The editorial staff at Trenchless Technology sat down for a conversation with some of the the leading trenchless industry contractors at the 2019 NASTT No-Dig Show.
The roundtable discussion looks at the status of the industry, new technologies, workforce concerns and more from “The Contractor’s Point of View.”
- Joe Lane, Aegion Corp., Vice President of International Operations
- Ray Post, Huxted Tunneling, Vice President and General Manager
- Maureen Carlin, Laney Group Inc., Strategic Marketing Manager
- Harper Daniell, BTrenchless/BT Construction, Vice President
- Max Hoerr II, Hoerr Construction, President
How has the trenchless market changed recently from the contractor’s perspective?
Joe Lane – In pipe relining, we continue to see more utilities who want a single source for their products and services. They want to go to one contractor and get everything they need so they are bundling projects. In the past, they would tender separate contracts for manhole rehabilitation, pipe relining, etc. Another thing we are seeing, especially in Europe, is high growth in the UV pipe rehabilitation market – due to relatively low market entry costs it has really taken off.
As far as improvements, overall there needs to be a better understanding and allocation of risk. Many owners are very good at working with contractors to alleviate project risks, while there are others who try to push risk to the contractor. Getting more owners to understand and follow risk management best practices is an important step.
Similarly, because this is a very fragmented industry, there are a lot of varied specifications with many owners having different requirements and expectations. We work to educate owners to promote consistency and hold all contractors to the same standards. For example, in the oil and gas industry it doesn’t matter what size or type of contractor you are, everyone is mandated to adhere to the same safety standards. This isn’t as evenly applied in the municipal arena. We spend a considerable amount to maintain a high level of safety and it is part of our cost on every project, yet we continue to see cases where other contractors are not held to the same standards, which can make competitive bidding challenging.
Finally, we need to continue our efforts to educate. We need to educate owners on the products that are available to them, as well as educate the political decision-makers so they can allocate more funding for the industry.
Ray Post – At Huxted we specialize in new installation, primarily microtunneling. The biggest change we have seen is the use of curved microtunnels, which we didn’t do in the United States before 2011. We are starting to see curved tunnels being designed now, where until recently they had only been done as a value engineering proposal. Curved tunneling is providing a big benefit to the owner by eliminating shafts and reducing cost and disruption. We are also seeing more and more longer drives. It used to be that you wouldn’t see many 1,000-ft drives. Now we’re seeing 1,500-, 2,000-, 2,500-ft and 3,000-ft drives.
But we still have a few issues, particularly that the number of quality manufacturers of concrete jacking pipe is very limited. Contractors and the North American Mircotunneling Association (NAMA) are trying to get the concrete pipe manufacturers to recognize the need for high-quality jacking pipe. As an industry today, we have evolved to the point where we’re doing large diameter microtunnels in difficult and varied geologies with compound curves. A tongue-and-groove joint without a gasket is just not going to work. It is a big deal. The pipes need to get up to standard for today’s complicated projects.
Another issue we are seeing is onerous prequalification procedures, including the fact that the contracting company – not the individuals doing the work – holds the qualification. As a company, we run into situations where we may not meet prequalification requirements, even though our staff has the qualifications through previous employers. That is an issue that needs to be addressed.
We need to continue to educate on the microtunneling side, as well, particularly regarding cost. Owners want the quality of a microtunneling project. They love the fact that microtunneling can operate below the groundwater table, results in limited settlement, eliminates trenching, has a high degree of accuracy and has the ability to negotiate curves; but, they want it for a jack-and-bore price. We’ve seen many instances where owners specify microtunneling because of its advantages, then change it to a cheaper alternative when they see the price, but still want the reduced risk and advantages of microtunneling.
Maureen Carlin – At Laney, we focus mainly on horizontal directional drilling (HDD) and Direct Pipe projects. We also have a stand-alone engineering group so we perform a lot of engineering, procurement and construction (EPC) work. One positive development we have seen is owners and engineers coming to us earlier in the project development where we can have more influence on the design.
