Construction World July 2018

MARKETPLACE

New engineering trends make ENGAGEMENT VITAL By Richard Vries, GIBB Group CEO

Evolving business models One of the most influential trends we are seeing is the evolution of business models away from traditional models that have remained fairly unchanged over the last few decades. The traditional client rela- tionship for an engineering consultancy involves a client identifying a need and then approaching consul- tants to further define and ultimately solve the problem. South African Consulting Engineering companies are confronted with some fascinating trends that will shape our industry, now, and more so, in the future.

engineer’s traditional role could evolve. In the future, it may be possi- ble that our success as built-environment professionals will depend on how well we adapt to this changing business model, where there is increasing acceptance of risk, increasing levels of competition and less of the traditional, hours-based remuneration model. What renders Chinese companies so effective at this model of doing business is their strong financial muscle and higher risk tol- erance. Projects are financed primarily through Chinese institutions and generally proceed to construction more quickly than for instance through the use of the traditional models predominantly used in South Africa. South Africa remains an environment with a highly reg- ulated procurement process. Necessary as this may be to deal with specific South African public sector procurement challenges and the

lack of equal accessibility to project finance, it may be a constraint on the pace and scale of private sector investment, if not well structured. For engineering companies active in Africa, these changing business models present a new opportunity. At GIBB, we have responded by establishing a project development division – GIBB Capital – focused on developing projects from concept to implementation and working with various partners in the project devel- opment space. Empowering SMMEs Another emerging engineering trend is a regulatory environment geared to empower South Africa’s small and medium-sized businesses (SMMEs). Current preferential procurement regulations stipulate that 30% of certain categories of state procure- ment must be set aside for SMMEs. Government may further set pre-qual- ification criteria that favour SMMEs in tendering processes. This trend will affect larger consulting practices. There will be an evolution of how large companies function, their procurement models

Amongst many others, the need could include constructing a power, water or transportation asset. In the traditional model, the consultancy would then charge the client for the time spent on the project. Risk primarily rests with the client in this model. We have noticed this traditional client-consultant business model evolving, particularly outside South Africa, as Chinese construction con- glomerates enter the African busi- ness landscape. The Chinese model is primarily shaped around – design, build and finance; in most instances, operation and maintenance of the asset is retained by the client. This model assumes a much high level of risk for the contractor, but is well received by most client bodies, espe- cially public sector clients, for whom obtaining approvals for increasing project budgets due to unforeseen risks are cumbersome and time con- suming. To compete now, engineer- ing companies have to re-evaluate their appetite to take on risk, in order to address the need for development

of infrastructure on the continent and become part of the project owner (or in some instances even lead as the project sponsor). The traditional tendering model for procuring engineering services will remain for some time to come. However, large scale projects such as the South African Renewable Energy Independent Power Producers Programme is an example of how the consulting

as well as their view of core and non-core functions. This is a positive development that will help government bring emerging business into the mainstream. It will create employment in small enterprises, but we will also likely see a downsizing of larger firms. Unfortunately one of the unintended consequences of the '30% regulation' being of benefit to qualifying small enterprises (QSE’s),

These emerging trends will bring opportunities as well as tough challenges. As in every industry, there will be competing interests and opposing views.

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CONSTRUCTION WORLD JULY 2018