Despite some positive signs and 3.6% world economic growth projected for this year, global economies remain “fragile,” construction-industry economist Anirban Basu told Global Construction Summit attendees in New York City last month. U.S. growth was just 2.2% this year, with annual growth not hitting 3% since 2005, he told the Oct. 23 gathering, sponsored by ENR and Marcum LLP.
Russia’s economy is set to rise just 1.8%, and while China is anticipated to see a 6.8% boost, the increase “is still the worst in a decade,” said Basu, who is chief economist for Marcum, an industry financial adviser.
While some small-business CEOS are optimistic, he notes that, without further deregulation, “companies are taking a wait-and-see attitude.” Basu predicted that, in the U.S., “momentum should see us through 2017-2018. … I’m still nervous about the global economy going into 2019 and 2020.”
Neil Bruce, president and CEO of Montreal-based design-build firm SNC-Lavalin Group Inc., predicted that construction-sector firms—including his own, which just completed the $2.6- billion purchase of U.K. design firm Atkins—will continue to pursue consolidation strategies.
“Clients are pushing for a one-stop solution,” he said, claiming it “can cut the risks of supply-chain conflicts and avoid the inefficiencies of managing too many supplier interfaces.”
Bruce noted the Canadian giant’s revamp of its global ethics program in the wake of a 2011 bribe scandal. While the firm still faces pending federal charges and trials have yet to start for key former executives facing bribery, fraud and other charges, he said SNC-Lavalin’s ethics rules are “considered by external third-parties to be proactive and robust.”
Bruce also noted efforts to simplify the company’s corporate structure and investment in technology such as artificial intelligence. He says its AI push “will enable employees to focus on the parts of their roles that add the most value.”
Cross-Border Deal
Cross-border mergers and acquisitions have strengthened in recent years, accounting for one-third of more than 150 deals brokered by consultant EFCG in the past three years, said Andrej Avelini, its managing director who moderated a session on those transactions. Foreign buyers’ desire to gain market share and leadership expertise in the U.S., for example, have fueled more willingness to pay premiums in M&A deals.
But one lesson learned in Danish engineer Ramboll’s 2015 buy of U.S.-based environmental consultant Environ was the need for more aggressive brand introduction of the combined entity, said Frank Marrazza, a unit president of the now combined Ramboll Environ. It will take the parent firm’s name in 2018.
Experts pointed to the need to boost success on larger global megaprojects through more cohesive leadership teams. “How to establish trust on a cross-cultural team” is critical, said Steven Coughran, strategy director of consultant Coltivar Group. “Other cultures manage conflict very differently than in the U.S.”
Speaking of megaproject management, Thomas B. Crane, chief human-resources officer at Skanska USA, noted “the hard reality of the cultural change in our business” where “command and control doesn’t work anymore.”
He emphasized the need for greater team autonomy and an “acceptance of digitalization.” Guy Leonard, Mott MacDonald executive director of global strategy, said the highly digital design approach on London’s Thames Tideway sewer-upgrade megaproject “is on the cutting edge, delivered for 70% of resources.”
To attract the next generation of employees, McKinsey Vice President Tim McManus said investment in training and R&D is the construction sector’s “biggest needed area of improvement.”
Crane said the trend of shorter employee longevity at firms could usher in an era of “construction free agency.”
Christopher Burke, a partner in the law firm Varela, Lee, Metz & Guarino, said his firm sees a higher percentage of cases related to overseas projects. He reminded attendees that dispute clauses are vital in cross-border contracts that typically call for international arbitration “if things go south.” Burke compared these clauses to a prenuptial agreement, saying “it’s something people don’t like to talk about.”
Jim Schnieders, senior vice president for energy EPC projects at Black & Veatch, said many countries do have their own versions of anti-bribery laws, but “there is still a ways to go” on how these are interpreted and implemented. He said there will “always be practices that create imbalances … but I am encouraged to see the field leveling.”
Referring to global project cost and productivity trends, Mark Chaves, international tax-services practice co-leader at Marcum, noted, “Many countries do not allow value-added tax paid on construction, buildings or real estate to be offset against VAT from corporations.” Such tax paid by the developer to foreign countries becomes an added cost that contractors need to take into account, he added.
David Hudd, North American cost consultancy principal at Arcadis, emphasized the importance of “time, scope and cost” in optimizing project financial success, stating, “You can buy two of the three, but the third is just a consequence of the other choices [the client] makes.”
Megaproject Health
Elizabeth Sanborn, chief operating officer at Independent Project Analysis Inc., said about two-thirds of projects over $1 billion fail compared to smaller projects’ 40% failure rate. “Megaprojects tend to fail more because they are more difficult to manage due to their high number of stakeholders, challenging locations and high level of turnover,” she added.
Stephen Cabano, president of Pathfinder LLC, stressed the importance for the owner to understand clearly a project’s scope and lock it down before the project is fully funded.
“Leadership is key. You need to lead the project like a business,” said Ken Gilmartin, senior vice president of life sciences, consumer goods and manufacturing at Jacobs. Strong leaders assemble the right project team, invest in the team to make sure the project partners are successful and allocate risk to the appropriate parties.
Large global EPC firms such as Bechtel leverage their global supply chains and take on ever-more self-performing services, from studies and planning to engineering and contracting to operations and maintenance, said Darren Mort, Bechtel’s LNG general manager.