While we might be able to improve the prequalification process itself, the fact that we are seeing more qualifications-based selection vs. low bid is a move in the right direction. Just in the past 18 to 24 months, we have put together many large trenchless proposals as the prime contractor. We are seeing significantly more on the municipal side, as well.
We are heavily involved in Herrenknecht’s Direct Pipe method, which is an augmented version of microtunneling combined with HDD, and that is still a developing area. Right now in the United States, Direct Pipe is compatible with only steel pipe, but there is advanced testing under way in other parts of the world using other pipe materials, including plastic and fiberglass.
One challenge we are facing is dealing with regulations and permitting, which has become a huge issue for us. Recently, there was a major contractor that has filed for bankruptcy in the wake of quickly escalating regulations. Some of the regulations are the result of a lack of understanding, particularly with regard to bentonite’s effect on the environment. Educating both decision-makers, as well as the public is critical to moving past some of these challenges.
Harper Daniell – We operate primarily in the Front Range of Colorado, and we’re a little different in that we operate an open-cut division, as well as our trenchless division.
From my perspective, I see a real dichotomy in the market. On one end, there are owners and engineers who are very knowledgeable about trenchless and are doing a great job. But we also see small utilities that don’t have an understanding of trenchless construction. They may not have reasonable expectations, they don’t fully understand the risks involved and they want the contractor to take all the risk. What we really hate to see is when they write a fairly stringent specification for their tunnels and then somebody comes in with a low bid that isn’t meeting the specifications, and the owner accepts it anyway because of cost.
We are definitely seeing more design-build, more CMARs, and more involvement of contractors at earlier stages. There are projects involving owners and engineers who realize the risk involved and who want to use risk registers and discuss who owns the risk. This is very positive, but there is still a dichotomy.
One problem we have seen over the last year is that we are experiencing a lot of delays. We get so many calls where the owner wants us on the site quickly, but then they don’t have the permits ready or they are just not ready. We have one of our biggest backlogs ever, but we can’t get to the work,
Max Hoerr II – Hoerr Construction is a smaller HDD contractor, and then we got into CIPP about 15 years ago. On the HDD side, we go back before Vermeer or Ditch Witch were involved. Our first machine was from International Boring Inc., and we used metal detectors for locating, so obviously the technology has improved and continues to improve in all areas – materials, processes, equipment, resins, composites. There is still a lot of knowledge to be gained yet. Similarly, education of engineers and owners has come a long way. They are learning and taking a greater interest and coming to conferences to find information on what is available, what is new and what improved, but again, but we still have a long way to go.
One area for improvement is the in the equipment. A lot of the new equipment relies on computers, electronics and sensors. While the computer technology helps safety, it can hurt productivity because when a sensor goes out, it can shut you down.
What effect are increasing energy and materials prices having on the marketplace? How does this affect trenchless contractors vs. open-cut? What effect might the changing economy have on municipal rehabilitation budgets?
Max – Increasing energy and materials results in higher priced projects, which can limit the amount of work a city with a limited budget can perform. But trenchless is becoming more competitive because in many cases there is less material to be used vs open-cut. For example, there is less rock bedding for pipe, less pavement restoration and less landscaping to be done. As all those materials continue to increase in price, it gives trenchless contractors an increasing advantage.
But right now the economy is improving, and that has a carry on effect: More jobs and wealth creation leads to more spending, which ultimately leads to more tax money for municipalities. I think we’ll see sewer and water rehabilitation projects increase along with the economy.
Harper – In Colorado, we haven’t seen too much of an actual increase in materials price, but what hurts us the most is volatility. Steel prices are particularly volatile. We are getting quotes for steel at times that are only good for 24 or 48 hours. That volatility is what makes us more nervous than anything else. We do a lot of municipal work and sometimes it takes two to three months to award the job, yet we are contractually required to hold our price for that time. That causes issues.
Denver is unique in that recently more than 100,000 people have moved into the area. Rents really went up, but wages did not, so it’s an expensive place to live. We are starting to see some wage escalation, which makes it a challenge for us to keep our skilled workers.
