As his U.K. competitor Atkins, which went public in 1996, now prepares to become part of Canadian global design-build giant SNC-Lavalin Group in a just-completed $2.6-billion acquisition, Keith Howells, chairman of engineer Mott MacDonald Group (MMG), recalls a conversation with the CEO of another onetime British design giant, Scott Wilson Group, that also was targeted for purchase from abroad, just four years after its 2006 stock-exchange listing.
The then 5,500-employee firm, bought by U.S.-based URS Corp., now has disappeared into giant AECOM after the firm bought URS in 2014. “I remember talking to Scott Wilson’s Geoff French, and he said, ‘As soon as you go public, you might as well put up the FOR SALE sign,’ ” says Howells.
Amid the churn in the British design world—upheavals that also extend to firms elsewhere—Howells aims to steer MMG to future growth firmly cemented in the employee-owned culture it has nurtured since its 1989 start as a blend of two U.K. water and transportation engineering stalwarts.
The firm sees employee ownership as central to its market and workforce management maneuverability and to its long-term investment in cutting-edge technology, which it hopes to build into a decisive competitive advantage.
“We’re very firmly in the employee-owned camp, and we want to stay that way,” says Howells, a 40-year MMG veteran in the top job since 2011. “People are willing to go that extra mile. They have a vested interest in the success of the business.”
Even with market gyrations in its four regions, the now 16,000-person firm posted about $2 billion in design revenue last year.
Howells admits that MMG has “continued to fret a bit” about its size. He told ENR in 2013 that the firm would need to reach the 20,000- to 25,000-employee mark to prequalify on many global bidding lists.
But an MMG consultant’s recent survey of about 60 global clients revealed they care less about absolute size than local market presence and an ability to deliver a project, notes Howells. “Rightly or wrongly, we drew some comfort from that review,” he says.
Mike Haigh, elevated in January to MMG global managing director from a similar role in its Europe-Africa region, says the firm has won some of “the biggest projects out there, and that will continue.”
In a joint venture, MMG and Arcadis were selected in May as lead designer for one of Australia’s most ambitious infrastructure projects, the estimated $9-billion to $11-billion second phase of the Sydney metro, which will involve the country’s longest-ever tunnel. Howells terms it a “quite meaty contract” that follows MMG’s continuing work for the city of Melbourne on a 9-kilometer transit tunnel, set to start major construction next year. Howells notes ramped-up efforts by states in Australia to sell off infrastructure assets such as ports and airport facilities to raise cash to fund projects.
MMG’s self-analysis also has prompted “a twin-pronged” strategy that includes a sharper focus on its core sectors—transportation energy, water and buildings—and a narrowed geographic range, says Howells. He says that, in response to a 1990s downturn, the firm “rushed around the world, trying to build mini Mott MacDonalds.”
The firm’s strategic review revealed that “we have headroom in almost every market we operate in—with the possible exception of the U.K., where we have 6% to 7% of the market,” says Howells, adding that MMG will be “much more selective and get more return on our management time.”
With key design roles on Britain’s HS2 high-speed-rail program, Howells is critical of firms that were involved in a recent brouhaha over Phase 2b delivery partner selection. Referring to unsuccessful contractor bidder Mace’s lawsuit aalleging that that the choice of CH2M generated a conflict of interest, he calls the suit a “poor move.” But he says CH2M “threw in the towel too early” by withdrawing, which allowed Bechtel to gain the contract.
Digital Delivery
Boosting efficiency is MMG’s other prong. While the firm is noted for tunneling design that offers a specialty skill, Howells says it also seeks to become more efficient in basic engineering—making use of global delivery centers in India and in four central Europe countries, and by honing high-end digital skills on projects across MMG.
MMG “has committed the whole organization to go digital in a very significant way,” says consultant Robert Prieto, a former Parsons Brinckerhoff chairman and Fluor senior vice president who is one of two outsiders named last year to advise MMG’s committee that represents its 2,750 employee shareholders. “This is not a piecemeal approach. Employees want it.The hardest challenge is to deliver what everyone wants,” he observes.
MMG’s role as lead design firm for London’s $5.1-billion Thames Tideway program, which aims to curb a long history of sewer overflows, will showcase its ability to become what Haigh calls “digital by default.”
Owner Thames Water has referred to its own push for cloud-based digital project management on the massive program, now in early construction, as “transformational” for major works in the U.K.
Further, Howells sees technology’s potential to create “digital component catalogues” that can be shared globally with staff and clients as MMG expands in its core regions.
At a recent company event ito share the project's digital innovations with U.S.-based employees, Nicholas DeNechilo, MMG's North American unit chief, termed the firm's use of BIM and virtual reality applications on the Tideway project "our digital poster child."
