Latest Risk and Return News
Mar 22, 2021
Work proceeds on the Trillium light rail in Ottawa, an SNC-Lavalin fixed-price project now facing delay due to COVID-19.File photo: City of Ottawa March 21, 2021 SNC-Lavalin Group Inc. is gearing up for a major push to land more U.S. infrastructure work, but the Montreal engineering and construction giant is facing scrutiny over potential delays to a major project in its home country and negative 2020 results from cost impacts on remaining fixed-price transit projects. The firm told city officials in Ottawa in January that its $1.3-billion project to extend the Trillium light rail line is nearly four months behind schedule, according to media reports. That would delay reopening the expanded line, which serves Carleton University, to the start of 2023 from a planned start in 2022. Ottawa city officials have responded to potential delays by launching an independent review, while also scrambling to keep the project on track and minimize any further schedule issues. That review points to a significantly smaller delay estimated at 40 days, but with “many qualifications,” said Michael Morgan, director of Ottawa’s rail construction program, in a statement to ENR. Morgan cited a number of “pressure points,” including construction of a new grade separation at two route locations enabling Via line trains to cross beneath the Trillium Line. SNC-Lavalin says the potential delays are related to “manufacturing and the supply chain,” said Mandy Downes, director of communications, in an email. “We are still assessing the toll of the impacts while mitigating schedule delays wherever we can.” SNC-Lavalin’s challenges on the big Ottawa project come as CEO Ian Edwards eyes a major push to expand its American market presence, he told analysts in announcing the firm's year end results on March 9. Targeting U.S. Infrastructure The company said it plans to expand its infrastructure business in the U.S., with plans to focus on southern states, the Northeast, the Pacific Northwest and California. Edwards said the firm, which has 5,000 U.S. employees, also hopes to build on a “very strong" nuclear environmental management business with the U.S. Energy Dept, while also looking ahead to a potential Biden Administration infrastructure mega-program. In 2020, about 20% of SNC-Lavalin revenue of $ 7 billion was from the U.S. "We see great kinds of potential from federal government investment,” he told analysts. Since 2019, the company has looked to move beyond years of controversy over bribery allegations that generated high-level political tumult in Canada and led to executive suite changes. SNC-Lavalin now is pursuing plans to boost its more profitable engineering operation, while exiting risky fixed-price construction. Edwards noted a deal in February to sell its oil and gas business to Kentech Corporate Holdings. He said the Trillium project, the Eglinton light rail project in Toronto and Montreal's REM transit project on which SNC-Lavalin is consortium lead are three of four remaining fixed-price projects left to complete, representing about $1.8 billion in revenue. Edwards said the three Canada jobs "are in good shape for us as we move through this year and obviously move to close them out.” SNC-Lavalin still seeks to negotiate with owners through midyear to recover losses it attributes to the COVID-19 pandemic, "which we think we're contractually entitled to," said CFO Jeff Bell. Noting the projects' complex contracts, Edwards said "I wouldn't want to get into a commitment as to when we're going to see those recoveries, but we are in good positive dialogue with our customers." The company reported a fourth-quarter 2020 loss of $702 million on revenue of $1.7 billion, with the revenue total down 14% from 2019 and about $200 million less than analysts' prediction, but the loss was more than double that of the same quarter in 2019. SNC-Lavalin total 2020 revenue declined 8.25% to $7 billion. The net loss was $ 965 million, compared to a profit of $ 328 million in 2019. New Risk Sharing But Edwards also noted new efforts with clients "to develop new risk-capped contracting models," noting one such approach in its award of a $1.3-billion contract to design and build Phase 2 of the U.K. East-West Rail project, one of its largest. "This project features a new alliance contracting model in which all partners work as an integrated team and the risks are shared and capped," he said. "It signals a new collaborative way of working with partners and clients and it's the model that we hope to replicate for other projects in other countries." According to Edwards, "This is exactly where we want to be positioning our capability to deliver major projects in the future. It's a liability-capped contract for us, ... not a [lump-sum, turnkey]. We get paid based on an alliance, kind of target cost basis. We work with two other joint venture companies on that project." He said, that "by repositioning ourselves into this kind of project, we can fill the space that's been left by exiting the LSTK and use our capability."