Interview of James Hanson, Managing Director of Egis in Romania in Agenda Constructiilor magazine, introducing the new development stage on the construction local market.
1. What projects are you working on? At is the implementation status and what are their deadlines?
Egis has a strong technical pedigree across the globe and our operations in Romania are no different. Our focus is on projects that require a high level of technical expertise and know-how. As an example, we have the Predeal-Brasov railway feasibility study – this section of track, whilst relatively short is one of the most complex considering the mountainous area and altitude difference between starting and ending points. Today the damaged tracks and uneven alignment restrict train speeds to 56 km/h, and limits the potential of the railway transport market on this important connection between Hungary and Bucharest. Our task is to identify a design solution that enables safe gradients and curves for rail cargo while trying to reduce expensive tunnelling works and increase the speed limit to the target 120 km/h – it is exactly the sort of engineering challenge that we thrive on. The project will hopefully conclude later this year, assuming our proposed solution is acceptable to all the authorities involved!
In road infrastructure, we supervise a lot of ongoing construction works including sections of the Bucharest ring road, the Sibiu-Pitesti motorway, Craiova-Pitesti expressway and the Transylvania Motorway. Constructors have different approaches, and there are many new international constructors on the market, for example from Turkey, so the role of the supervisor is particularly important to ensure that the relevant Romanian standards are being respected and that the quality of construction lives up to expectation. As well, we work on several design studies, for example the Craiova - Targu Jiu highway and also in the Moldavian region of Romania – connecting places like Bacau, Piatra Neamt, Pascani, Suceava and Siret. We are partner with Search Corporation on these design studies which helps us to pool our resources and subcontractors, for example with geotechnical surveyors who are in very high demand right now!
Another focus area for us is water and environment. We work for several regional water companies, such as those in Cluj, Salaj and Satu-Mare, where we help to improve water supply infrastructure and ensure proper wastewater collection for inhabitants. In Cluj and Salaj for example, the connection rate for drinking water in 2016 was pretty low by European standards. As a result of our project, access to quality drinking water is to be increased by 40%, and more than 174 additional communities will benefit from improved sanitation services. We were part of the team involved in the definition, design and procurement phases and we’re now providing technical assistance in the final stage of construction works.
In general we have some 45 projects ongoing, so it’s a busy time for infrastructure engineering. The momentum in the industry is very strong at this time, and my feeling is that a lot of construction will happen over the next 3-5 years, thanks in part to the PNRR – which has acted like a much-needed accelerant to the industry.
2. How has the company's activity evolved in 2021 and what are your estimates for 2022 and for the future?
2021 was a transition year for us. I arrived just over 1 year ago, so a lot has already changed - principally to foster a more performance-based and collaborative culture. Egis is selling knowledge and expertise, which means that our success is entirely down to the people we employ. Egis is lucky enough to have some really exceptional engineers, so my primary focus is (and will continue to be) unlocking their potential. This means creating conditions for employee’s to grow and develop, and be rewarded for their performance. It also means encouraging greater transversality and cooperation between colleagues in the wider group – after all many of the problems faced in Romania have already been tackled elsewhere, and one of our advantages is being able to draw upon the experience of global experts that have been involved in some of the most complex infrastructure projects in the world.
The future is looking bright for us, with a good pipeline of projects and an increasingly diverse portfolio. For example we have already won projects this year in Roads, Rail and Water and this diversity is important to help us to not only cross-fertilise skills, but also to cope with the turbulences in the market, for example there have been a lot of road and water tenders recently, but in the future we expect more rail tenders. We’re also looking to focus on the large civil works projects, for example hospitals, stadiums and airports where international expertise is really needed. The Egis group includes some world-class architects such as 10Design and WestonWilliamson+Partners who I’m convinced can bring real value to the Romanian market. The main barrier remains that, generally speaking, the public sector is still undervaluing the role of design (compared to the physical construction for example).
3. How does the company feel about the effects of the pandemic on rising construction prices? Have you noticed a reduction in the demand for projects in this context?
My personal opinion it that it doesn’t feel like demand has dropped, no. I suspect this is because the majority of our work is public sector and whereas the private sector might be more hesitant to proceed in such uncertain times, the public sector will ‘keep calm and carry on’! In fact the public sector has an important role to keep the economy going, as the need for infrastructure is certainly no less, and without it then the private sector will remain ‘limited’ – I’ve lost count of the number of times I’ve heard companies say that transport infrastructure and is a barrier to greater private sector investment of expansion – logistics and supply chains are simply inadequate without it. There are of course many (perhaps too many) airports in Romania, but I don’t see that an airport network can replace the role of a surface-based transport network.