Maureen – Historically, 95 percent of Laney’s projects were oil and gas based. Because that market is so tied in to energy prices, it can be somewhat unpredictable and very cyclical. As a business that serves the energy market, you need to be aware of the cycles and plan to mitigate them. Even with careful observation it can be difficult to predict. We all know what projects are waiting to be built, we just don’t know if it is going to be two years from now or tomorrow. We have recently increased our focus toward municipal markets to help level out some of the volatility. These markets are linear and predictable year after year, which helps us to better forecast and plan our assets.
Ray – Increasing prices don’t really affect us too much because we are in such a niche market. It’s going to affect us the same as it is going to affect our competitors. But the volatility is what is killing us; we have a backlog of work that we can’t start due to delays beyond our control. One project we have on the books was bid in 2015, and we might start this fall – that’s a four-year delay. Thankfully as a subcontractor we were able to negotiate some escalation. One real problem is the volatility of steel prices. Huxted is working on a job that includes 2,000 ft of steel pipe. Any increase in the steel price can affect the budget and some owners are resistant to negotiate changes like this. Overall, the economy is humming and there is work out there, which is a big turnaround from just a few years ago.
Harper – We have a similar problem with delays. Sometimes the owners change plans or they are just unaware of what it takes to get a project built. If you’re crossing a railroad, for example, it can take a long time to get a permit, so you have to get permits taken care of well in advance.
Joe – What we do, especially in larger diameter applications, is highly material cost intensive: A large percentage of our materials and other costs are petroleum-based, therefore price fluctuations can have a big impact on our costs. In some cases, we are able to mitigate price fluctuations through long-term agreements, especially on large and/or long-term contracts. On the flip side, we are seeing many technology and process improvements that offset energy and material price increases. For example, CIPP lining can be made stronger using laminates that require a thinner wall, requiring less resin. Faster curing systems have evolved that result in lower labor and equipment costs and a shortened project duration.
As a result of these improvements, and in spite of material and energy price increases, owners are generally able to get more from their budgets than they have in the past. We are optimistic that the strong economy will translate into more tax revenue in subsequent years, allowing for increased municipal spending and greater growth in the trenchless market.
There are great infrastructure needs in the United States and worldwide. How can we work with owners to assure that the needs are met and trenchless is the preferred alternative?
Ray – One of the problems we have is that municipalities don’t know what they have underground. They don’t know how bad our underground infrastructure is and what needs to be done. Politicians want to build roads and buildings because they can put their names on it and people see it. It helps to convey the message: “Re-elect me, look what I did for you.” Unfortunately, they don’t want to build water lines or rehab sewer lines or construct other underground utilities that we need. To put it in perspective, what if people paid more for water than they do for gasoline? They would learn quickly how valuable water is, and you have to have water to survive. Yet people don’t realize just how valuble water is until there is an outage.
Joe – In the United States, we are very fortunate that our infrastructure is still functioning at a relatively high level, but that may not continue unless we invest at a rate which at least equals the rate of degradation. Internationally, we see many cases where water utilities are unable to provide a consistent supply of clean water to their customers due to aging infrastructure. Some are forced to decide on a fairly frequent basis who gets water when. We’re very fortunate that we haven’t had to make those types of decisions in our country … yet.
Harper – In the United States and most developed countries, we take water and sewer for granted. In less developed countries, there is a huge problem with disease and other issues. As an industry, we don’t do enough to raise awareness of how critical the work we do is. Water – fresh clean water – is going to become a larger and larger issue around the world. It is not only critical for life, but also needed for cities to grow.
Workforce development has been an increasing concern in the general construction industry. Is your company able to attract and retain the workers you need?
Joe – Our employees are the backbone of the company. We have some great technology but technology is only as good as the people who are using it. So, it is very important for us to have trained people. Mistakes happen when people are inexperienced or untrained, and in the trenchless sector, mistakes can be very costly.
