was The Top 200 Environmental Firms for 2012: Analysis

The Top 200 Environmental Firms managed to grow revenue in 2011 despite economic uncertainties around the world and tightening infrastructure budgets in the public sector, traditionally a mainstay for this group. But where one window closed, a door opened for providers of environmental services on the 2012 list. Overall revenue was up 5%, to $54.1 billion, a slower rise than the 6.2% of the previous year but buoyed by increases in non-U.S. work and private-sector activity, which each exceeded 20%.

The domestic market still made up a major share of firms' revenue base, but completed projects and changing public-sector spending patterns made revenue growth anemic, up only 0.7% from the previous year's total, to $41.6 billion. Firms reported 5.2% and 6.1% drops, respectively, in revenue derived from federal and state owners, while the construction and remediation category total fell 7.1% and wastewater was off 3%. "My feeling is that many contractors who attempted to break into or increase their environmental construction work fared poorly," says Jim Voltz, president of American Contracting and Environmental Services. As a result, he anticipates "less competition and less price cutting in 2012."

But the nearly 23% hike in Top 200 firms' private- sector-generated revenue and the 25% rise in spending beyond U.S. borders managed to fill coffers for listed companies. The Top 200 also reported that revenue in environmentally oriented consulting and studies rose more than 15%, while volume in the environmental management sector increased nearly 6%. Noting ups and downs in its various market sectors, Chris Vincze, CEO of TRC Cos. Inc., says, "Across our total platform, environment work was good but not great."

Adds Michael J. Graham, principal vice president of Bechtel, and manager of U.S. environmental work, "It's an interesting time with the budget challenges that the country faces. We're seeing a shift in maturity cleanup work. Fiscal 2012 was challenged with the end of the American Recovery and Reinvestment Act. Everyone has worked their way through that bubble."

Even so, list leader CH2M Hill Cos. crossed the $4-billion threshold in environment-services revenue for the first time, while MWH Global moved into the list's Top 10, displacing Kiewit Corp. Joining the Top 200 for the first time, among 19 other firms not ranked last year, is Clean Harbors Inc. The waste services and emergency cleanup company reported more than $1.1 billion in revenue for 2011 (see story, p. 59).

Another new name on the list is Aegion Corp., which last year became the new parent of water-wastewater pipeline contractor Insituform Technologies and several market-related firms. The firm noted last month improved operating profit for its North American environmental-infrastructure segment.

The water-wastewater sector also appeared to reward traditional builders such as Pepper Construction, which rose to No. 67 in the rankings based on wastewater-related revenue, and McCarthy Holdings Inc., which debuted at No. 62. But revenue stayed flat for other list participants in this sector.

PCL's Water Infrastructure Group recently won a $192-million wastewater-treatment-plant expansion and rehab project in Riverside, Calif., that, when complete in late 2015, will be the largest membrane bio-reactor retrofit project undertaken in the U.S., according to the firm. Luis Ventoza, president of PCL Infrastructure Management, is optimistic the sector will benefit from "growing interest in private-public partnerships and legislative measures being enacted in states to facilitate this delivery method and other alternative delivery methods."

Top 200 firms also working in sectors such as transportation found new environmental revenue streams. Parsons Brinckerhoff cites "sustainable" transportation planning and programming as a major market driver but says the delay in enacting federal funding limited work in environmental research and analysis for planned projects.

Ileana Ivanciu, vice president for environmental services at Dewberry, says the firm has helped the New Jersey Dept. of Transportation and the New Jersey Turnpike Authority use sustainable remediation approaches at project cleanup sites. "We have designed and implemented bioremediation programs that eliminate the need for energy-guzzling pump-and-treat remediation systems," she says. Ivanciu adds that early-onset environmental work has led to larger project roles. Dewberry's work as a subconsultant to prepare an environmental impact statement for a highway widening in New Jersey also led to a larger role as design program manager on the project, overseeing five consultants.

Versar Inc. is seeing new challenges working in federal environmental work. "Last year, we had record revenue of $137 million, of which 65% was in environmental services," says Michael Abram, the firm's chief administrative officer. "This year won't be quite as strong." As a result of less-certain federal cleanup budgets, he notes shorter time frames in government contracts, "with more option periods."

The firm and others also note more "performance-based" environmental contracting for federal clients. "You have to do your due diligence and spend a lot of time on your proposals, but that's where the contract funds are," says Abram. "If you're going to play, you have to play. They are complex and expensive proposals, but if done right, they can be lucrative. It's important whom you team with."

Adds Juan Hernandez, vice president of Cape Environmental, "Bundling of multiple sites through performance-based remediation contracts has reduced the number of opportunities but increased their size significantly." He says the approach has boosted "cost to capture" by up to 10 times, creating a challenge for small business in managing added risk.

