SNC-Lavalin Wins Big Canada Bridge, Rail Jobs, As Its Infrastructure Chief is Named Golder CEO
Even as it copes with Canadian federal fraud charges in an alleged bribe scheme by former executives, SNC-Lavalin was buoyed by apparent wins this month of two multi-billion-dollar government infrastructure projects—a bridge crossing in Montreal and a light rail line in Toronto.
Related to Mahmoud's former employer, some observers speculated that the project awards to the SNC-Lavalin-led teams signal a vote of confidence by the federal government and a likely settlement of the case brought in February. A trial date start was pushed back to July 3 from earlier this month.
SNC-Lavalin was selected by the federal infrastructure ministry on April 15 to replace the Champlain Bridge across the St. Lawrence River, which is set to open in 2018. The firm did not disclose the value of the design-build-operate-maintain award, since it is structured as a public-private partnership with terms still under negotiation.
Maxim Sytchev, a construction sector research analyst for Dundee Securities, Toronto, estimates the award will be between $2.5 billion and $4 billion, likely on the lower end. Consortium members include ACS Infrastructure Canada Inc., HOCHTIEF, Flatiron and TY Lin International.
The venture beat out proposals led by a Kiewit venture that includes Skanska, Macquarie, WSP Canada, Buckland & Taylor and Parsons Brinckerhoff, and an OHL Infrastructure Inc.-led team that includes Samsung E&C America Inc., Acciona, Hatch Mott MacDonald, Dessau and Ramboll Denmark A/S.
The firm also appears to have won the $3.3-biliion Eglinton rail line project, according to an April 23 report in The Canadian Press, based on information from unidentified sources.
An SNC-Lavalin spokesman told ENR the firm "cannot confirm or deny anything until an official announcement by the Government of Ontario takes place."
The firm is teamed with Canadian engineers Aecon and EllisDon, ACS Infrastructure Canada, Dragrados and IBI Group. The competing team includes OHL Concesiones, STRABAG, Bechtel Development Co. and Obayashi Canada Holdings. According to the media report, the Eglinton project will involve a $4.38-billion government investment that is Ontario's single largest for transit.
In announcing the Montreal bridge selection, the ministry said that all members of the SNC-Lavalin team were in compliance with the government's "integrity framework" for public sector bidders. There was speculation by investors and others that the government might bypass SNC-Lavalin because a conviction on the federal charges would have required its debarment from federal work for 10 years.
Denis Lebel, federal infrastructure minister in Quebec, told Canadian media that the agency had a "rigorous verification," and that it was working with "facts, not accusations."
Sytchev speculated in an April 15 note that "some will question how aggressively the consortium had to be bid in order to secure the contract."
He noted the importance of "SNC scoring a sizeable contract in a division that has been project and execution challenged and has been the segment impacting the overall [engineering and construction] performance due to numerous negative profit reforecasts over the last two years."
The analyst said the company is completing "some legacy projects that can still introduce volatility" into its results but noted the the expected backlog boost from the Champlain award the the likely Toronto rail win. Hetermed the Montreal bridge award "a strong vote of confidence" in SNC’s ability to secure government work.
In announcing Mahmoud's departure as infrastructure group chief among other changes it made in its executive suite, SNC-Lavalin said he "made a lasting, positive contribution to the company" and credited him for "tackling very challenging parts of the business, creating an efficient structure and world class team, and preparing the groundwork to help the company move forward."
While government work makes up most of the company's infrastructure and O&M division revenue and half in its power division, said Sytchev, he also speculates that infrastructure "will constitute a smaller percentage of the company’s pie," as it focuses on energy and power sectors.
The push into those sectors is one factor in Neil Bruce moving into a newly created role as chief operating officer. He had headed the firm's mining and oil-and-gas business and its environment and water practice. Bruce, who will relocate to Montreal from London, led SNC-Lavalin's $1.7-billion acquisition in 2014 of U.K. oil-and-gas constructor Kentz Corp., reports Canada's Financial Post publication.
According to media and analyst speculation, the new role for Bruce will also allow company CEO Robert Card to focus more on the firm's ongoing legal challenges and future strategy. He has said the firm will fight the charges involving alleged bribes of officials in Libya and in Montreal by now-fired executives to secure contracts. SNC-Lavalin now is suing two executives for allegedly embezzling $127 million of company funds. They could not be reached.
Named to run the infrastructure division is Executive Vice President Ian Edwards, who joined the firm late last year from Australian contractor Leighton Holdings.
Also departing the firm, on May 31, is Christian Jacqui, head of global operations. Power division President Alexander (Sandy) Taylor and oil-and-gas division President Christian Brown stay in their current roles. José Suárez, executive vice president of integrated management systems and Dale Clarke, in that same role for mining & metallurgy, are switching positions.
SNC-Lavalin also said Réjean Goulet, executive vice president and general counsel, will retire in July after 30 years with the firm, but "will continue to assist the company, beyond his retirement date on specific litigation matters, including the recently announced Federal charges." The company will seek a permanent replacement.
Sytchev says the federal government is considering changes in its "integrity framework rules," which he says have been criticized as more "draconian" in punishing transgressing companies than in the U.S. and Europe. He says that both Transparency International and the Canadian Bar Association have called the 10-year debarment penalty inflexible and "out of step" with the international standards.
In an April 24 note, Yuri Lynk, a Montreal-based E&C sector analyst for Canaccord Genuity Corp., said the bridge award and media-speculated rail award "provide meaningful upside potential" to future earnings estimates.
He also noted "hidden value" in SNC-Lavalin's infrastructure concession investment portfolio, reporting that first-quarter revenue and earnings for Canada's tolled Highway 407 near Toronto rose over the same quarter in 2014, beating analysts' estimates. SNC-Lavalin has a 16.8% interest in the concession.