Infrastructure report: Riding the consolidation wave

Consulting engineering is unlike other professions, it's less about process and more about creating unique solutions - John Bridgman.

Aecom's move will transform the engineering industry, writes Bill Bennett.

Aecom, one of the world's largest suppliers of engineering services for infrastructure projects, is set to get bigger. In July Aecom Technology agreed to buy URS Corporation in a deal said to be worth US$6 billion.

The deal is expected to complete in October. Assuming it passes all the regulatory barriers and gets shareholder approval, Aecom will emerge with 95,000 staff worldwide and annual revenues of around US$19 billion.

John Bridgman, managing director of Aecom New Zealand, says the move is part of a wave of consolidation in the engineering profession which in some ways mirrors the mergers between large accounting firms a decade or so ago. Ultimately the change will see fewer, bigger players which, in turn, should lead to greater efficiencies as consultant engineers move further along the project value chain.

"One of the key triggers is we're seeing a desire from our clients for a more integrated service offering. Many see benefits from having a supplier who is able to support and finance operations, maintenance and even some build activity. Whole of life integration is really valuable for them. We're getting more and more demand for this and that requires a bigger balance sheet and a bigger organisation."

Scale brings integration. Bridgman says this can mean broadening project scope from "just doing design services to the delivery side, the maintenance side and even to the point of financing projects."

This is especially important when it comes to government contracts which now often use the public private partnership (PPP) model requiring substantial investment from consulting engineers. Bridgman says the goal of a PPP is to get the right connection between the designer and the operator to deliver the best whole-of-life outcomes.

"We get involved in projects like Transmission Gully -- we are the designer and yet we are highly integrated with the operator and the maintainer of the design. The current industry consolidation is mirroring the demand for that kind of integration -- to optimise the connection between the designer and the long-term delivery."

For that project Aecom brought in experience from its earlier involvement in PPP projects in eastern Australia and some expertise on alignment and earthworks optimisation.

Size also helps when it comes to delivering technology. Bridgman says many of his clients are government, federal government or local government, there are also global private sector clients. "All these clients are looking for increased access to the latest technology from around the world. An example of that is the Auckland rail electrification project where the conductor beam technology used at Britomart has only been used once previously in the world. It improved the safety of the project."

Having scale helps Aecom reach around the globe to access innovation technology: "We can locate it and bring it here seamlessly." This is increasingly important, he says as technology and the ability to apply is now often the differentiator between consultant engineering firms.

Engineering has been slower to consolidate than other sectors. Industry watchers have been expecting to see it happen for almost 10 years, yet to date the Aecom-URS deal is the first big acquisition. Others are expected to follow. There's talk in the industry that five or six consulting/construction giants could emerge.

Why has engineering been slow to consolidate? Bridgman says it's because the industry is not built around easily repeatable processes. Every project is different and brings fresh challenges. "Consulting engineering is unlike other professions, it's less about process and more about creating unique solutions."

Ultimately, the impetus for industry change seems to be driven as much by client need as by internal considerations. Bigger companies mean customers get to see some cost savings through economies of scale.

Bridgman says larger scale also gives customers more opportunity to select contractors on quality, ability to innovate and execute.