Construction game taking time to cool: Bilfinger

Two months ago, Bilfinger Berger Services (BBS) managing director Mark Elliott said his company was still experiencing strong growth. Last week, he said the company is continuing to quote for large amounts of work. Though nowadays, he said, the competition for that work has thinned out, particularly in the power sector, heavy industry and resources.“We’re finding that sometimes we are one of only two or three bidders for a particular project, or even that we’re negotiating directly with the client because they need the work done and they can’t find others who are interested in pricing a particular job,” Elliott told CIN.He said there are occasions where finalising a contract quickly is more important than running a tender process with a number of companies, which will cost the client time. Nonetheless, Elliott said the nature of some parts of the industry is such that to date it has yet to feel the full brunt of the economic downturn.“Given the current financial crisis, it’s possible the industry may see a slowdown in the future – this industry is a lag industry, so while the Australian financial sector has already felt the ramifications of the problems of the sub-prime market, as the instability filters its way through the economy, we may get hit further down the track,” Elliott said. As has been indicated by John Holland group managing director David Stewart, Elliott said the issue of taking on too much work was also a consideration for BBS.“As part of our assessment of any new contract, one of the questions we need to answer for ourselves before pursuing the opportunity is, do we have the right people with the right skills to actually staff it.

“The most important people are the couple of project leaders for that particular contract, whether that’s a long-term maintenance contract or a more specific capital works/engineering project. “It doesn’t matter whether you’ve got a full order book or an order book that’s not as full as you’d like it. You always need to assure yourself as a contracting organisation that you have the right people to run the work before bidding.” But Elliott said this does mean that in this current economic climate, opportunities that arise that cannot be pursued due to skills shortages.

“We were given an opportunity to bid for a project about 12 months ago – it was a perfect opportunity for us with a blue chip client, for work we had done a number of times over the years,” he said.“However, our chief estimator that would price the job, our senior engineers that would design the job and our project management team that would run the job were all busy elsewhere, and we had to take the hard decision and elect not to price and bid for that job – because the key people we needed to make that job successful weren’t available.”Elliott said the real driver for the recent increase in demand for BBS’s design, construction, operational and maintenance services was coming from the power generation sector.“We’re currently designing and constructing over half of the gas-fired power stations under construction across Australia. “The key players in the power industry, whether they’re clients or original equipment manufacturers, are also talking to us about their future plans and what part we may play in the coming years.

“On top of that, several other major industrial and mining organisations have expansion plans they’ve been discussing with us. Some of those may not come to fruition in the immediate future because of the financial crisis, however most of these projects will need to happen in due course. “We’ve noticed clients are much more cautious about embarking on a new project. They’re still sharing with us what their plans are; however, they’re being a bit more tentative about when those plans may be implemented. “In Western Australia, for instance, one of the major mining companies we know has been cancelling or postponing orders for equipment, so that leads us to believe there will be a bit of a slowdown in activity in due course for us.

“We’re also hearing directly from clients, government and financial institutions that the financial crisis is impacting whether projects go ahead and how many banks are involved in the financing.” Whereas previously a client may have gone to one or two banks for finance, now they need to get together 10 banks to form a syndicate because financial institutions are less willing to commit more than a few million dollars to a project. Elliott said he had also noticed a change in the willingness of financial institutions to commit to certain types of projects, which is based mostly around the risk profile of the projects.“If you use PPPs as an example, where there’s patronage risk such as with a toll road, the finance sector is being much more cautious around that because there’s high risk associated with those types of projects. “On the social infrastructure side, such as hospitals, schools and prisons – where so long as your facility is available for the government to use, you get your payments – that’s a much more secure investment.“So financial institutions are still looking fairly favourably – albeit on a smaller scale – at those sorts of specific infrastructure projects, because those pieces of infrastructure are backed by the government,” Elliott said.

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