Mobilization costs that were once routinely shouldered by infrastructure contractors on large projects now are sometimes paid before the steel is ordered or the jobsite is cleared.
That’s what Ronald N. Tutor, CEO of contractor Tutor Perini Corp., told analysts and investors in reporting the company’s latest quarterly results on Aug. 1.
“We’ve been able to force them to recognize the need for mobilization on theory that we work off their dollars and not our dollars,” Tutor said. “With almost rarely more than one other [project] bidder, [owners] have seen the light and it’s been consistent across the board whoever they are.”
Ronald N. Tutor
The re-balancing of infrastructure construction risks is part of a long process of adjustment between owners and contractors. What’s happening could not be more different than what was common a decade ago. Then, government and public agencies were eagerly embracing design-build and public-private partnerships on which contractors sometimes took on design, quality control, right of way, permitting and inflation risks while guaranteeing a price.
After losing money on complex projects and hundreds of lawsuits, the largest contractors have sworn off price guarantees. With an unprecedented number of such projects paid for with federal infrastructure funding, companies find that government agencies are amenable. “In the last two years, we’ve been able to successfully always negotiate onerous terms out of every contact,” Tutor said.
Substantial mobilization payments at the outset of large projects are increasingly common, reports Joseph Natarelli, a managing partner and construction industry leader at accountant and advisor Marcum LLP. Such payments “reduce financial strain and minimize the risk of cash flow issues,” he says, which is especially advantageous for large infrastructure projects.
The payments “provide immediate cash flow” and “help companies manage the initial costs of setting up a project site, purchasing materials, and carrying out other preparatory work.”
Sylmar, Calif.-based Tutor Perini Corp. is No. 31 on the ENR Top 400 Contractors.
Other major contractors have also been de-risking. After sustaining losses in prior years, contracting giants that include Fluor Corp. and Granite Construction have nearly finished working through their legacy of high-risk, money-losing projects with price guarantees.
The less-risk gospel also is a cross-Atlantic phenomenon.
Earlier this year, Juan Santamaria Cases, CEO of contracting powerhouse ACS Group—whose operations include Dragados and—via ownership control of Germany-based Hochtief, U.S. contractors Flatiron and Turner Construction—told Construction Inquirer that his company had in 2023 not signed any high-risk contracts.
Santamaría also told Construction Inquirer that high risk projects referred to any contracts where Hochtief commits to doing the design and build for a lump sum.
“In 2023, we haven’t won any such projects,” he told the publication. “Even if we have incorporated some design and builds into our backlog, we’re not taking an inflation risk that could be beyond our control.”
As the company completes remaining high-risk contracts, “they will disappear from our backlog,” he said.