The current crisis related to commodity prices, if it lasts, might lead the contracting industry to review its industrial model, such as what happened in the 1980s’ and 90s’ during the previous counter-shock. Of course it is always difficult to predict the future, still in our new White Paper 2014-17 ‘How the Current Crisis Could Redefine the Business Model for Industrial Infrastructure Contracting’, we explore what are probable trends, based on the analysis of some precursors and of trends already existing in other industries.
Ready for some review of the contracting’s business plans?
When the last commodity price crisis stroke in the 1980s’ and 90s’, most Owners moved away from directly managing projects and coordinating a large number of specialized Contractors, effectively fostering the development of general EPC Contractors that took responsibility for project performance under lump sum contracts. Owners’ team became much leaner and focused on managing a very limited number of large EPC contracts for each project, and coordinating the interfaces between these few contracts if needed.
Following history and trends in other industries, we can expect the following trends to develop in the next few years in the contracting industry:
- Increased vertical integration of Contractors to cover the entire infrastructure development cycle and remove interface management from the Owner’s scope,
- Contractors taking a financing and operating role in the infrastructure, effectively financing it, owning it and leasing it back to the Owner, even possibly operating it – with the effect of changing significantly the Owner’s cash flow and financing requirements.
This would result in the Owners further concentrating on their core businesses (ownership of concessions and operating model, stakeholder management, sales of products).
These changes if they happen will alter substantially the contracting landscape and require the development of innovative and sound contracting, financing and accounting approaches. There will certainly be some trial and error, still those that will move in that direction and experiment earlier will certainly be those that will prevail at the end. Proactive experiments of these new approaches, if possible on infrastructures of limited size and ambition, would be required in the next few months and years to establish this new model. Discover in detail those trends in our new White Paper 2014-17 ‘How the Current Crisis Could Redefine the Business Model for Industrial Infrastructure Contracting’.
