Skanska

Source: Construction Digital

Date :3/18/2008 6:16:24 AM

Senior Vice President Eric Taylor tells Exec about Skanska’s diversification plans and how an award winning approach to partnering is positioning the company as an industry leader in the West

Written by James Hurley & Produced by Sean Bakke

Following various senior construction roles, Eric Taylor joined Skanska in 2002. He hasn’t looked back. “After 31 years in the business, this is the finest company I’ve ever worked for. It holds itself to a much higher value system and it believes in it. It’s a class organization that’s fun to represent,” he says.

Originally known as Aktiebolaget Skånska Cementgjuteriet, the multinational construction giant was established in Sweden in 1887 and began life by manufacturing concrete products. It quickly diversified and within ten years the company was celebrating receiving its first international order.

Growth in Sweden was followed by international expansion. In the mid 1950s, the company made a major move into international markets, entering South America, Africa and Asia in the ensuing decades. In 1971, Skanska entered the US market, where it today ranks among the largest in its sector; if it was listed on the Fortune 500, it would rank in the top 150.

“We’re the second largest contractor in the world,” says Taylor, senior vice president and general manager of Skanska USA Civil Western Region — California District. “The company did over $20 billion of work last year. The Swedish influence is huge and they make a nice complement to the US business. A lot of the young employees feel the same way - it’s a great company to work for.”

Partnering and safety

Skanska works hard at partnering. It recently won the Marvin M. Black Excellence in Partnering Award for its work with Caltrans - the state agency responsible for highway, bridge, and rail transportation planning, construction, and maintenance - and even if a contract doesn’t explicitly call for partnering, Skanska will encourage it. “We have an executive partnering ladder. We like to see all resolutions solved at the job level. We have an escalation ladder and problems very rarely reach my desk – it’s a cultural thing,” says Taylor.

With so many diversification plans on the table, strong relationships with partners and subcontractors are crucial, especially as the size of the contract awards increase. “The state is moving towards larger jobs. It’s easier for them to award larger jobs so they get better bang for their buck for the state.”

To take advantage of this trend, Skanska has moved to position itself as “the big guy on the block,” as Taylor puts it. “We don’t have any adversaries - we try to cooperate with all contractors. What we used to see as competitors we now see as potential subcontractors. We can build almost anything but you still need the people to do it. We really look at the world differently now. We’ve taken more of a leadership role in the industry.”

California state law dictates that any state or federal bid requires companies to list any contractors that would perform over 0.5 percent of the total contract. “We solicit a lot of quotations before bid time. We talk to the bidders and we’re very careful about not getting into bid rigging and shopping. We try to take the best qualified subcontractor. A lot of the subcontractors can’t bond so you have to be careful who you take. It’s a very up front and honest approach. We encourage lots of participation - we don’t give the same jobs to the same people and we try and spread it around. It keeps you clean and honest and is a good way to do business,” says Taylor.

Skanska applies the same exacting standards to its employees and subcontractors. It applies a “four zeros” principle to all of its business units worldwide; zero loss making projects, zero environmental incidents, zero work-site accidents and zero ethical breaches.

In the safety category, Taylor is proud to say that his division is leading USA Civil.

“We’re very excited with what we’ve done in California – over two million man hours without a LTI (lost time incident). We have a low recordable incident rate compared to anyone in the industry. It’s a cultural change. It’s safety from the top down and the bottom up. No one person owns it - we all own it collectively. Part of how we define ourselves as a company is that we can return high profitability with zero accidents. That’s a big nut to crack – you have to work at both and you take a big gulp of air each day when you come to work.”

This challenging and rewarding culture has generated a superb working environment at Skanska, which can be partly attributed to the Swedish influence. “Their approach to HR is much more proactive and that sits well with us in California. You see it daily in how we’re required to respect each other through internal rules of engagement that foster professionalism. It makes you feel good when you come to work here. It’s tangible.”

Diversification

Traditionally, as it grew, Skanska USA acquired companies throughout the United States and allowed them to co-brand to take advantage of the strength of a global enterprise and the market presence of each company. This led to a surfeit of distinct company names under the Skanska umbrella - Slattery Skanska, Gottlieb Skanska, Atlantic Skanska, Tidewater Skanska, and Yeager Skanska for example. Now these companies operate as a single, integrated entity called Skanska USA Civil, which breaks down into five regions; Western, Mid-Western, Northeast, Southeast and, in New York, Skanska Koch. “Rocky Mountain concentrates on mines, and the other guys tend to be more vertical - they do big bridges, subways, and tunnels. We’re a highway builder – it’s very ‘horizontal construction’ out here,” says Taylor.

Horizontal it may be, but the company’s growth in the West, following the credit crunch, will involve a lot more than highway construction, as Taylor explains. “What we’ve seen here in California in the past year is those companies that were heavily invested in real estate development have taken it on the chops. One company in northern California did $1 billion of work last year – this year they’re probably only going to do half of that. When you have large overheads to carry that’s huge. We’ve been watching that and we figured out that it was best to diversify our portfolio which gives us more business balance. If one of the revenue streams starts drying up we’re protected,” he says.

A California locale presents some unique opportunities to diversify for a construction firm with significant leverage. “California has over 40 million people, is growing at about seven percent a year and the water needs are tremendous – the state is in a water crisis. I did my own research and the need for water treatment will increase by 40 percent in California over the next ten years.”

Southern California gets its water from three sources; northern California, the Sierra Nevadas and the Colorado River. “If there’s a drought, those resources get stretched and dry up. Orange County already has a desalinisation plant on the books. We see the need for water; we live in an arid climate.” Indeed, California already experiences rationing in the summer. “We see this as a big opportunity. We can spin a lot of the work off the expertise we have in New York - those guys are doing over $1 billion of water treatment already.”

Landside, waterside, quarries and highways

Another opportunity is associated with the Port of Los Angeles in Long Beach. Maritime laws in California mean all the funding for the two ports in Long Beach are protected, meaning there is a nest egg of money that hasn’t been eaten up. “They have over $1.5 billion in the bank ready to be used on construction projects and they’re ready to get going on that,” says Taylor. More goods and commodities are shipped out of the port of Long Beach than the entire Eastern Seaboard of the United States. No surprise then that bunker crude – the cheap oil that powers boats’ generators – is California’s largest polluter. “They have a big problem – they need a whole series of infrastructure to get the goods from the port to the outlying cities, then they need electrical power at the ports so they don’t have to run on bunker crude.”

With such a large industry to support, there are numerous opportunities for Skanska. “There’s landside and there’s waterside projects. The whole reconstruction to accommodate super tankers is tremendous. There’s a continuing question over how you get the goods to the people and roads. We see that as a significant opportunity.”

The production of stone from aggregate quarries is also being explored. “In Sweden, we have over 60 quarries that produce their own aggregates and stone.

Granite Construction – which has branch offices in California – has been very successful in this area and we’d like to model that to a degree. We see aggregates and stone quarries as a very lucrative business. It’s a commodity that’s drying up.” To get a pit permitted in California takes two to five years. “You can’t buy a mountain and say you’re going to take rock out of it,” as Taylor puts it.

Of course, the highway work isn’t going away. Skanska recently won a $61 million contract with Caltrans to build a highway in San Diego. “The infrastructure in California is getting pretty bad. They’re going to spend a phenomenal amount of money here.” Indeed, Caltrans is planning to spend $100 billion dollars in the next ten years. “How about that for a number,” laughs Taylor. The company is also looking to grow its highway business in Northern California, so there’s plenty to keep Taylor and his colleagues busy. “Spinning further into the state would diversify our portfolio even more.”

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