Jacobs Engineering: Success Rooted in Client Relationships
Critical to the success of any company in a down economy is its ability to expand and diversify its services, allowing it to grow while waiting out the economic turbulence. Really successful and savvy companies are able to forge these expansions even when economic times are strong.
And that has been the case for one of the leading trenchless design firms in the world. Jacobs Engineering didn’t start out in the underground infrastructure market when Joseph J. Jacobs started his firm in 1947 but it has evolved and diversified many times over since then through innovation and outside acquisitions to create a multi-billion engineering firm that is respected worldwide.
Trenchless design is just one facet to the firm’s success and its leaders believe this area, which has only been a part of Jacobs for about 20 years, is one of its services of “high growth” with strong expectations for its future. Trenchless design, part of Jacobs’ North American Infrastructure Group, represents an area of revenue that is projected to continue gaining strength. Jacobs provides engineering solutions in 12 different areas including energy, automotive and industrial, environmental and oil and gas, but it is its infrastructure group — which encapsulates its trenchless-related work — that has grown into a strong group.
Jacobs prides itself on its longstanding relationships it cultivates with clients, finding solutions for their projects that sometimes cross the different markets. It’s all about the clients’ needs and how Jacobs can meet those needs. Even in today’s fragile economy, when some companies will promise anything to make that sale, Jacobs stays true to its philosophy.
“Our philosophy has been at the forefront of the company’s strength for years and the weaker economy has actually strengthened that resolve to really go into markets where our clients need our help as opposed to going where we don’t have deep relationships,” said Kevin McMahon, group vice president of Jacobs North American Infrastructure Group since 2007.
And that philosophy has allowed the firm to grow over the years to the multi-billion global success that it is. The North American Infrastructure Group competes against top-notch engineering firms around the world when bidding for trenchless projects. McMahon believes it is a combination of its relationship building and experienced trenchless engineers that gives Jacobs its competitive edge.
Company History
Jacobs Engineering (NYSE: JEC) is headquartered in Pasadena, Calif. As many large, successful companies do, Jacobs started out in business with modest means in 1947. Joseph J. Jacobs went into business as Jacobs Engineering Co., operating as both engineering consultant and a manufacturers’ representative for process equipment. It was a small firm that didn’t reach 20 employees until 1956.
Today, Jacobs’ global network includes more than 160 offices in more than 20 countries with operations in North America, the United Kingdom, mainland Europe, the Middle East, India, Australia, Africa and Asia. Employees number approximately 50,000, with about 4,000 working in the North American Infrastructure Group.
A publicly traded company since 1970, Jacobs earned nearly $45 million in trenchless-related revenue in 2008. As large as that number is, it represents just four-tenths of 1 percent of the entire firm’s revenue, which totaled more than $11 billion in fiscal year 2008.
As the trenchless market has grown, so has the firm’s trenchless-related revenue. Each of the last three years has shown marked growth in Jacobs’ trenchless earnings, going from $31.8 million in 2006 to $40.16 million in 2007 to $44.89 million in 2008. As the trenchless market has garnered strength in recent years, particularly on the rehab side, Jacobs has capitalized on it.
“One of the things that has happened over the last few years is that there has been a trend toward urbanism and people are starting to congregate in the bigger cities,” McMahon said. “Because of the changing economy, people are moving out of the rural areas where you don’t necessarily have the need for trenchless technology as much as you do in urban areas due to the infrastructure congestion. It’s a societal issue that is driving to more trenchless applications, as well as a shifting nature of the workforce and where people are living. That is expected to continue for the foreseeable future.”
Jacobs entry into the trenchless market was not a stretch. With deep roots in the oil and gas industry, it made perfect sense to tap into the trenchless market. Key acquisitions over the years fueled Jacobs’ acceleration as one of the top trenchless design firms in the world. With those acquisitions came a solid and maturing client base and perhaps more importantly, experienced engineers with significant trenchless backgrounds. Such was the case with Tom Meinhart who joined Jacobs with the firm’s acquisition of Sverdrup in 1999. Meinhart is responsible for the Midwest operations of Jacobs Infrastructure Group and previously led the firm’s Underground Technology Practice Group, serving as a project principal and project manager for many of Jacobs key underground projects.
“Jacobs made some key acquisitions over the years, Sverdrup from which I came in and that was its biggest infrastructure acquisition at that time,” Meinhart said. “Over the years we made more infrastructure acquisitions such as, Edwards and Kelcey and Carter & Burgess in North America, and Gibb and Babtie Group overseas. We brought in more trenchless talent to the company, as well as additional clients to serve in that market.”
Meinhart noted that prior to 1999, Jacobs was working in, the trenchless market but it wasn’t until the Sverdrup acquisition that the firm put an emphasis on that market. “Since then, the trenchless market has been one of our growth areas in our infrastructure business,” he said.
McMahon expanded on how these acquisitions have affected Jacobs’ services. “Jacobs historically was not in the telecommunications business but Edwards and Kelcey was [when it was acquired] so we came in and [Jacobs was] now in the underground fiber market,” he said. “As our utilities business has expanded, it has expanded our capabilities in trenchless but more importantly, it was bringing client interfaces. The trenchless group has grown by expanding our conventional services to different client markets, as well as expanding our underground capabilities.”
