High-risk contracts on nose
Engineering contractors were wary of lump-sum contracts well before RCR Tomlinson collapsed last month after cost overruns on solar projects.
Shane Kimpton, chief executive of Singapore-listed engineer AusGroup, said he could not expose the business and its shareholders to high-risk contracts.
“That means sometimes we can’t reach agreement with the client around doing it on lump sum,” he said.
Mr Kimpton, who moved from United Group 18 months ago, said unit-rate contracts were becoming common as they shared the risk between the client and the contractor.
He said he was not concerned about new entrants cratering the market as bad experiences over the past decade had made clients wary of less-capable lowest bidders.
“In WA there are a handful of contractors that have got that expertise,” he said.
AusGroup’s main subsidiary, AGC, has a Kwinana fabrication yard and construction and maintenance contracts with majors such as Chevron and Inpex.
Mr Kimpton said many WA fabrication yards had shut down over the past 10 years as the previous resources boom produced little work because of the amount done overseas.
AusGroup has contracts with lithium players Tianqi and Talison, and Mr Kimpton said he expected the sector to provide at least three years of fabrication and five years of construction work.
AusGroup had $567 million of revenue last financial year.
It has about 1300 employees, mainly on construction sites or at operating plants.
He said at peak activity the company had 2800 workers on Inpex’s Ichthys project working four- weeks-on, one-week-off rosters.
“That was a very challenging roster,” he said.
Mr Kimpton said three weeks on and one week off was probably a maximum for construction work, with two weeks on and off for maintenance work being a good balance. He said good-quality workers were available but wage pressure was building.
Regarding plans by RCR Tomlinson’s administrator to sell its businesses by Christmas, Mr Kimpton said: “We always have a look.”
An AusGroup worker at the company’s Kwinana fabrication yard.