen homes where people basically live on a flooded riverbed. They drain the riverbed — it’s only about 10 feet deep. We probably had 15 calls in one week of people’s wells going dry because when they drained that off, their 10-foot, 15-foot well didn’t work anymore. Headlines in the local paper ran ‘Local wells going dry.’ Well, they’re not wells, they were pipes in the ground that somebody pumps water out of. So we know that, but the public doesn’t.”

Lack of public awareness of the water well drilling industry seems to be central to the problem. Our contractors all agree that educating the public is needed but acknowledge it’s difficult.

“We are basically a small industry,” relates Schmitt. “We’re really an industry of lever pullers. We’re an industry of honest, hard-working, decent individuals — very ingenious — but sometimes our business practices could use a little upgrading and we don’t do very good at public relations.”

Schmitt relays a story of approaching the hotel staff at the 2004 MGWA convention and asking the group, which consisted of about 25 people, if they knew what ground water was. They didn’t. “Now is that their fault? No, it’s not,” he says. “Is that our fault? Yes, it is. We haven’t done a very good job of telling people what we do.”

But getting people within the industry involved remains part of the challenge. “You’ve got a lot of guys out there who aren’t going to be able to take up the call,” Slevatz explains. “They’re not going to be able to go to their legislator, they never have, they don’t know how and they don’t care to. All they care about is if they have a job that day. You have the people who are involved with the association, You have the people who are involved as directors in the association, who have put in work, who write letters, make calls but that’s a very small percentage of the people who are going to do it. You know, the majority of well drillers, even if there is legislation out there, they’re still going to be doing the little bit they do. It’s unfortunate for those of us who are concerned about it and who will be affected by it. There’s strength in numbers, and it’s hard to get those numbers.”

Other factors contributing to the lack of awareness are misconceptions about private water wells and well drillers, according to the participants. Stigmas unfortunately carry weight, especially when there’s some truth to them. Slevatz discusses some of the challenges to making the industry more visible when poor work done by one well driller can reflect on the industry as a whole. “There’s always been this perception that if it’s in a vertical pipe it’s bad, but if it’s in a horizontal pipe, it’s good,” he says in regard to water supplies. “A lot of people say, ‘We have city water.’ Well, where does that come from? Most of it comes from wells. The stigma of the private well, the well driller who does poor work, we have an example of that in the Kalamazoo area. They found some yucky stuff in a couple of the wells, and we did an informal study of what went on there. You’ve got guys coming in and doing what should be a two-day job, at least, in a couple hours. Not grouting, leaving rock exposed, you know, basically, cutting our own throats.”

Shoddy workmanship isn’t the only factor contributing to the negative stereotypes. Undercutting prices is another problem that affects the industry. “Another misconception that the public holds is that cheaper is better,” Neubecker reveals. Considering competitive pricing, he explains that as long as some well drillers cut standard prices by $500 or $1,000, for example, and sell it to the public, everyone involved will have problems. “They’re cutting corners somewhere — not grouting or using inferior casing or screens,” Neubecker adds, explaining that those who make price cutting a regular practice are unable to drill a well for less and have to make up the difference somewhere.

“How do you get those guys to not operate like that?” Slevatz questions. “Basically, you have to hope the economy shakes them out. But the biggest worms live under the smallest rocks, sometimes. That’s one of the things that’s frustrating because you do your bit. There are regulations out there now — grouting regulations — that aren’t enforced. And now, if this legislation goes through, it’ll be put on the DEQ to regulate it, to make it happen, and I don’t see how they can. It’s putting more of a load on a system that’s already overloaded in the first place with greater detrimental consequences.”

Schmitt expresses the concern that if the 70-gallon a minute limit passes, it will cause a snowball effect and ultimately, negatively impact all wells and well owners. “If this current stuff about 70-gallons-a-minute becomes law, I think it will be the end of this industry,” Schmitt predicts. “Will it be the end of this industry as soon as it’s signed? No. But will it eventually affect us. Yes.”

He professes he is very passionate about the industry, as are most of the people he knows who work in it, and that with potentially damaging legislation, he feels the need to do what he can to be defend it. “I believe in this industry,” Schmitt professes. “I am pleased we have younger fellows like Eric and Sandey who believe in it strongly too.”