MObligation costs that were once routinely borne by infrastructure contractors on large projects are now paid before the steel is ordered or the job site cleared.
That’s what Ronald N. Tutor, CEO of contractor Tutor Perini Corp., told analysts and investors when reporting the company’s latest quarterly results on Aug. 1.
“We’ve been able to force them to recognize the need for mobilization on the theory that we work with their dollars and not our dollars,” Tutor said. “With hardly ever more than another [project] bidder, [owners] they’ve seen the light and it’s been consistent at all levels whoever they are.”
Ronald N. Tutor
Rebalancing infrastructure construction risks is part of a long adjustment process between owners and contractors. What’s happening couldn’t be more different from what was common a decade ago. At the time, government and public agencies were enthusiastically embracing design-build partnerships and public-private partnerships in which contractors sometimes assumed design, quality control, right-of-way, permitting, and risk of inflation while guaranteeing a price.
After losing money on complex projects and hundreds of lawsuits, the biggest contractors have sworn off price guarantees. With an unprecedented number of these projects paid for with federal infrastructure funding, companies are finding government agencies susceptible. “Over the past two years, we have been able to consistently successfully negotiate onerous terms from each contact,” Tutor said.
Substantial mobilization payments at the start of major projects are becoming more common, reports Joseph Natarelli, managing partner and construction industry leader at accountant and advisor Marcum LLP. These payments “It reduces financial strain and minimizes the risk of cash flow problems,” he says, which is particularly advantageous for large infrastructure projects.
The payments “provide immediate cash flow” and “help companies manage the upfront costs of setting up a project, purchasing materials and doing other preparatory work.”
Sylmar, Calif.-based Tutor Perini Corp. is No. 31 on ENR’s Top 400 Contractors.
Other large contractors have also reduced their risk. After suffering losses in previous years, contracting giants that include Fluor Corp. and Granite Construction are almost done with their legacy of high-risk, money-losing projects with guaranteed prices.
The gospel of less risk is also a transatlantic phenomenon.
Earlier this year, Juan Santamaria Cases, chief executive of contracting powerhouse ACS Group, whose operations include Dragados and, through controlling ownership of Germany-based Hochtief, US contractors Flatiron and Turner Construction, he said Construction consultant that his company had not signed any high-risk contracts in 2023.
Santamaría also told Construction consultant that high risk projects referred to any contract where Hochtief undertakes to do the design and construction for a lump sum.
“In 2023, we have not won any such project,” he told the publication. “While we’ve put some design and build into our backlog, we’re not taking on an inflation risk that might be out of our control.”
As the company finalizes the remaining high-risk contracts, “they will disappear from our portfolio,” he said.
