In 1997, EMCOR established a new subsidiary to expand its facilities services operations in North America patterned on its United Kingdom business. This unit seeks to build on existing mechanical and electrical services capabilities, facilities services activities at existing subsidiaries, and EMCOR's client relationships in order to expand the scope of services currently offered and to develop packages of services for customers on a regional, national and global basis. EMCOR's North American facilities services strategy includes initiation and expansion of facilities services operations at subsidiaries that provide mechanical and electrical construction services, including the offering of bundled facilities services programs, integrating two or more services, and development of facilities services business independent of construction services through an acquisition program. In addition, management also has targeted growth in facilities services opportunities arising from the deregulation of the electric utility industry, deregulation and expansion of the telecommunications industry and the REIT-driven consolidation of the commercial real estate industry.

The deregulation of, and increased competition in, the utility industry, along with government mandates calling for reduced energy consumption by government entities, have led to renewed focus on energy costs and conservation measures. These measures typically include energy assessments and engineering studies, retrofit construction to implement energy savings measures, and the long-term operation and maintenance of energy savings measures to ensure continued performance. Various subsidiaries of EMCOR have participated in energy savings programs in the past. EMCOR's facilities services subsidiary has established strategic alliances with, among others, DukeSolutions, Inc., a subsidiary of Duke Energy Corp., to provide energy assessment, design, installation, and operations and maintenance services for various Department of Defense facilities located in 46 states, the District of Columbia and Puerto Rico. EMCOR expects additional similar programs to be undertaken as the deregulation of electric utilities continues in the United States, and believes that because it has the ability to be a single source provider of construction and facilities services it will have a significant advantage in obtaining this type of work.

As part of its expansion of its facilities services business, during 1998, EMCOR acquired a Bakersfield, California based maintenance program consulting service firm, a Los Angeles, California area based mobile mechanical services firm and a Richmond, Virginia based industrial facilities services firm to expand its capabilities in this field. In 1999, EMCOR acquired a Boston, Massachusetts based firm that provides mobile services in the New England area and site-based operations and maintenance services throughout the Eastern United States. These acquisitions permit EMCOR to offer integrated construction and operations and maintenance services.

The deregulation and expansion of the telecommunications industry have led to a rapid expansion of installed infrastructure, including wireless communication systems and long distance networks, much of which has been built by companies that do not have existing maintenance operations and which seek to contract out such services. EMCOR has provided construction services for the infrastructure of telecommunications companies and facilities services to support their operations. In this industry, EMCOR has worked on facilities owned by such service providers as Sprint, AT&T, and MCI, has installed and maintained equipment for suppliers such as Lucent, Nortel, and Siemens, and has provided construction and maintenance services to competitive local service providers such as Teleport Communications Group, now part of AT&T, and to users who maintain their own systems.

EMCOR has also provided construction and maintenance services to many internet service providers in support of their data center facilities. These customers include Metromedia Fiber Network, Exodus Communications, Level 3 Communications, and Qwest Communications International.

EMCOR offers facilities services to customers on single-task and multi-task bases depending on a customer's needs, under either short-term or multi-year agreements. EMCOR's services often require that its employees be permanently assigned to customer premises around the clock.

EMCOR believes mechanical and electrical construction services and facilities services activities are complementary, permitting it to offer customers a comprehensive package of services. The ability to offer both construction and facilities services should enhance EMCOR's competitive position with customers. Furthermore, EMCOR's facilities services operations tend to be less cyclical than its construction operations because facilities services are more responsive to the needs of an industry's operations requirements rather than its construction requirements.