Each yearat the No-Dig Show, Trenchless Technologygathers leaders from the trenchless community to explore different aspects ofthe industry. This year, we decided to take a look at the market through thecontractor’s eyes.

We werepleased to assemble some of the leading contractors in the country to sharetheir thoughts on the state of the industry, a changing economy and the role oftrenchless technology in the future.

Theroundtable discussion was held Tuesday, April 29 at the Gaylord Texan Resortand Convention Center in Grapevine, Texas.The participants were:

  • Keith Alexander, President, Visu Sewer
  • Alex Buehler, Vice President of Marketing andTechnology, Insituform Technologies Inc.
  • Mark Hallett, Vice President ofOperations-Utility Division, Miller Pipeline
  • Mark Harris, Vice President, Reynolds Inliner
  • Dan Liotti, President, Midwest Mole
  • Kelly O’Dell, Vice President, Michels PipelineServices


Trenchless Technology – How has the trenchless market changedrecently from the contractor’s perspective? What areas have been improved? Whatareas need improvement?


Buehler – I’veseen a shift in mix moving from large-diameter to a higher percentage ofsmall-diameter rehabilitation. Additionally, I have seen a shift in the scopeof work, meaning that we see more customers opting for bundled work as part ofa turnkey solution. Specifically, they are typically bundling mainlinerehabilitation with laterals, manholes, and other digging.

Beyond theborders of the United States,I am seeing changes in testing requirements, mostly emanating from Germany and seemingly spreading throughout Western Europe. Likewise, I see more activism from the engineering community – peopleeducating themselves on trenchless technology and trying to drivespecifications accordingly. Obviously,we see pricing pressure in our market where the barriers to entry arerelatively low and the market is somewhat mature.

Technologycontinues to improve. Importantly, the people in this room have helped driveshifts in technology to make trenchless more viable, robust and affordable. Isee tremendous improvement on the curing and composites side, which willcontinue to push the technical envelope associated with CIPP. Regarding improvement,I see a substantial discrepancy between the real demand in this market and theactual spending. Consequently, we as anindustry must continue to educate the general public, as well as municipalleadership about what is happening underground and the costs of inaction andeven catastrophic failure.


Liotti – In thenew installation world, soils information is so important. We’re really juststarting to see some better soils information, geotechnical data reports andgeotechnical baseline reports. One of the newer technologies that has becomemore commonplace is guided boring or pilot tube microtunneling, which gives usthe ability to install small diameter sewers cost effectively. This technologyhas now been applied to auger boring and we are using the pilot tube machine toguide an auger bore. It gives us the ability to do installations that werepreviously nearly impossible, like 350 ft manhole shots with small diameterauger bores. Disc cutter technology is not new, but it is now being applied tosmaller diameters, which gives us the ability to install smaller diameter pipesthrough rock. Manufacturers are taking these disc cutters with button bits andcarbide inserts, along with high-horsepower machines, and miniaturizing them sowe have the ability to take these machines and attack some very difficultground.


O’Dell – I’ve seen quite a bit of change in marketacceptance in the cured-in-place business. And as the dollars tighten up, Ithink we’ll see more money spent on the trenchless industry because we are morecompetitive than open-cut operations. We’re actually seeing a little bitdifferent mix from small bore to large diameter in the Midwest.


Alexander – We’realso seeing in increase in larger diameters. There are many changes in themarketplace as we go forward. It’s inevitable. Change is always going tohappen. It is about getting your people geared up and make changes as you aremoving forward and running your operation within the marketplace or utilizingnew products coming down the pipeline.

We alsoneed to keep promoting awareness and keeping trenchless technologies on theforefront on people’s minds so that when it comes down to the board meetings,trenchless is right there as an option. Whether it is driven by economics or justsocial savings, it can be a benefit for everybody involved.

There is a big voidin education when it comes to design engineers, project engineers andinspectors. We need to start developing more co-op programs at our Universitiesto get students in the field so they can get real, hands on experience.


Harris – We’veseen a lot more packaging of contracts recently as customers are looking todeal with just one entity to get everything done. One of the things I finddisturbing though is that we have some clients putting these packages togetherand trying to cover every possible scenario that you could think of on aproject .What happens is that you take a $100,000 job and make a $2 millionbid. That leads to bid unbalancing, which is risky and something that no onereally likes to talk about. A smart contractor is going to evaluate the riskand bid it properly, but a smart contractor doesn’t necessarily get theproject.

