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INDUSTRY REVIEWCIVIL ENGINEERING


Complexities and risks


Demand for infrastructure is rising and projects have become increasingly complex. With project developers under mounting cost pressures, project logisticians are being forced to shoulder increasing levels of risk. Despite this, the market for their services remains ultra- competitive, writes Sam Whelan.


developing markets, to the repairing of ageing bridges in developed nations, there is no shortage of demand for infrastructure projects. The challenge, however, is finding the money to pay for it all, with many governments looking to shift financial risk onto the private sector. Furthermore, while engineering and


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construction companies are faced with a steady 4 percent annual growth rate, they continue to struggle with stagnating productivity and low profit margins, noted McKinsey. “There is a relatively favourable situation


in the construction market, but it is difficult to say how long it will last,” said Jacob Birkeland, head of media relations at Sweden-based multinational engineering and construction firm Skanska. “There are a number of political and


macroeconomic uncertainties, and many of our geographies and segments are now starting to level out.” Skanska operates in Scandinavia, Europe


and the USA. Its current order backlog stands at SEK192 billion (USD20.7 billion), up nearly 2 percent year-on-year, of which civil construction represents 41 percent. The USA is the company’s largest market, also with a 41 percent share, and here Birkeland noted that “the underlying need for


100 May/June 2019


ccording to industry analyst McKinsey Global Institute, USD49 trillion must be invested in civil infrastructure by 2030 to keep up with global growth.


From new roads and railways in


infrastructure investment is enormous”. On project funding, he said


public-private partnerships (PPP) will be “one of the relevant business models in the future” when it comes to financing large public projects, citing several advantages for the client, including: fixed costs over time, risk transfer to the private party, and sustainability and quality incentives.


Increased competition “However, more companies have entered the PPP market and the increased competition has made it difficult for us to be competitive. In addition, the ability to invest our equity has diminished, as the public administrations in the USA often decide they do not need private funding, but prefer to push for tax money,” Birkeland added. Sustainability is also a key requirement


Skanska looks for in suppliers, with the company keen to reduce the environmental impact of its operations. “We also look for professionalism and


stable relations,” said Birkeland. “At our building sites, safety is the primary concern. We work safe – or we do not work at all, so


We sometimes take considerable commercial risks to win work. This means you have to have very good people at your company... – Torbjörn Larisch, FLS Projects


we expect our suppliers to focus heavily on safety aspects.” According to professional services


provider PricewaterhouseCoopers (PwC), global engineering and construction contractors are experiencing mounting cost pressures and low operating margins. This is due to the oil and gas downturn and subsequent increased competition for civil projects. A clear shift is towards lump-sum, turnkey (LSTK) contracts, where they must guarantee cost risk and operational readiness. Other trends include considerable


market consolidation through merger and acquisition (M&A) activity in recent years, and the increasing size and complexity of many infrastructure projects. One result of this has been cost pressures


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