Mining, Oil & Gas Boosts AECOM's Water Business

Source: Environmental Business Journal Vol. XXIV, No. 10
Through an aggressive campaign of acquisition over the past several years, AECOM Technology Corp. (Los Angeles, CA) built up considerable consulting and engineering strength in multiple target markets, and water/wastewater was no exception. The acquisition in 2000 of Metcalf & Eddy, a company with substantial global brand recognition, established a solid platform, and subsequent purchases of the likes of Maunsell, Warren Group, Boyle Engineering, KMK Consultants, and Tecsult built up the edifice of the water business.

The acquisition of Earth Tech in 2008 brought the business to maturity, and today, AECOM’s water engineering practice is one of 14 major business lines, which include transportation, energy, planning and design, and environmental engineering. Today, AECOM finally has a water/wastewater business with global clout under a single brand name.

“One of our differentiators is the fact we have more engineering people in more places anywhere in the world,” says Rob Andrews, AECOM’s chief executive of the global water practice. “We have 4,000 to 5,000 people on most continents. As we bring our solutions and serve basic needs in water and wastewater, we have a tremendous platform, and people now know who we are, as we have branded ourselves as AECOM, instead of these many different companies.”

For fiscal 2010, the water business generated approximately $888 million. Gross revenue for AECOM, which employs about 45,000 people worldwide, totaled $6.5 billion for the fiscal year ending on September 30, 2010, while net revenue totaled $4.2 billion.

Specifying the number of employees dedicated specifically to the water business is difficult, and probably beside the point. Built to take on large, complex projects, AECOM brings to bear on each one the talent needed from across all business lines to deliver value. Susan Leal, recently appointed as AECOM’s chief strategy officer and senior vice president for water in the Americas, explains.

“Say you are looking at offering program management to San Francisco, to the wastewater division of the utility, which is doing a major upgrade to the wastewater system and one of the major treatment plants. Because San Francisco is a coastal city, surrounded by bay and ocean, the utility is concerned about much more than upgrading the treatment system—installing digesters, etc. They are trying to implement a long-term master plan that incorporates such issues as climate change.

“So when the utility issues an RFP for a program manager, for us to successfully bid, we ask who we should bring in to address issues like climate change,” says Leal, who served as general manager of the San Francisco Public Utilities Commission from 2004 to 2008. “We may not have someone in the traditional water business line, so we would reach out to some of our people within the organization who have done that kind of work.

“That’s part of my job—to ensure that we bring the full breadth of service to the client. Whether it’s $5 million, $5 billion, or $15 billion, when you are spending that kind of money, you are building for the 21st Century. And when money is tight, you make sure you provide full value to the client.” In these times of tight municipal budgets, utilities are making tough demands on their vendors, according to Leal, whose primary area of responsibility for AECOM is the U.S. municipal market. “The senior people at utilities want to know that, if they are going to be spending serious money, they are getting the best technology. You hear that consistently. And then they want firms like ours to make sure we’re looking around the globe at our systems and seeing what’s been tried and tested and what has potential.”

That’s not just coming from the utilities, but from elected officials as well, she affirms. Getting the bang for the buck means planning for long time horizons. “They want something that’s not going to be obsolete in 15 years.”

Utility officials “love the brown bag,” she adds, referring to informal lunches where AECOM specialists will sit in a conference room with utility engineers to discuss potential solutions to treatment and operational issues. “You bring in one of your stars, and you let them see what breadth of service you can bring to them.”

Whether utilities opt for public-private partnerships or not, ultimately, “the ratepayers have to pay. In either case, you have to go out to the people.”

U.S. NEEDS WON’T WAIT

Commenting on the state of the U.S. municipal water and wastewater market, which constitutes the majority of the U.S. water business for AECOM, Leal is upbeat despite the dire economic situation that cities and towns find themselves in. “These are needs that can be put off for only so long,” she says, noting by way of example that, a couple of years ago, the new mayor of Houston sponsored a ballot measure seeking approval of a major stormwater program, and the voters came through.