A key to Jacobs’ success in the trenchless market is that it doesn’t focus on just one aspect of the market but is able to design for both rehabilitation and new construction projects. “We really have both sides of the house as we call it, with new installation and rehabilitation,” said Meinhart, citing the Massachusetts Water Resources Authority project in East Boston that involves pipe bursting, cured-in-place pipe (CIPP) and microtunneling. “That is a nice project that is a combination of rehab and new construction. So I believe we have a good balance of the two and not focusing on one particular method. Of course, the way the market is right now, we are seeing a lot more emphasis toward rehab work. There has not been a lot of funding for new installation projects.”
Even though the U.S. and world economies have struggled, the effect on the trenchless market has been minimal, particularly on the rehab side. As other construction markets plummeted, the trenchless rehab market surged forward, aided in part in the United States by the American Recovery and Reinvestment Act (ARRA). Municipalities are addressing their infrastructure needs and are looking to trenchless. New installation projects have been affected by the limited funding options.
“Nowadays, a lot of the funding streams for clients are a little bit more uncertain than they were in the past,” McMahon said. “You experience more project delays, deferrals and sometimes [clients] ask us to give more analysis for alternate ways to get a solution that may not have been the most optimal or maximum solution they had wanted in the past. But because of funding constraints, clients may need to change the design and parameters of a project midstream. Now many times we are working with the clients to say what are the alternatives out there vs. the most expensive and long-term solutions.”
Jacobs also sees the peaks and valleys of the trenchless market in various parts of the country: In some states work is booming but in others, it’s slow. “I think that in general the underground business of trenchless technology is pretty strong,” said Nick Chen, vice president and tunnel design principal at Jacobs. He cited Michigan, where the economy took a severe hit in 2008-09 and the trenchless market is very poor, but that in Texas, the trenchless market is extremely strong, noting that Jacobs was recently awarded four projects in the Austin area. He also noted that the markets in the East, Northeast and West are strong.
“Clients are juggling the cross-benefit analysis of a rehab solution vs. a new asset that has more capacity,” McMahon said. “Different municipalities are coming up with different solutions. For one city that is struggling financially, their solution might be spending X-amount of dollars on a rehab project that may only give them 15 years of use vs. a new, expensive project that will give them two or three times that.”
One area trenchless engineers are finding disconcerting and problematic is the lack of qualified engineers to handle the work. There are few engineering programs that train specifically for trenchless work so finding personnel is a challenge for firms like Jacobs.
“It’s something we have found that you really need to learn on the job,” McMahon said. “But once people get exposed to underground work, they typically get really excited about it and chose it for a career.”
Another challenge for Jacobs and other firms is finding qualified trenchless contractors to handle the work. “For the protection of our clients, we need to pick the right contractors to do the job,” Meinhart said, noting the influx of HDD contractors during the height of the fiber-optic boom in the 1990s. “The number of directional drilling contractors went up exponentially during the fiber era because everyone had purchased rigs and they needed to work. But they weren’t qualified for the large-diameter work. You can really get your clients in trouble by selecting the wrong contractor. So at Jacobs, we put a lot of emphasis on qualifications-based selection, etc., to make sure they get someone who can actually execute the job successfully.”
Jacobs likes the challenges of a large, complicated project just as much as the smaller ones — it’s whatever the client needs, they said. But Jacobs prides itself on being one of a handful of engineering firms that clients turn to when a large project needs designed. “Trenchless is the kind of work that is specialty work that not many folks have a deep expertise in and can do the projects in other countries and locations where you don’t have a physical office,” McMahon said.
“The competition is always of high quality and to win a job is not an easy process as just putting your qualifications on paper,” Chen said. “You really do a lot of work to understand the projects and understand the needs of the client. The reason we are successful is that we are very diversified and we have a lot of in-house staff who used to work for the equipment manufacturers and underground contractors. So we will always be able to find a good solution. That is our strength.”
Meinhart concurred, saying the clients are more and more savvy these days. “They’re not going to hire someone where this is their first, second or third job. They want to hire the best. We truly believe that we can take on the larger, more complex projects and we hope that our clients would want to hire someone who has those capabilities.”
Jacobs knows its people need to be on top of all technological advancements in order to best serve their clients. Firm leaders, like McMahon, encourage engineers to pursue valuable training and participation in national and international trenchless market associations. For example, Meinhart and Chen both take part in training courses as participants and course instructors, specifically involving HDD and microtunneling. “We encourage our staff to seek those new innovations and ideas in the marketplace,” Meinhart said.
Jacobs’s trenchless work is projected to be a growth area for the firm in the short- and long-terms, as cities continue to address its deteriorating underground infrastructure. “It’s definitely a differentiator for us. We like to think that we are at the cutting edge of solving our clients’ problems. This is one of the opportunities for clients that they can’t go to a lot of providers that may have relationships with them,” McMahon said. “Our diversity not only in the trenchless market but in other things is really the key to our continued growth.”
Sharon M. Bueno is managing editor of Trenchless Technology.