Labor isalways a big issue. You’re not always going to have work within a 20-mile radiusof your office. As a result, traveling is major part of the business and it’shard to train, develop and retain your people when they’re on the road monthsat a time. Finally,improvements in equipment and processes have lowered the entry barriers intothe business. That has opened up the market for some non-trenchless contractorsto start dabbling around.


Hallett – We areseeing the bundling of multiple methods more and more. When there is enoughmoney in the budget it’s quite effective. It does put a strain on a trenchlesscontractor because of the number of different technologies required to performon a contract. Because of the specialized nature of each method the generalcontractor may be required to outsource many of the methods, this can accountfor 50 percent of the total contract or more.

Moreeducation is an area where there is room for improvement, from our politicalleaders to municipalities to engineers. The inspector training courses andinstallation courses that are currently being offered by NASCCO and NASTT areextremely beneficial to both the contractor and the owner. We have seen moreengineering firms requesting information and training in an effort to maketheir staff more familiar with the various trenchless technologies and theircapabilities.


TT— There has been discussion about the use of alternativecontracting practices, like design-build, in the trenchless marketplace. Whatare the potential benefits and drawbacks?


Buehler – Asignificant portion of our business derives from competitive bidding and thathas proven pretty stable both in dollars and numbers over the last three years.I think all of us believe in the potential benefits of procurement outside oflow bid. It helps mitigate, and in some cases remove, an adversarialrelationship between the owner, engineer and contractor. It allows thecontractor to get in on the front end to conduct value engineering and plan forwork releases to ultimately deliver a high-value and lower-cost solution forthe customer.

Alternativeprocurement methods such as design-build and CM at Risk are increasingslightly, although their proportion has significantly lagged the adoption ratesin other industries. If you look at other sectors in the municipal arena,design-build can comprise up to 50 percent of all the dollars in that space,and we are certainly nowhere near that in the trenchless market.


Liotti – In thenew installation world, design-build really allows the opportunity for thecontractor to select the best method of installation, especially in terms ofselecting the equipment. There are a lot of ways to put a new pipe or a newtunnel in, and, depending on what equipment the contractor owns, he can be muchmore competitive than having to go rent or lease something that is designed asa specific method. The teamwork approach is good. There is nothing better thaneveryone being on the same side of the table to complete a project.


O’Dell – I havenot seen a real shift toward design-build. It’s weighted pretty heavily towardcompetitive bidding. The one area I would like to see changed is the way specificationsare written. It’s just like a building a house. If you start out with goodspecifications, you get a good product. Fortunately, we are seeing somemovement in the direction where the specifications are strict enough that weare getting good information prior to bidding the job and hopefully that willcontinue.


Alexander – Thebenefit of design-build should be a mutual effort between the contractor anddesign firms to have mutual savings on a project. I see a need for it possiblyon larger more difficult projects, but we need to proceed cautiously becausethe marketplace is wired toward low-bid. You will get a savings through yourteam approach with your designer, contactor and owner working toward maximizingthe end result as you are installing the project. One of the drawbacks is thatcontractors are wired competitively. Probably 90 percent of our work is lowbid, with design-build and negotiated work making up the balance. The endresults of design-build can be a very positive approach but most owners areaccustomed to utilizing the low-bid mentality. The more realistic approach may be laying out specifications and pre-qualificationsahead of time and pre-qualify contractors prior to the bid process. This theory would allow the design engineerto verify the quality of all parties and products before the bid processbegins.


Hallett – The useof design-build is win-win for all parties involved. This format allows for athorough evaluation by the design team, the contractor and the owner. It allowsall the parties to buy in to the best solution. It also spreads the riskamongst the group instead of putting it all on the contractor. This lets thecontractor give his very best price to perform the work, generally saving theowner money and headaches. Unfortunately, the perception is that you’re goingto pay more with a design-build contract as opposed to a project competitivelybid. But what the owner does not see is the additional money added to cover therisk which may or may not be necessary. With that said I expect alternativecontracting practices to be only a small part of our business.


TT – Is there an advantage to alternative contracting from acontractor’s side?


Hallett – Yes.When we can get involved on the design side of a project we can betterunderstand the needs of our customer. Because of our experience we can thenrecommend the best method of repair.


