The weak economy has squeezed transportation budgets to the limit. Still, firms that work in the transportation market are finding ways to push forward, diversifying their businesses by sector and region and looking to alternative delivery methods, such as public-private partnerships.
Richard Cavallaro, president of Skanska USA Civil, Whitestone, N.Y., says it is hard to plan ahead not knowing when a federal transportation bill will be enacted and with states being financially strapped. While the American Recovery and Reinvestment Act has helped sustain active projects, he says it has not created any new ones, and funds have run out.
Pressures on margins have forced contractors to bid tightly on cost for a scarcity of jobs. Furthermore, with international firms joining the ranks, transportation contractors say competition is fiercer than ever. With cash-poor states unable to contribute their share to federally funded transportation projects, contractors say states are moving closer to embracing public-private partnerships.
“To win jobs, we now have a bigger appetite for risk and are pushing more toward P3 alternative delivery, which takes more sophistication and more capital,” Cavallaro says. Skanska is now working on its first public-private project in this country: a $1.5-billion Portsmouth-to-Norfolk tunnel project in Virginia with a 58-year concession. He expects to finalize a commercial agreement by year's end that will allow Skanska and its joint-venture partner, Macquire Capital, to operate the tunnels. Skanska USA Civil Southeast is partnering with Kiewit Construction, Omaha, Neb., and Weeks Marine, Cranford, N.J., for the construction.
“We are hoping for more P3 opportunities in the U.S. and hope the movement will pick up speed,” he says. “There's lots of private money, and investing in infrastructure is a good investment.”
While Texas has a couple of big P3 projects—including construction of a 14-mile stretch of the I-35 Grand Parkway in Houston and the I-35 managed lanes in Dallas—contractors say P3 projects are still slow in to mature. Ken Burk, chief financial officer at Tutor Perini Corp., Sylmar, Calif., says, “We need a more consistent [regulatory] framework for P3 partnerships as an alternative to dependency on the federal government.”
Despite the scarcity of transportation funds, contractors are still finding work. “Our pipeline is still pretty robust,” says Gary Adams, global business development manager at Parsons Transportation Inc., a global unit of Pasadena, Calif.-based Parsons Corp. The $500-million Autoroute 25 bridge and highway extension project in Montreal, which opened to traffic in May, is one of its P3 projects. While 2010 was a record year for net income at Parsons, new sales began to lag in January 2011, and that trend has continued for the past six months, according to Adams.
At Tutor Perini, Burk says 2010 was “a good year,” and he expects more profits from civil engineering operations. “Demand is real,” he says, noting that the problems with the nation's ailing infrastructure need to be addressed. On I-5 in Shasta County, the $124.7-million Antlers Bridge is one of its newest bridge replacement projects. It is also working on the $214.8-million Caldecott Tunnel, a two-lane tunnel bore north of the existing three Caldecott tunnels on Highway 24 between Oakland and Orinda, Calif.
Tutor Perini is striving to create a more diversified business with less emphasis on any particular sector or region, Burk says. Just as some other companies are expanding their geographic reach through acquisitions, in the past nine months Tutor Perini has acquired six companies, including Lunda Construction, a heavy-highway construction company in Black River Falls, Wis., and Gulfport, Miss.-based general contractor Anderson Cos.
“We have gone through one of the worst economic cycles in history and feel good about what we have done to weather the process,” Burk says.