Critical demand

Construction and engineering companies are rising to the infrastructure challenge.

As major urban areas strain to adequately support rapidly growing populations, the need for infrastructure is at an all-time high.

This is pressuring the engineering and construction industry to step up as never before to meet the challenge, and putting their efficiency and risk management processes to the test, according to KPMG International’s Global Construction Survey 2012.

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KPMG surveyed 161 engineering and construction companies around the world, with revenues from $250m to over $5bn.

“With increased scale comes complexity as global industry players navigate a tough political, commercial, regulatory and governance environment, which will test their risk management ability to the maximum extent,” said Geno Armstrong, KPMG’s international sector leader, engineering and construction.

“The last three years have been full of uncertainty for many in the engineering and construction industry. However, one constant is the insatiable demand for infrastructure in all forms, which is causing a fundamental shift in focus for nearly all players in the sector,” said Armstrong.

The ‘old’ imperatives of commercial, residential and industrial building projects have taken second place in many territories to energy, transportation, communication and technology, and other vital civil and social infrastructure projects.

Despite the volatile economy, engineering and construction industry executives continue to be positive about the future. About 75% believe that margins on current bids will be either the same, or higher, than for the existing projects.

Just over 40% of respondents in EMEA (Europe, the Middle East and Africa), and nearly the same percentage globally, anticipate that the energy sector offers the greatest opportunity for revenue in the next 12 months. Second behind energy in the EMEA region was rail, followed by roads and bridges.

“The demand for firms and individuals with sector-specific engineering and construction skills will rise as such projects proliferate within the GCC,” said Robert Hall, partner: head of construction, KPMG UAE. “This should prove to be a major source of income for the industry as a whole.”

While 49% of respondents expect their backlogs will grow from 5% to over 15% in the next year, 82% of respondents in EMEA cite economic uncertainty as their biggest ongoing concern, followed by government deficits (34%) and, thirdly, skills shortages (25%).

A total of 62% said that they expect margins on current bids to remain unchanged from their current backlog.