We see rising labor costs in many markets, so we have to be in tune and keep pace with the rate of change. A metric we closely track is the time it takes to fill positions. Applicants typically have many job opportunities and if we take too much time to make an offer, get through the paperwork and drug testing, he/she has already started another job elsewhere. We are working to compress the time-to-hire to as few days as possible. Once hired, our younger generation wants to know what their development plan is, so we have to make sure we have a good training system in place and a career path where they can see a trajectory of where the position is going to take them.
Finally, our front-line leader development is extremely important to us. When we look at where we have safety problems, quality issues or high turnover, generally it comes down to the competency and training of our front-line managers. The better we can train them and equip them to be successful and lead their workforce, the more successful we will be as a company.
Ray – Workforce is the No. 1 issue in construction – vertical or horizontal. If we don’t do something soon, contractors are going to have a much harder time being successful because they won’t have the labor to perform work. It is something that as a collective group, we have to get on top of. College is great but it’s not for everyone. There are plenty of high paying craft jobs, like welders, but there is no push for tech schools to help fill those voids. Recently, the Suncoast Utility Contractors Association in Florida partnered with a local college to develop an Infrastructure Apprentice Program to train laborers. It’s a two-year program that workers can complete while they are working. It covers construction math, concrete, paving, utility work, safety. These kinds of efforts will help raise awareness and help improve the quality of the workforce and workmanship. Our labor performs difficult work and requires our crews to be out of town, so we need to make sure we are paying them adequately to keep them from looking elsewhere.
Maureen – Laney started as a privately owned family company, but we have become larger by taking on more entities. We are now a group of companies vs. just one standalone entity. So, figuring out how we move forward and develop training has been a challenge. For new hires, we have set up some short-term solutions and cross training to find out where in the organization they are the best fit. Personally, I started in the estimating and engineering group and my role has evolved.
We are also looking at programs to hire veterans. They may not have the technical training, but you know they have the commitment and a desire to work. Once they are on board they can be trained for a variety of roles.
Finding and retaining field crews is a huge challenge, especially because we have specialized teams from superintendents to foremen to drillers. It is difficult when you’re working in a cyclical market like oil and gas because they need to work. We pay our crews a percentage even if they are not working, but that doesn’t stop them from joining a competitor who may have work. So, figuring out how to maintain consistency within our organization is challenge, especially when you are going through a qualifications process and you need to list your key employees.
Harper – To me, what we do is the coolest thing in construction. Doing microtunneling and curved microtunneling is amazing, and I think that creates an opportunity for our industry compared to others because what we do takes a lot of skill. The flip side is that it takes a lot of time to train a superintendent. It takes 10 to15 years to get really good at that position. I still think we can attract people because what we do is so unique and so cool, but it is not easy. A couple of years ago we went through a huge hiring mode, and our retention rate was well under 50 percent for people who were truly green to construction. When they had a cold day or got their first taste of the work, many of them moved on. But some of them loved it, and they are still here and doing a great job. The problem of hiring is compounded by the fact that are many baby boomers still in the workforce who will be retiring, so we need to make that transition soon.
Regarding wages, wages in construction have historically been kept low. Cheap labor was readily available for many, many years, so now there is an opportunity to start making blue collar jobs more attractive, and I think that is beginning to happen. We have had to raise our wages in the last few years and its good for the workers. They deserve it for their skills and hard work.
Joe – Further on wages, we work in union and non-union areas. While union labor generally is paid a higher scale, the increased costs are typically offset by consistent productivity, fewer quality issues and an improved safety record. You get what you pay for.
Max – The unions also have apprenticeships that provide basic construction training, where in a non-union atmosphere we’re trying to find training programs and colleges to perform that task. We work primarily in union areas, but the problem for us is that our work is so specialized. We can’t call the union hall and tell them to send a TV truck operator or a CIPP installer. They are starting to get more up to speed with HDD but they still have a long way to go. As a company, we have been blessed with some good workers and we’ve been able to work with our unions to find some good people. And in our business we need good people, we don’t need average people. We don’t always work 8-5, if a problem comes up in the middle of the night, you need to be out there working.
