Domestic and international revenue increase for world's biggest contractors

Out-Law News | 08 Sep 2014 | 11:11 am | 2 min. read

Revenue raised by the world's 250 biggest contractors from projects outside their home countries increased by over $40 billion last year; while revenue raised from domestic projects also increased, according to new analysis.

However increasing competition and financing problems meant that even the largest companies now needed to make cost savings, according to a new report from Engineering News-Record (ENR). The construction news wire publishes a list of the top 250 international contractors annually, ranked based on contracting revenue from projects outside of their home countries.

According to ENR, the 250 contractors earned a combined $543.97bn in 2013; up by 6.4% from $511.05bn in 2012. They also earned a combined $871.50bn from domestic projects in 2013; up by 7.1% from $813.55bn in 2012.

Chinese firms were best represented on the list, accounting for four out of the top five firms and 62 entries on the list overall. China State Construction Engineering Corp, which was third on last year's list, was in first place with earnings of nearly $97.9bn. China Railway Construction Corp, with earnings of nearly $89bn, was in second place. ENR said that although China's economy was "moderating somewhat", its industrial and building sectors were continuing to perform strongly thanks to the country's huge infrastructure and rail programme. In total, 56% of the domestic contracting revenue tracked by the survey came from Chinese contractors.

In fifth place, French construction company Vinci was the only non-Chinese company included in the top five for the second year running. The firm earned just over $54bn last year. Turkish firms accounted for 42 of those listed, while the US was in third place with 31 firms. The highest ranking UK firm was Mace, in 166th place with revenue of $1.45bn, according to ENR.

International construction expert Richard Laudy of Pinsent Masons, the law firm behind Out-Law.com, said that one of the most interesting aspects of the report was the "increasing attractiveness of the UK as a market for investment" for overseas contractors. For example, although Vinci recorded half of last year's sales in its native country, it said that UK was its "most important market outside France" with 8.3% growth, according to ENR. The UK is also one of the largest non-French European markets for Bouygues, while Skanska doubled its UK order intake in the first half of 2014.

"The market is also seeing an increasing presence of Chinese developers and investors and there is every likelihood their contractors will follow," he said.

Regionally, the most substantial growth in international contracting revenue occurred in Canada with a 24.4% rise to $27.49bn. Revenue also increased in central and southern Africa, by 19.9%; in Latin America, by 14.6%; in the US, by 9.7%; in Europe, by 9%, and in Asia and Australia, by 5.7%. Revenue fell by 6.5% in northern Africa, which ENR said was a result of ongoing conflict in the region; while "surprisingly" contracting revenue fell by 7.7% in the Middle East.

Contractors interviewed by ENR said that their biggest challenge was the desire from clients all over the world to deliver projects more economically. Adoption of new technology was as much a part of this process as cutting costs, they said.

"The contracting industry keeps getting more competitive and profit margins keep shrinking, mainly driven by changing procurement policies," said M. Sani Sener of Turkey's TAV Airports Holding, which was 164th on the list. "In today's environment, firms have to be technically competent as well as being commercially competitive. No company can afford to charge a premium based on purely technical advantages."

"Public-private partnerships and various versions of BOT (build-operate-transfer) schemes are getting increasingly popular, especially for large infrastructure projects, as the cost of funding for such projects increases," he said.

The report also found that three large international contractors had failed since last year's survey. Austria's second largest contractor, Alpine Bau, filed for insolvency in June 2013 under the weight of massive debt, ENR said. Denmark's E Pihl and Son, ranked 154th on last year's list, declared bankruptcy in August 2013 while Lakeshore TolTest Corp of Detroit, US, collapsed in April 2013. The firm was ranked 144th on last year's list.