Where we do see an impact of the pandemic is on prices though. Inflation was recently in double-figures, and this makes it really difficult to plan long-term projects. We are working today on projects that were priced according to the market in 2018. Prices in construction have obviously risen a great deal since then, and particularly in the labour market. Everything is interconnected these days, so if the price of oil, steel or concrete goes up, then so do wages. In addition to the price increases of raw materials, wages have also been impacted by the strong demand for infrastructure projects – particularly following the approval of the PNRR. This is a good thing in the longer term, as it means Romania is moving from a low-cost labour market to a higher paid, higher skilled labour market, but in the short term it can be very difficult to manage as many of our projects don’t include any mechanism to increase prices according to market changes. Thankfully this is being addressed by the new government law that will allow engineering companies to increase prices to offset the impact of macro-factors like inflation.
4. Have you noticed any changes in the demand for high energy efficiency buildings, one year after the entry into force of the nZEB standards? How do you align with this trend?
Today we are not heavily involved in buildings, with a few exceptions. We do see a lot of potential here though, particularly concerning hospitals - such as Craiova, which we were recently pre-qualified for. Of the ongoing building projects we are working on, energy efficiency seems to remain a topic that appears more in theory than in practice. I would not say Romania has fully aligned to the need for energy efficient buildings in the real sense, but there is a slight (and perhaps expensive) trend towards creating more independently energetic buildings – at least in the private sector. It certainly seems to be an important focus for developers in the offices we are currently considering for relocating our Bucharest headquarters.
More generally sustainability seems to be an important buzz word, but the practical reality is that Romania is moving too slowly. In fact it was quite disappointed to see that Romania was “continuing its downward trend” and “falling from medium into low performing countries” in the most recent Climate Change Performance Index.
5. What do you think will be the trends in design, engineering and consulting in the coming years, as an effect of the pandemic, but not only?
It feels like there is a general trend towards decentralising the responsibility for public sector projects, which could be a good thing and will hopefully mean a closer connection between those implementing (the authorities) and benefiting (the citizens) – a recent example is the Cluj Metro which is being tendered by the municipality rather than a central government authority. We’ve seen this approach to work quite well in Oradea, where we were able to reconfigure a busy traffic boulevard into a pedestrian-friendly area, thanks to the municipality’s own initiatives.
In terms of large infrastructure (roads, railways, water and sanitation networks), the trends are rather conservative, with the few exceptions related to necessary improvements to take into account climate changes and to align to European safety and ecological standards. More visibly creative approach is especially applied by local authorities and private sector. These market actors analyse and seek solutions that are both economically efficient and generate ecological improvement on long-term. Consultancy on energy efficiency, ecological materials, people friendly environment is highly sought by cities and private developers, whereas centralised administration seems to pay less attention to such issues but expecting to fit into trends.
In this context, there is a real concern that legislation and standards do not align to trends quickly enough.
6. What impact do you think digitalisation and new technologies will have on the construction market and on labor and productivity in this sector? What investments do you plan to digitize your business?
For all our work in engineering, the most important assets we have are our people, so getting the best out of them means recruiting the right candidates in the first place, and then ensuring they have the right responsibilities and motivations to grow. After that comes the tools and technology that can support them and make them more effective in their jobs. For example the design software is particularly important for the design team, so we try to make sure that we’re using good tools. We invested a lot in this last year and will continue this year. Egis is also one of the global leaders in Building Informational Modelling (BIM) so we’re also planning to bring some of that knowledge and training to the local environment in Romania. So far it’s not being requested much in the public sector, but it’s only a matter of time and we would rather be ahead of the curve than behind it!
I was working in the UK prior to arriving here, and it was a marked difference between how technology was being used there to facilitate remote working compared to here in Romania. It felt like two extremes, with the UK being overly reliant on remote working and Romanian being overly reliant on Face to Face working. As with many things, I believe the best answer lies somewhere in the middle, so we’re investing in tools and equipment that allows us to coordinate better when Face to Face isn’t possible. This investment will also support improved transversality and cooperation between colleagues elsewhere in the Egis group. For example we have expanded the use of CRM or Customer relationship management, which enables us to leverage our relationships with partners and clients at a global level, not only local. It is also enabling us to better anticipate and plan our activity – this is not easy in the public sector though, as clients can be very demanding and not especially flexible. At a very general level, I believe that digitising the business also means democratising the business, and that can be quite a powerful enabler for stronger trust within and between organisations. In the long term, I hope that it will allow more open and balanced relationships between clients and suppliers and move us away from a zero sum game to more of a win-win outcome.