Dive Brief:
- Fluor Corp. reported a net loss of $555 million in its second quarter, compared to $115 million in earnings recorded for the same period last year. The second-largest contractor by revenue, according to Engineering News Record’s Top 400 Contractors list, scored $4.1 billion in revenue for the quarter ended June 30, a 16% dip from the prior year’s $4.9 billion. The firm's backlog landed at $35.5 billion, up from $29.3 billion last year.
- The loss was due to $714 million in pre-tax charges, the firm said during its earnings conference call last week, which were incurred as a result of meeting with clients, subcontractors and suppliers during the quarter to address ongoing disputes, pending change orders, schedule extensions and outstanding receivables and claims.
- Amid former CEO David Seaton stepping down in May, Fluor instituted several major changes to the amount of risk it takes on through its selection of projects, CEO and Director Carlos Hernandez said. Going forward, Fluor will only pursue fixed-price energy work that meets strict criteria, narrow focus on infrastructure work to five key states, and will no longer pursue most lump-sum projects in the government sector — echoing an industry trend.
Dive Insight:
Fluor stressed to stakeholders during its Aug. 1 earnings call that it had been undergoing a major shift in strategy before and after it replaced its CEO around halfway through the quarter, which impacted its results.
"We have already enacted changes in our bid/no bid process so that our future backlog will be comprised of high-quality projects with a contract structure and execution approach that will generate improved risk-adjusted margins," Hernandez said. To that end, the company will only bid on projects in several of its key segments that meet the following criteria.
- Energy/chemicals — The firm will only pursue fixed-price work in which there is a limited bid slate and an identifiable, quantifiable advantage over other bidders, or work that carries with it a sole-source, negotiated lump-sum agreement. It will only select projects on which Fluor executes the FEED (front-end engineering and design) package or is allowed to perform sufficient due diligence.
- Infrastructure — Fluor will narrow its efforts to North America and extend its presence in states in which it has established track record and strong DOT relationships, including Texas, Arizona, California, Virginia and North Carolina.
- Government — Fluor will no longer pursue lump-sum projects unless there is an "appropriate allocation of risk between client and contractor." Some lump-sum projects, such as the Rovuma LNG project in Mozambique, do meet Fluor's standards, even under its newly increased scrutiny, Hernandez noted.
"It's no secret that the industry has suffered severely over the last couple of years given what has happened in shifting of risk from clients to contractors," Hernandez said. "Although the trend in our industry is to pivot away from lump-sum work, we still believe that Fluor has the talent and expertise to win and execute these projects, albeit on a more selective basis."
Another contractor in the Top 25 of ENR's list, Granite Construction, also announced a major shift in strategy last week during its second-quarter earnings report. With a $97 million loss for the period, CEO James Roberts announced that the firm had re-evaluated its assessment of risks when taking on projects.
“Instead of entering into what we believed to be a partnering relationship," Roberts said, "it is now clear that, especially in the context of these megaprojects, the fixed-price design-build contract delivery model and the public-private partnership contract-delivery model resulted in an untenable imbalance in risk-sharing between Granite and the project owners."
