Managing opportunities key to ongoing development

FOLLOWING an unprecedented period of growth in recent years, engineers are preparing for challenging times as project developers and major clients wind-back or close their operations.

Despite the downturn, however, most of those at a recent WA Business News roundtable suggested the opportunities currently available still presented solid long-term prospects if managed properly.

Association of Consulting Engineers Australia national president and Parsons Brinkerhoff regional director, Paul Reed, believes engineering firms were reasonably comfortable prior to Christmas last year due to a six-month backlog of work.

But he is acutely aware that the real test will come when that dries up, and emphasises the importance of taking a flexible approach.

"If you try to plan long term in this environment, it'll be really difficult,' Mr Reed said.

"We're obviously watching things almost daily and taking the signals from our clients and being ready to respond as, and when, they make their decisions.

"But to some degree the industry is dependent on decisions made at board level that we don't have an influence over, so we have to be very flexible in this market.

"There's really nothing more you can do other than plan to be flexible."

Motherwell Automation principal Jon Swire-Thompson expects bad news will keep coming in the short term.

"I think there's some enormous panic out there and I don't think we've seen the worst by any means," Mr Swire-Thompson told the luncheon forum.

It's a sentiment echoed by Wood and Grieve Engineers director Matt Davis.

"Go back six months and the issue was how to attract good people to take advantage of the opportunities there to help grow your business," Mr Davis said.

"When we look at what the future holds, we'll be looking at surviving."

Connell Wagner director of WA operations, Charles Milazzo, said his company's pipeline of work remained very strong, but he was realistic about how quickly that could change.

"You've only got to get some cracks to appear, like with a Rio Tinto," Mr Milazzo said.

"They [Rio Tinto] are reviewing their work ... and in a month's time they'll release another tranche, and I'm sure some of us have people in those projects, and the next day they could not have a job on that project."

And it seems the traditional elements of the industry are changing as companies deal with the economic slowdown as best they can.

BG&E Engineering director Judith Uren has noticed a drastic change during the past six months, particularly with regard to the choices available and the amount of work around.

"You didn't actually bid on everything that was presented to you, whereas now you've got so much more competition for the work that's actually there," Ms Uren said.

But it's not only the number of projects that's changing.

"What we're seeing is the size of projects reducing," Mr Milazzo said.

"Some of the mega projects have been delayed, or are not being able to be funded, but smaller projects are still filtering through. But again, whether they suddenly get delayed or stopped is perhaps tomorrow's news."

GHD business group manager transportation, Ashley Wright, is familiar with the daily grind the industry is currently experiencing.

This is particularly the case in the mining industry, where every project's viability is being tested.

"It's a go, and then it's retested and it's possibly not a go and literally as the exchange rate and the commodities price fluctuates on a day-to-day basis, these projects' viabilities are being tested," Mr Wright said.

"'Postponed' is the word of the day, nothing has been canned it's just been postponed."

There was near-uniform agreement among those at the luncheon that tighter lending policies by banks had added to the slowdown.

Mr Milazzo said the banks were demanding either higher levels of presales or higher levels of commitment, or both, before approving finances.

"(The banks) are putting developers, owners and clients through the ringer before they'll even consider funding," Mr Millazzo said.

"Funding from banks has wound right back."

Arup associate Josh Neil knows of one significant project that's now very unlikely to go ahead because of this.

"A very large project in the centre of Perth was nearly cancelled where they've had 80-90 per cent of presales, which is absolutely outstanding and would normally get a project up and running," Mr Neil said.

ACEA (WA) division chair David Porter said the same thing was happening in the residential land development sector, where smaller land developers were being confronted with a bank that didn't have the capacity to lend.

"So projects viable in the sense that the feasibility [study] shows that they work ... the banks are just not prepared to accept any risks," Mr Porter told the forum.

Amid the negative sentiment, a number of positive developments came from the discussion, highlighting opportunities that have presented themselves in the current climate.

Mr Reed cites any involvement with the oil and gas sector as a real opportunity.

"There's a lot of investment in the oil and gas industry, which I don't see changing," he said.

"And a lot of those LNG projects in the north-west have the ability to provide a soft landing to the economy.

"Whether it provides work for our business is debateable but certainly a multi-billion dollar project can have a big impact on the WA economy and provide, I think, a softer landing than in other parts of Australia."

URS director Peter Erceg believes his company's presence in the US provides a significant opportunity.

"Quite large amounts of money will be thrown into infrastructure projects [in the US], so there's a lot of excitement," Mr Erceg said.

"It's a bit of a surreal situation, as you have this huge opportunity that was not there for a very long time."

Norman, Disney and Young's Perth office director, Andrew Macgregor, said his company was still finding a number of new projects.

"There is a broad range of projects still available," Mr Macgregor said.

"Property development, electrical infrastructure, I mean things like switchboard upgrades in schools, tenancy work, it's a very diverse range of work.

"But the recently-arrived-on-the-scene developer work stream seems to have dried up as it was these guys who were heavily leveraged and now can't refinance or secure new finance."

Mr Porter was among those confident the sector would emerge from the current downturn in good shape.

"This is a cycle; it's been around before and this is the third one for me and I'm still here," Mr Porter explained.

"Everyone around this room, their businesses are looking at the opportunities that are going to come out of it, whether it's opportunity for advanced programs of government spending or local governments doing things, or opportunities to look at different areas of your business.

"There are skills available that we haven't been able to access before.

"Some construction prices have come off and are more reasonable.

"I think there's a lot of exciting opportunities."