Being in a union area, our guys get paid very well and they have excellent benefits, which helps us attract people. Our best way of attracting employees has been to mention it to our employees and ask if they know of anyone who would be a good fit. They take it personally because they know whoever they recommend is going to reflect on them, and they are going to end up working with them. So, they are not going to bring in someone who isn’t going to carry their weight.
How is technology changing your business? What technologies are making your life easier? Which ones are perhaps more challenging?
Joe – Improved and simplified mobile information technology and communication allows instantaneous information to those who need it most. You can open an app and watch a pipe cure halfway around the world on your smartphone. That is pretty cool. It allows us to engage subject matter experts instantly anywhere and provide them with the information required to troubleshoot an issue and ensure we provide a high-quality product. Ten years ago when we would introduce new information-sharing programs, a fairly common issue was some employees were not computer literate. Nowadays, the programs are simpler, more user-friendly and nearly everyone knows how to operate a smartphone to access them.
Harper – I think we’re going to see more of that transition to digital communication because a lot of the decision-makers today are baby boomers, and they are still driving the process. Another thing that will be interesting see over the next 10-15 years is AI and robotics. I can see a point where a bore crew consists of robots and a couple of humans, I just don’t know how rapidly that is going to occur.
Mergers and acquisitions are a growing trend in the marketplace. How is this impacting the landscape for contractors?
Ray – On the contractor side, we have seen big European contractors who set up a presence in a particular city and hire a local construction company to do subcontracting work, and eventually buy out the company. On the topic of labor, one way to acquire labor is through acquisitions. That is why some of that is happening.
Max – It seems that more investment groups are looking to acquire companies to grow. Contractors are getting bought out; but there could be more startups down the road too because if a small company gets bought out but some of the people don’t want to be a part of a big conglomerate, they may start up a new company. I see more acquisitions happening because some companies have limited capital to be able to grow, so the acquisition is a benefit providing a new influx of capital. It could be good for some contractors who need to grow but don’t have the capital, or those that don’t have a succession plan and just want to cash out.
Joe – On the contractor side, there aren’t many barriers to entry, so even with the increasing number of acquisitions, we are generally not seeing a decrease in the number of bidders on projects. As a company that has been in acquisition mode, right now it is a seller’s market with many companies (potential buyers) competing to invest cash, which drives higher acquisition multiples. In order to earn an acceptable return, an acquisition should have synergies with and augment your current capabilities to achieve these returns.
Maureen – In the pipeline market, we have seen recently where major pipeline companies have acquired specific drillers to be able to self-perform all the trenchless. Each time that happens that erodes our client base as a subcontractor, so we have to be creative and look for new opportunities and clients. On the engineering side, everybody is trying to buy engineering companies. As these companies get bigger. It is starting to have an impact on trenchless engineering companies now that the ‘big box’ engineering companies offer their own specialty group now.
Harper – On the positive side, we are seeing social costs talked about more. And, as more utilities are installed, the deeper they have to go. That is going to mean there are less and less areas where open-cut is going to be a viable option. Just look at Europe. They have been a leader in trenchless technology because of their situation – old infrastructure and population density – demanded new solutions, and that’s where we are heading.
Joe – There is tremendous potential for innovation and growth in the trenchless industry. Just 10 years ago this industry looked much different than it does today and I think that we’ll continue to see remarkable advancements for the foreseeable future.
We talked about labor and materials cost, but we didn’t talk about regulation. We like regulation in the sense that it drives a lot of the work that we do, but on the other hand it has cost implications too. Owners need to be aware of the cost ramifications of regulation and how it affects their budgets.
Max – Owners also need to understand that contractors are experienced professionals in the field, and that they do not control the ground conditions. Some owners understand that and are willing to work with the contractors to solve problems, which is key to a successful project. Overall, this is a great field to be involved with. There is an opportunity to earn a good living and develop good careers.