AECOM Says Owners Are Paying For Most Pandemic-Idled Project CM Costs
The company continued to pile up restructuring-related losses in fiscal 2020 first half
A ECOM continued to pile up restructuring-related losses in fiscal 2020's first half, but there was some good news related to the pandemic.
CEO Michael Burke told investors May 5 that about eight out of ten of all the company's construction management projects had not stopped work and that at most jobs where the COVID-19 pandemic had stopped work owners had been covering AECOM's general conditions costs.
Construction management and fixed-price construction in particular had become a sore point for AECOM and other major companies recently.
Burke and his colleagues said AECOM has been making progress exiting that market. And in order to improve profit margins in its overall operations, the company has sold its management services unit, boosting its cash and improving liquidity, as well as taking other measures. AECOM foresees restructuring expenses in fiscal 2020 of between $160 million and $190 million, and total cash restructuring costs of between $185 million to $205 million.
When the coronavirus pandemic hit, disrupting many projects where work either stopped or slowed, at-risk contractors faced new costs not covered by basic contracts. Who would pay has become an industry question mark.
Almost all of AECOM's idled project owners "are paying us our general conditions, which covers our costs on those projects," Burke told investment analysts who follow the company (NYSE-ACM). Clients do it because they "want to keep our teams at the ready to jump back in when construction has revived."
Despite the optimistic assessment, AECOM reported an overall net loss of $23.9 million for the combined second and first-quarter of fiscal 2020, compared to net income of $158 million in the prior year's period, on revenue of $6.14 billion, down 5.5% from $6.50 billion.
On a happier note, AECOM reported record-high backlog of $42 billion.
General conditions costs are usually defined as the total compensation payable to the contractor for its jobsite supervision, inspections, coordination and managing of the work, according to a joint document on public project construction management created by the Associated General Contractors and the National Association of State Facility Administrators.
General conditions also include coordination and supervision of equipment, utilities, facilities, bonds, insurance and labor and markups on those costs. The cost of this work is usually included in the contractor’s bid but in some contracts it may be a separate line item.
Burke stated that more than 85% of AECOM's construction management projects are continuing to move forward, including more than 70% in New York despite temporary non-essential construction shutdowns.
Because general condition costs continue to be paid by clients and with AECOM's "agility and repositioning our workforce, we have retained nearly 99% of our employees, which positions us even better to respond directly as economic trends recover and client demand accelerates."
The Los Angeles-based company also reported progress exiting self-performed at-risk construction, such as its share of a joint venture contract to de-commission California's San Onofre nuclear power plant. AECOM is "actively negotiating a buyout" of its share of the contract, said CFO Troy Rudd. Completing that task would would represent "a substantial milestone in our de-risking strategy," he said.