Alexander – Thereis potential for savings for the owner if the contractor gets involved rightaway with the design firm from the start. If the contractor can get involved ona difficult project on the front side, we can save a lot of time in design costalong the way and time is money. Instead of an owner spending all his money onthe design side, the contractor can streamline the process and start gettingwork completed fixing the problems.


Harris – Thebiggest advantage is risk sharing and that’s what makes it work. If you can geteverybody onboard and understand the risks involved, you can lay out differentscenarios and allocate that risk. From a contractor’s point of view, I know Ican reduce my costs if I don’t have to cover certain risks. It can be awin-win. In the end it can save a lot of time and money and you get a betterproduct because everyone is on the same team.


TT – What effect are increasing energy and materials prices havingon the marketplace? How does this affect trenchless contractors vs. open-cut?What effect might the changing economy have on municipal rehabilitation budgets?


Buehler – We areall large consumers of thermosetting resin, which manifests a strongcorrelation with crude oil prices and clearly the volatility of crude oil hashad an effect on our business. We have tried to manage pricing throughappropriately aggressive procurement along with continuous innovation inchemistry and composites.

The economyhas had some effect on our marketplace. Tight credit markets might alsoinfluence the availability of capital to drive municipal spending, although theresults of this phenomenon have proven elusive. Surety bonds are a largefinancing mechanism for capital improvements projects, and municipal bondissuance is down year over year. So far, however, that is not having much of aneffect on our market, and I can count the number of accounts that have delayed,decreased or cancelled spending on one hand.


Liotti – In ourbusiness we use a lot of steel – steel casing, steel pipe – and for years itwas 28 to 30 cents a pound and now on certain sizes it is pushing 80 cents apound. This is over a 250 percent increase on steel over the last four years.As these new jobs get designed, we need to consider what other pipe products wecan use, or design them with less wall thickness if that is an option. The costof steel is definitely driving up prices.


O’Dell – Frompast experience, usually when you have a downturn like this, it takes at leasttwo years before municipalities really start seeing a change in their revenuestream, before the money starts drying up and it starts getting realcompetitive looking for bonds and looking for financing. I haven’t seen it yet.I’m hoping that our downturn doesn’t last through this two-year period becauseI do think that we would see a drop in the amount of projects that would be putout on the street.


Alexander –Comparing trenchless and open-cut, we both have fleets to operate and we bothhave materials utilized whether it’s steel, concrete or polymers – allmaterials are going up, although at different percentages. Those increases aregoing to have to be passed on. The effects are pretty basic, namely you’regoing to get less work for the dollar. How long is this downturn going to gofor? I think it’s going to rebound probably in the next 12 to 18 months.


Harris – We aredefinitely starting to see the effects of increasing fuel prices. Fortunately,I think we can handle it for the moment but I do have concerns looking forward.It’s not just the cost of fuel but the overall economy. Many of us have beenthrough these downturns before and there is always an upturn that happensafterward. It’s just a matter of how deep the valley is before you start toclimb the hill. Times like this can have a cleansing effect on the business.Stronger contractors, the ones that don’t have knee-jerk reactions, will keepsome sanity and realize that even though you want to keep your people andequipment busy there is only so much pipe you can put in the ground on a givenday and you’re kidding yourself if you think you can make your margins bydoubling your production.

Hallett – We’veseen little change as far as work coming out due to the increase in energyprices. What we don’t know is how long this will continue and how much higherprices will get. If this goes beyond two years, the amount of funding budgetedfor rehab work could diminish. In addition, contractors will have to raisetheir pricing to cover increased cost, resulting in less rehab work gettingdone.


TT – There are great infrastructure needs in the United Statesand worldwide. How can we promote work with owners to assure that the needs aremet and trenchless is the preferred alternative?


Buehler – I thinkof business development and marketing, at least for Insituform, at threedifferent levels. The first is convincing a municipal owner to do something ordo more. The second level of business development is to convey the valueproposition of trenchless over dig-and-replace. The third level is trying toposition your company and product against others in the market. I think wespend way too much time on the second and third levels as an industry and notnearly enough time on the first. Generating demand is hard in any market, andit is especially hard in a municipal one.

I thinkit’s going to take active trade associations to move the needle in terms ofdemand generation. A good initiative that I saw recently was WEF’s “Water IsLife and Infrastructure Makes It Happen” program, where they partner withmunicipalities to help them raise rates through public awareness campaigns andmedia kits.