Prieto sees MMG’s U.K. expertise in technology, and in project finance, as being especially beneficial as the firm seeks to boost its North American footprint. “We see a lot of potential and a lot of scope to grow doing things we’re good at through teaming and priming,” adds Howells.
As part of a design-build joint venture for the $800-million Thimble Shoal project, MMG is engineering a parallel Chesapeake Bay crossing, which will be a one-mile-long underwater bored tunnel. It also is the lead designer on a contractor team for the estimated $1-billion LA Metro Regional Connector light-rail transit project, set to open in 2020.
Expanding Market
But new arenas await, following the 2016 breakup of MMG’s long-running joint venture with Canada-based Hatch Group. DeNichilo, the venture’s former CEO, has taken over U.S. operations and its North America-wide energy-pipeline design business; Hatch acquired most of its Canada business. DeNichilo admits that, based on teaming rules, energy work was technically outside of MMG’s purview but has generated millions in revenue “and been a great success.”
Howells adds, “We were feeling constrained in the market because Hatch didn’t want us to do some things. It became a bit of a friction.”
According to industry sources, those sticking points included a bid to merge with or acquire U.S. water design giant MWH, also a private firm, which Canada’s Stantec purchased last year.
Hatch Infrastructure Managing Director Michael Schatz, the venture’s former executive vice president, says the split was “in the best interest of our clients and our respective organizations.” Haigh says the transaction costs of last year’s split affected 2016 results in North America.
Looking ahead, MMG executives are still unclear on the impacts from Britain’s Brexit vote, with reports of new tariffs on skilled European Union workers in the U.K. and questions remaining on the future of European investment-bank project funding there. “On a bigger front, if the macro economics goes awry [in the U.K.], the tax take will drop. Does that mean infrastructure projects will be put on hold?” Howells wonders.
MMG also saw lackluster results last year in its Pacific region, other than Australia, and elsewhere in Asia. MMG’s Middle East revenue saw a 20% falloff last year with sagging oil prices.
China’s doors are fast closing on MMG and other designers. The Chinese “just announced they don’t want foreign involvement anymore in their [high-speed-rail] program,” says Howells. He sees new potential supporting Chinese companies abroad, such as Three Gorges Corp., which invests overseas some of its hydroelectric project proceeds. “The cash flow these guys are generating is mind-blowing,” Howells says.
MMG is an adviser to Three Gorge’s $1.7-billion Karot hydropower plant in Pakistan, set to compplete in 2021.
Planning the Future
In planning MMG’s trajectory, a lot rests with its powerful shareholder committee. Only about 20% of staff are shareholders, but ownership is coveted: At the annual July share sale for select MMG employees, there is typically a “95% uptake,” says DeNichilo.
Howells and other C-suite members own a total of just 5%, with the firm’s 75 senior leaders owning no more than 12%, he says.
The firm “obviously has to make a profit to be a sustainable business, but it’s not at any cost,” says Denise Bower, a University of Leeds engineering professor and MMG shareholder adviser. “They are very collegiate in their decision-making … with a strong degree of buy-in.” Melanie Graham, human-resources manager for MMG North America, claims “a retention rate of over 90% for senior staff.”
Even so, with too few project managers, “we have to do a better job of building them,” says Howells. Broadening staff experience is another challenge. “At any one time, we’ve got 400 to 500 people moving around the world,” says Haigh.
Observers speculate on the continued leadership tenure of Howells, 64, and succession planning. “In the U.K. system, CEOs totally disappear. There is regime change,” says one industry executive. “For a private firm, it adds a bit of risk.”
Howells has not indicated his plans but says MMG will continue its engineering focus. “We believe strongly in retaining technical and design skills because that’s where people learn how stuff works,” he says.
One water-sector peer says Howells is “not a grandstander,” but his wry British humor was evident in a 2012 U.K. construction industry publication article in which he termed firms like MMG the “rebels” fighting back against the “evil empire” of consolidation.
Meanwhile, as MMG updates its image in a branding makeover now rolling out globally, Howells also is the leading voice of a boosted thought-leadership campaign.
In June, the firm advocated the need to overhaul how the world is responding to the global refugee crisis and to use design and construction technologies for livable settlements. “We want to change how we talk about things and be more thought-provoking,” says Howells, who notes other recent think pieces on BIM, sustainabilty, climate change and smart infrastructure.
Haigh says, “We know how to write a good proposal, that it’s not about ‘we did this and we did that,’ but about the value you create, understanding the clients and achieving the right outcomes.”
