Time out: Infrastructure spending by all tiers of government is expected to fall 20 per cent this financial year.
Photo: James Horan
Consulting engineers are tightening their belts and rewriting their CVs. The heat is coming off previously booming sectors such as resources, even before others such as transport and industry show renewed signs of life.
The industry is so concerned that last month its lobby group called on the federal government to boost infrastructure spending in the 2013-14 budget. Consult Australia estimates that public infrastructure spending by all tiers of government will fall 20 per cent from $31.7 billion last financial year to $25.3 billion this year, cutting engineering consulting revenue by $950 million and causing the loss of some 4750 jobs from an industry that employs about 240,000 people.
“Government spending on infrastructure remains important and if those projects dry up, all sorts of competitive and fiscal pressures will come to bear on all the participants involved in those projects to date,” Norman Disney & Young’s Australian regional director, Stuart Fowler, says.
No longer able to ride on the rising tide of mining that has buoyed the collective fortunes of the industry, companies face a shake-up from the tighter rein on spending by private and public clients. The focus is increasingly on innovation to increase efficiencies and cut costs on existing projects, rather than designing new projects.
“What we’re seeing generally across all sectors is that organisations are spending less on capital infrastructure and that impacts on design engineering firms,” says Mark Bruzzone, managing director of infrastructure and government for Australia and Singapore for MWH Global. “Not only is there a tightening of the market, but the types of work coming from those markets is different.”
This is going to test an industry with an estimated 48,000 firms.
“Rather than the adage of a rising tide, we’re going to see boats rising at different paces in the next 12 months – and some not even being able to rise,” says RBS Morgans analyst Roger Leaning. “The companies are having to be smart to make sure they can innovate and cut costs.”
There will be redundancies, but firms will do what they can to stave them off – not least to avoid finding themselves having to hire the same skills back when the upturn inevitably comes. In a cyclical industry, smoothing the troughs is a coping mechanism to ensure an ability to capture momentum and ride the next peak.
“Firms will always try to work through it cleverly in terms of anything from nine-day fortnights to forced annual leave, to flexible work, to utilising people on different types of projects and moving people around the world in global firms,” Consult Australia chief executive Megan Motto says. “They are very conscious of losing the scarce resources they have in terms of engineers in Australia.”
They will also try to develop or buy new skills and capabilities, to get into stronger sectors in which they may not have previously operated.
“Where they’ve tooled up for the resources sector and mining, they’re now turning their attention to oil and gas and petrochemicals,” Motto says. But it takes a long time to move into some of these markets.”
Engineer recruitment company Australia Wide Personnel says this is causing some growth in an otherwise slow Queensland job market.
“Where we are seeing some growth is within the oil and gas sector – a sector [in] which a lot of consulting companies are now aiming to get more involved,” the company says. “Although highly competitive, many consulting companies are looking to grow their reputations in oil and gas.”
Views about the extent of the downturn differ, of course, and some people say current conditions are likely to be no different this year from the past 12 to 18 months and that an upturn is within sight.
“It’s been a tough market for some time,” ND&Y’s Fowler says. “It’s not going to change quickly, but I’m reasonably optimistic about some of the underlying changes in sentiment. The coming year will be more of the same, with a sense of some optimism down the track. Twelve months ago that sense of optimism wasn’t there.”
But other companies are making changes. In MWH’s water business – one Bruzzone calls “the tightest sector we’re working in” – the company has started a business intelligence service to help utilities such as SA Water, with which it has been working for the past 12 to 18 months, manage its infrastructure more efficiently.
For a water utility, this may mean offering tools for predicting water demand across the network. Alternatively, it could be using technology to model the network to show how it is functioning at 15-minute intervals, to let managers make quicker and more effective decisions.
“With anything that allows them to increase their return on assets and delay future investment on infrastructure, they get a boost,” Bruzzone says.
ASX-listed engineering consultancy Coffey on Monday said it increased fee revenue 3 per cent in the six months to December from a year earlier, as increasing levels of oil and gas work mitigated the slowdown in its core business of mining. The company, which cut staff over the period, also benefited from a stronger than expected performance in the US which partly offset a slower European environment.
MWH, which has a contract on a coal seam gas project in Queensland – Bruzzone will not identify it – ensured more work for itself by extending its service offering of treatment, mainly salt removal from water used in coal seam gas operations, to projects for the reuse of water in areas like agriculture.
Changing infrastructure funding is also creating work for firms in advisory capacities. MWH advised the Ontario Teachers’ Pension Plan and Hastings Funds Management with services such as technical due diligence and risk assessment in their successful bid last year for Sydney’s desalination plant.
“Many superannuation and pension funds have the money to fund projects and are looking for sound investments,” Bruzzone says.
Like its peers, the firm, is also cutting costs. MWH has a project team looking at how the company can cut office accommodation costs by using technology to allow staff to work remotely.
“The technology is there. It’s how to use it and how to put the management and collaborative systems in place to make it work.”