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Riding the 09 storm

Put a bunch of chief executives and directors in a room to discuss the state of the industry at the inaugural NCE Autodesk round table at London’s Goring Hotel and top of the agenda is inevitably the economy. How will civil engineering face up to recession?

First the bad news. Civil engineering is not insulated from recession, despite government suggestions that investment in infrastructure is a way through the current economic darkness. Recent announcements
of project cancellations and redundancies are already evidence that that is the case.

There are some positives to be found, however, according to guests at the first NCE Autodesk lunch. But they warned against relying too heavily on the Middle East market. Here’s how the conversation panned out as hosted by NCE editor Antony Oliver and Autodesk Civil 3D sales manager, northern Europe David York.

Keith Howells, chief executive, MottMacDonald:
“We are already seeing the impact of the economic crisis, particularly in the United States. Property development is at a standstill. And municipal infrastructure is going the same way as state budgets are cut. Here, the property sector is in decline and it is impacting on business. But there are hot spots – energy, for instance, and the Gulf. Though everyone is rushing there now so that will have an impact too in terms of added competition.”

Geoff French, chairman, Scott Wilson:
“We are insulated to some extent, in some markets.But can civil engineering stand in the face of major economic downturn? Of course not. But we are not going to know the true impact until we understand what prime minister Gordon Brown, and chancellor Alistair Darling mean by ‘investing in infrastructure’. Everything is moving so quickly and one of the issues is government reaction time. They need to move faster.”

Jonathan Goring, managing director, Capita Symonds:
“It’s very strange at the moment. We feel like we are busy, everyone is running around, but are we doing the right stuff? We can see there are acquisition opportunities in this market, as well as bad times ahead, and we are looking to buy. We are thinking in a five year timescale. We could have a bad year in 2009 but overall by 2013 it could be great.”

Gordon Clark, chairman, Gifford:
“The best thing to do is to focus on what you are good at and what there is demand for. Be the business and the person that is best at it – through the work you do and the innovation you bring. A bit of inward searching is required – what do people want from us? At Gifford we are not particularly scared of recession; we’ll be focusing on the things we do well and we’ll ride through it. But there will be belt tightening for everyone.”

Brian McConnell, managing director, Hydrock: “Everyone will be going for the Middle East and chasing the public sector too. There will be less to go round. I’ve become more pessimistic over the last few weeks. But we are putting together an action plan and we are also looking to acquire. If we can manage through the recession we’ll come out stronger; but the geotechnics market is not looking too great.”

Michelle McDowell, chair, civil and structural engineering, BDP: “There are sectors that are more robust, such as education – but we couldn’t say we were insulated. We are diversifying into other markets as we speak, but schools are holding up.”

Goring: “Contractors we are speaking to say they are struggling to get the (financial) facilities to deliver on the schools commitment even though the government has underwritten the programme.”

Stephen Wells, director, Costain:
“Yes, PFI funding has become increasingly challenging. Deals are going ahead but there are difficulties in closing them off. There’s an extra period to add to the negotiations. We have to get the projects over the line.”

Hugh Porter, strategy director, Morgan Est:
“We have time to take stock to see what we should be doing as we are fortunate in that the sectors we work in are resilient. We are gratified in that respect, but will not be complacent and find ourselves with additional challenges to keep on being innovative.”

Steve Denton, director, Parsons Brinckerhoff:
“Will a downturn affect our drive to innovate where it benefits our clients? No, I do not believe that it will. Bringing innovation to projects reflects a state of mind, a culture, and it needs to. The shape of the market is different from last time there was a downturn, with a lot more work bound up in long term frameworks. The market outside of these framework could become particularly competitive, and it will be important to track whether the existing frameworks hold up.”

John Harvey, managing director, WSP:
“It’s very interesting that one of the big development areas for the recession is engineering money saving for the client.”

“Yes. Water companies for instance, see business efficiency improvements as the way forward and they recognise they need to work with us to do that. Eighty per cent of our business is repeat frameworks and customers are extending the deals as far ahead as 2015. They might want more for less but by working with us and cutting out the waste they can have that.”

“In some sectors services are highly differentiated while in others, services are more commoditised and therefore price sensitive. The more commoditised, volume driven sectors, are likely to be subject to price pressure both in response to any downturn in UK and through the possibility of doing work overseas. The differentiated side, where innovation and technical excellence counts, has a different flavour and more opportunities to deliver benefit and savings to clients. There is a risk that in a downturn procurement strategies will become focused on cost, rather than the value, and if this leads to procurement approaches suited to commoditised sectors being adopted in differentiated sectors, then it would not serve our clients well.”

Steve Johns, director, URS:
“We have had clients say they want to pay us 5% less because they have to cut costs. We said pay us 5% more and we’ll find the cost savings for you. And they are.”

“The big problem for us all is inefficient procurement, especially in the public sector. The processes are so complex and demanding.”

“That’s partly our own fault though. We advise the clients on procurement; we put that complexity in!”

What they said
On margins: “What we want is more for less; not less for more”
On frameworks: “We are starting to see framework clients asking for reductions on agreed deals”
On recruitment: “Over the next two years we are going to be competing for the top people. If we get suckered into low price commoditising we’ll lose out to India”
On the Middle East: “It is a very exciting market but it may turn out to be a bubble that is about to burst”

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