International Trade

New Arena For The Project Business

November 2007
Paul Melly, International Trade Today

The project business is not what it was. Rare are the times now when a single big-name British engineering company lands a contract worth hundreds of millions of pounds to build a bridge, an industrial complex, an airport or a power station in its entirety.

Rare also are the days when a Western export credit agency (ECA) underwrites almost the whole of such a deal, providing the over-arching protective umbrella under which hundreds of small sub-contractors to the lead contractor can shelter.

Indeed, now it is not uncommon to hear a City financier wonder whether there is any role left for the big ECAs at all, other than as props for the defence and aviation industries.

But if the business has changed, that does not mean it has evaporated. Indeed, demand for infrastructure and technology is as strong as ever. It’s just that these are being provided by a wider range of suppliers, and financed in much more diverse ways.

So this is not a time for nostalgia. But it is a moment to recognise that competition is more intense and diverse, that customers are more demanding and have more choice – and that they have become adept at squeezing costings.

For example, a senior procurement engineer for the Nigerian National Petroleum Corporation (NNPC) explained that his group had moved away from the traditional practice of awarding an entire project to an international contractor on a ‘turnkey’ basis. The Nigerians found that such big project managers would build in a fat profit margin for themselves and charge heavily for the risk attached to operating in a country seen as ‘difficult’.

NNPC now tends to hire one foreign engineering group to design a project and then place separate contracts for... continued on page two >

 

 

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