Resurging energy and even manufacturing sectors are changing firms' mix of work. "Five years ago, our government work was 70% of our business. Today, it's about 40%," says Dan Batrack, CEO of Tetra Tech. "Our government work has remained stable, but the U.S. commercial side has grown so much more quickly."

TRC, Tetra Tech and other Top 200 firms see the boom in energy-related work as the key driver on the private-sector side, particularly with required environmental work related to oil and gas development. USA Environment LP sees oil-patch clients committing more funds to the cleanup of legacy waste sites, while shale-gas extraction sites are a growing draw for Top 200 expertise. "[Hydrofracking] has been going on for 40 years, but what is new is the depth it can go," says TRC's Vincze.

Richard Fox, CEO of engineer-contractor CDM Smith, says the firm has also seen a "strong surge" in environmental work for its food-and-beverage sector clients. "It's the water-energy nexus," he says. "These are not large projects, but they're fascinating."

Asbestos-abatement and demolition contractor LVI Services has seen a pickup in work from utilities retiring old coal-fired powerplants, rather than investing in new mandated emissions controls. The firm also is eyeing work in remediating a Philadelphia refinery recently acquired by Delta Airlines. Asbestos work in Las Vegas casinos and at a major Manhattan hospital before demolition also is anticipated. Cape Environmental sees funding continuing in military munitions cleanup. "As this is a highly specialized niche market, the competition is fierce but limited to contractors with the appropriate capabilities," says Hernandez. TRC's Vincze says the potential federal labeling of fly ash as a hazardous waste could generate new business, but he and others are skeptical that will happen because the designation could have a negative impact on the U.S. economy.

Even with the rise in global work, continuing economic uncertainties and government austerity measures took a toll on some markets. Turmoil in Europe kept the continent's share of Top 200 revenue flat. One recent, U.K.-based analysis noted the local consulting sector managed just 0.7% growth in 2011. It is slightly more optimistic for 2012, predicting 1.8% growth, and somewhat more hopeful for the future. "Long-term drivers remain intact, such as transition to a low-carbon, low-waste and energy-secure economy," the report contends.

Hisham Mahmoud, president of AMEC Earth and Environment, North American operations, sees more attention to environmental regulation in Middle East countries as they invest in new infrastructure, generating new business in the region. The firm recently won an award from Kuwait Oil Co. to be program manager for remediation of oil fields damaged during the 1990-91 Iraqi invasion of the country, he says. CDM Smith's Fox says work funded by the U.S. Agency for International Development is "surprisingly steady abroad." He says the firm is working on agency-funded work in Jordan and the West Bank. "The Emirates are putting out a lot of RFPs now," he adds.

Raimond V. Baumans, U.S.-based vice president of Antea Group, says the Dutch-based firm centralized all its environmental operating units last year as a "deliberate move to a more centralized global management model."

Acquisition will continue to fuel Top 200 firms' move into new markets and geographies. Says Bill Siegel, Kleinfelder CEO, "Our international business is growing as we expand into Australia and Canada, particularly within the energy markets." He says the firm's purchase in Australia "brings both resources to deliver on existing projects as well as a new set of clients for Kleinfelder." Noting the acquisition of Top 200 firm Shaw Group on July 30 by energy firm CB&I, Wall Street analyst Avi Fisher said he "wouldn't be terribly surprised" if the new parent sold Shaw's environmental and infrastructure business unit

Neno Duplan, CEO of Locus Technologies, has seen revenue grow from firms' use of a cloud computing software format his firm developed for managing environmental data. The firm just won contracts from Dupont Co. to manage data from more than 200 of its facilities and from the Honolulu Board of Water Supply for water-quality and -supply data.

"Firms have been missing an opportunity to take a holistic view of their portfolios and benefit from data they originally collected for only one purpose: compliance," says Duplan. "By studying data for trends and using the results to change their processes, companies would be more likely to avoid making the same mistakes again and would perhaps reduce or eliminate the need to collect data in the first place."

Looking ahead, Top 200 firms worry about the continuing commoditization of environmental services, the drive of firms to differentiate themselves from their competitors and the need to boost value.

Others see impacts from a continuing global economic slowdown. Robert Levitt, president of Hudspeth & Associates, wonders whether the private sector can "replace" government spending in the environmental arena.

AMEC's Mahmoud wonders about firms' ability to withstand a "prolonged" period of uncertainty. "Thus far, most firms have been able to take measures to sustain growth and profitability through overhead reductions, labor cost control and acquisitions," he says. "However, there is a limit to the effectiveness of these strategies if the external market stays flat or declines across multiple geographies and multiple market sectors for an extended period of time."

Data management by Fran Sweeney,Andrea Pinyan and Mev Barton