Liotti – Again,it’s education. If the owners and the engineering community are not aware ofwhat technologies exist then how can they solve their problems throughtrenchless methods? Everybody knows open-cut, and a lot of owners and engineershave had trenchless projects go bad, so we need to educate them and let themunderstand why the project went bad so that they don’t shy away from it in thefuture. NASTT has done a great job educating the industry with the trainingmodules it has developed.


O’Dell – The keyis education. The Discovery Channel recently did a program on sewer rehab and Iam amazed at how many times the people out in the community come up to us onour jobs and say “Is that the same thing I’ve seen on TV?” And it is. And wehave got to get the word out to the general public because they don’t see it.They see a backhoe working, but with us sometimes we’re there after they leavefor work and gone by the time they get home. They can’t see where their moneyhas gone.


Alexander – Weall have sales forces out there working and taking care of media needs andeducation. On the front line there are educational seminars on trenchless atmultiple levels. It comes down to educating the young engineers whether it’sdirectional drilling, microtunneling, cured-in-place, grouting, manhole rehab –you open up that avenue for these young people when they are getting out ofschool and they’re going to carry that torch throughout their career and look attrenchless as an option as they are going through the next 30 years. Those willbe the people who are going to do your marketing and education for you alongthe way. My approach would be going to the ground level and putting an emphasisthere and educating young engineer when they are first entering the workforceand it will continue to flourish as we all move forward.


Harris – We allknow the needs, you hear it every day. The question is who is going to pay forit? A lot has to be done through lobbying efforts on Capitol Hill to increasefunding for Clean Water, Drinking Water, etc… On the other side, municipalgovernments and mayors need to understand that they’re going to have to raiserates because there is a problem that needs fixed. There are also a lot ofindustry organizations that we’re all members of. These organizations need tostart working together and work with municipalities and governments for thebenefit of all. Sometimes I feel the organizations are more competitive thanthe contractors. We need to establish a combined face for education and effortson Capitol Hill.


Hallett –Ownersand engineering firms need to take advantage of all the information availablethrough the various organizations that promote trenchless technologies today.In addition, contractors, vendors and manufacturers need to play a big role ingetting to those who are not yet familiar with the various technologiesavailable. The good news is that we’ve really become a mature industry in termsof trenchless technologies. We’ve gotten to the point where municipalities havemany sound trenchless methods available to choose from.


TT – How do you view the market in the coming years?


Hallett – I thinkwe’re going to see a dip over the next year or two due to higher costs andpotential budget cuts. But with consent decrees in place, the awareness ofCSOs, the demand for less pollution and tighter water controls, I expect it tobe a strong market long term.


Buehler – As Ilook at the U.S.economy, candidly, I am somewhat pessimistic, at least in the short-term. Ifyou look at any of the macroeconomic indicators like GDP, consumer confidenceand employment data, you do not see a very bright picture. At the end of theday, we are a cyclical business that is inextricably tied to the strength ofmunicipal coffers, particularly as it relates to spending for sewerrehabilitation, which is likely on the bleeding edge of discretionary spending.Now having said, that there are some other industry trends that I think are atplay beyond the U.S.market. We are a global company, so we have a revenue base that is increasinglydiversified geographically. The European market is growing and the Asian marketis growing even more. So while the United States is down, there areother markets comprising an increasingly larger percentage of our revenue mix.


O’Dell – I dothink that the trenchless market has gotten a lot more competitive. I think wehave a bright future. I am concerned here in the United States on how far and how indepth this downturn is going to be, but the potential for our growth in thisindustry is tremendous.


Alexander – Inthe short term you have to be cautious, obviously with the economic indicators.But in the long term, I am very optimistic. There is a huge need to maintainand repair the underground investment. If it is not maintained and repaired, we all know about therepercussions of that. The biggest problem is keeping projects funded so theycan repair these pipes, because at some point you are going to lose your windowto use trenchless technologies and you will have to go to replacement..


Harris – I amguardedly optimistic for the rest of this year. I’m actually more concernedabout 2009. There is so much happening that affects the general economy; thedollar and world confidence in the United States,the presidential election, the war in Iraq and what Congress is going tolook like in 2009 – all these things have an effect on where this economy isgoing to go.


Hallett – Goinginto next year we’ll probably see some budget cut backs in the work that comesout, but I think we’ll see an upswing after that. The reality is that at somepoint the funding is going to have to be there to do this work whether it goestrenchless or open-cut. Quite frankly I don’t see how we can not address ouraging infrastructure going forward.


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