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KPMG survey finds construction companies optimistic

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by Vince Versace

A global survey of construction companies reveals expectations for profit increases or the status quo by the middle of this year, business consultancy KPMG International says.

Forecasting

A global survey of construction companies reveals expectations for profit increases or the status quo by the middle of this year, business consultancy KPMG International says.

“Despite the deepest recession in 60 years, the construction industry is surprisingly positive about its future prospects,” reports KPMG’s 2009 global survey.

“Almost two-thirds expect to either increase or at least maintain profit levels by mid-2010. To date, the sector appears to have weathered the economic storm, with around half of respondents reporting order books and profit rates at similar or greater levels than 12 months ago,” KPMG says.

The global construction industry proved to be “remarkably robust despite the far-reaching impacts of the recession. However, a “wait-and-see” approach, when it comes to government stimulus package impacts, appears to be the attitude of most companies surveyed.

“Here, substantial uncertainty prevails, with only a small minority of respondents believing that these will bring significant opportunities. Only 15 per cent believe that the proposed government stimulus packages will bring a significant increase in opportunities.”

The attitude about stimulus package impacts did vary among global regions. In the Asia Pacific region 27 per cent of construction companies said they experienced a significant increase in construction opportunities thanks to stimulus packages. China/Hong Kong stood out on the opportunity impact scale, the survey found.

“The political/business environment in this market may simplify the process of initiating and completing public projects, as there are fewer overall contractors, most of whom are either state-owned or have close ties to governing bodies,” the report says.

The optimism found in the Asia Pacific region was not reflected in the North American region. Only 11 per cent of North American respondents reported a significant increase in opportunities, followed by 50 per cent noting a moderate increase and 39 per cent stating there was no impact felt from stimulus packages,

“There is real concern that most government initiatives may be slowed down by the lengthy process involved,” the survey noted.

“And with spending controlled by state and local governments, this is likely to result in projects such as roads and bridges, which are typically carried out by smaller regional contractors, rather than the major players.”

Managing risk was a common concern among global respondents, with almost three quarters of them “devoting more time and resources to this critical activity,” the survey reported. There are increased reports of greater focus on bid opportunities, cash flow, compliance and safety risks.

“By placing a larger emphasis upon bid evaluation risk, contractors have been able to reduce their exposure to cost volatility and avoid an increase in the proportion of high-risk contracts,” the survey found. “Cash management - which received less attention during the boom — has become a bigger concern, with some companies linking cash flow performance with rewards.”

Bid evaluation risk was noted by 44 per cent of respondents as the top pressing concern when it comes to project risk management. Cost escalation risk ranked second at 12 per cent followed by commodity pricing at nine per cent.

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