Catholic-owned builder edges into Indianapolis

November 7, 2009

So much for the “Nun and Blank” and “Second to Nun” jokes.

When Sisters of St. Francis Health Services Inc. bought Tonn and Blank Construction Co. in 1998, more than one employee of the Michigan City firm wondered what it would be like to be run by a Roman Catholic order that not only owned a string of Midwestern hospitals but also traced its spiritual heritage to a 12th century mystic.

At the time, Tonn and Blank was thought to be the only construction company owned by a health care system, and the claim to fame might still be true.

Unique or not, the $200 million company, which splits its attention between Sisters properties and other projects, believes it has outgrown its longtime territory of northern Indiana and Illinois and now views Indianapolis as its next growth market.

The union shop faces an uphill fight in a market increasingly dominated by entrenched contractors—contractors that, like Tonn and Blank, also target expensive health care and life sciences projects.

President and CEO Jon Gilmore insists he’s undaunted.

“Our potential is biggest in Indianapolis,” Gilmore said. “It’s huge for us.”

Tonn and Blank was a typical industrial contractor until St. Francis brought the company under roof.

Gilmore, who was with the company at the time of the acquisition, says Sisters had unpleasant experiences with some other contractors, though Jane Marie Klein, chairwoman of St. Francis Health Services, recalls Sisters’ making the decision primarily because of the system’s seemingly constant construction and to keep the construction profits in-house.

Half of Tonn and Blank’s work involves building new hospitals and renovating exiting facilities for Sisters. It sometimes also works for hospitals outside the St. Francis organization. A $350 million replacement hospital for Trinity Health System in Mishawaka is nearly complete.

After health care, Tonn and Blank’s next-largest segments are commercial and industrial.

The company bills itself as a turnkey operator, handling construction as well as architecture, engineering, technology and even the furniture. So when Tonn and Blank executives pitch a bid, they play up their control of the entire project and the attendant ability to keep a lid on costs and hit quality benchmarks.

They also pitch “Franciscan values” of high ethical standards.

“They bought us because of our ethics and values. But it’s a constant reminder you’d better keep your nose clean,” said Gilmore, who quips that, as a Missouri Synod Lutheran, he’s “Catholic lite.” “It gives you a different perspective on your job.”

Tonn and Blank may be owned by a not-for-profit organization, but it’s operated as a for-profit. Its earnings, which usually run 3 percent to 4 percent of its billings, go to Sisters, which reinvests some of the money back in the company.

The balance of the profits go to Sisters’ 13 hospitals, including Indianapolis-area locations in Mooresville, and in Beech Grove and farther south on Emerson Avenue near Southport, to subsidize care for people without insurance.

A visitor to Tonn and Blank’s headquarters wouldn’t know the company is owned by a religious charity were it not for the St. Joseph the Worker statue at the front entrance. The 3-foot-tall statue, a reminder of Catholic teaching that departed saints pray on behalf of people still on Earth, also exists in miniature in the company’s construction trailers to keep workers safe.

Tonn execs noticed opportunities while building St. Francis Hospital. (IBJ Photo/Karly Tearney)

Another tip-off of Sisters’ ownership is a picture over the receptionist’s desk of Mount Alverno, the mountain in Italy where Francis of Assisi went about showing compassion.

Four of the seven board members are Catholic, said Klein, the chairwoman. But religion is rarely discussed in meetings: “It’s not like we’re a religious company.”

Sisters of St. Francis Health Services is owned by Sisters of St. Francis of Perpetual Adoration. The order was founded in Germany in 1863 before moving several years later to Lafayette, and eventually to its current headquarters in Mishawaka, the northern Indiana city where it maintains a convent.

The order has about 125 members whose median age is in the late 60s, said Angela Mellady, who, as “provincial superior,” carries responsibilities similar to those of a CEO. Virtually no women joined in the 1980s and ’90s, so the 17 who became members in this decade will be called upon at young ages to assume responsibilities for the system.

If necessary, Sisters will look to the outside for expertise. Mellady said: “That’s all in God’s hands.”

Klein said opportunities in Indianapolis became apparent as Tonn and Blank worked on Sisters hospitals in the area.

Tonn and Blank opened an Indianapolis office in 2003 to begin work in Indianapolis and staffs it with 20 office employees.

Now, as the company looks to replenish a project pipeline ravaged by the recession, it is encountering players long accustomed to operating in Indianapolis. Just a few of those firms are Shiel Sexton Co. Inc. and F.A. Wilhelm Construction Co. Inc., both based in Indianapolis. Chicago-based Pepper Construction has a large presence, as does Hagerman Group, headquartered in Fort Wayne.

Breaking into the market in a big way will be hard for Tonn and Blank, said Greg Jacoby, executive vice president of Browning Day Mullins Dierdorf Architects.

“There are a lot of really good contractors in Indianapolis,” Jacoby said. “It’s very competitive.”

Tonn and Blank can expand in Indianapolis by building its reputation with quality work and developing relationships, he added. Indianapolis construction is heavily influenced by relationships even when customers emphasize the lowest price.

Tonn and Blank’s union status won’t necessarily put it at a disadvantage, because most of the biggest projects, such as the new terminal at Indianapolis International Airport, are done with labor agreements to avoid pickets and the attendant potential for delays, Jacoby said.

Still, nonunion Shiel Sexton has snapped up several big projects in recent years, including the expansion of the Indiana Convention Center.

Gilmore acknowledged the Indianapolis market is shifting to non-union contractors.

However, he and Sisters see paradox in the non-union competitors. Hospitals sometimes hire the non-union firms because they bid a lower price. But then the hospitals are obligated to care for the workers when they’re hurt on the job and have no insurance.

Gilmore said Tonn and Blank is solid. It has no debt, and it has capacity to bond $300 million—plenty of firepower for the size of the firm.

That makes him optimistic.

“We’re confident,” he said.•


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