“If you get out to people—and we did this in San Francisco—and say, this is something we can’t ignore, something you can’t do without, people do understand,” Leal says. Houston, San Francisco, and Los Angeles are among several cities moving forward with major water and wastewater programs despite the tight funding constraints.

Leal isn’t seeing much advance in the use of public-private partnerships in the United States. The adoption of such partnerships is a political issue—“in some places it’s welcome, and in others, it’s a non-starter”—but to Leal, it all comes back to the same issue. “The ratepayers have to pay. In either case, you have to go out to the people.”

AECOM prides itself on specializing in large, complex projects, and it has a number in the United States. In September 2011, the city of Indianapolis awarded the company a $25 million contract to provide construction management services in the connection with the $280 million Deep Rock Connection Tunnel project, a major component of the local utility’s long-term combined sewer overflow (CSO) control plan.

AECOM is also serving as the program manager for a $950 million enhanced nutrient removal project at the District of Columbia Water and Sewer Authority’s Blue Plains wastewater treatment plant. And for Tampa Electric Co. in Lakeland, Florida, the company is the designer on alternative water supply project that involves taking treated wastewater, running it through a wetland system, and pumping it to a power plant, where will be undergo reverse-osmosis treatment and be used as cooling water.

Andrews affirms that the U.S. municipal market, accounting for the majority of the company’s domestic water business has been flat to slightly negative for the past three years. “I’ve never seen lean times go longer than that,” he declares. “You can defer projects, but everyone knows there’s a tremendous need out there.”

New stormwater and nutrient removal regulations and water quality studies will drive the need higher, so “the utilities are not going to sit back for very long,” says Andrews. Growth in the municipal market will most likely be slow—up to perhaps 5% of -2 or -3%—but “it eventually starts to move,” so “we’re very bullish on the next three years.”

MINING BUSINESS SURGING

Andrews reports better news on the private side of the business. “The oil and gas sector and the mining sector are very active,” he tells EBJ, adding that these are market segments in which the water business and environmental business collaborate very closely.

“In the case of mining, which is a red hot market globally, we do the approvals and assessments, and as the projects move to development, the global water group moves in to do the infrastructure, processing water in the mine and treating afterwards. We also provide basic infrastructure to the construction camps and the permanent facilities.” The mining opportunities are particularly strong in northern Canada, Australia, and southeast Asia, he notes.

Not surprisingly, a major oil and gas opportunity, for the environmental and the water businesses, is shale gas exploration and production, in the Marcellus formation in Pennsylvania and other formations around the United States.

Other good regional markets for the water business include the Middle East, although not uniformly—Saudi Arabia and Qatar stand out—while in Brazil, preparations for the 2014 World Cup and the 2016 Summer Olympics are directing lots of attention to water and wastewater infrastructure, Andrews points out. Meanwhile, China is spending perhaps the most money on water and wastewater infrastructure, but “the main issue with China is the engineering design licenses and the construction licenses—primarily the former—which are all held by government owned design institutes,” says Andrews.

“On the water side in China, we’re working for entities like the Asian Development Bank and the funding institutes, which hire us to validate construction quality. We can put five people on a project like that, whereas if we were designing it, we’d have 200 or 300.” Andrews notes that AECOM’s major competitors are doing more design-build in the current market than AECOM itself. Where AECOM is seeing greater activity is in the shift from design-bid-build to program management and construction management (PMCM).

“That’s a North America model, but we’re selling it in the Middle East, Australia, Asia, and the United Kingdom. Bundling capital programs for municipalities is a delivery model that continues to grow. It can offer better pricing and scheduling certainty. Municipalities are having trouble finding qualified people who can run programs and capital projects, and because they typically offer good pensions and benefit programs, their people are retiring early. That allows us to step in and manage programs.” As long as the funding is available. Says Andrews, “clearly, funding and affordability are the biggest challenge—everywhere.”