Sometimes saying no is your best bet.
That was the takeaway from Tutor Perini’s third quarter conference call on Nov. 6, where the heavy civil contractor said it now has so much work lined up it’s considering hitting the pause button when it comes to bidding additional major projects.
After telling investors the firm had a runway of $14 billion in future work on its books, CEO and Chairman Ron Tutor said the firm would likely take a break from bidding multiyear megaprojects valued at $500 million or more, at least for a while.
“With a record backlog at such a level as to sustain us for the next five years, we will probably stop bidding or at least reduce that commitment,” said Tutor, who characterized the pause as “a short-term hiatus from bidding for some of the larger pursuits.”
Still some bids
He stressed that the firm’s numerous subsidiaries would likely continue to pursue smaller jobs in their local markets, but that for larger projects, the pause could last for up to a year. Tutor also stressed that his firm would likely still pursue the $3.8 billion Southeast Gateway Line light-rail project in Los Angeles, as well as the $2 billion South Jersey Light-Rail line in New Jersey, in the near term.
“Those are the only projects of substance we are reviewing and keeping a finger on over the next year to 18 months,” he said.
The announcement from the Los Angeles-based contractor comes at a time when the construction industry is starving for workers. When pressed by analysts later in the call as to why the firm is stepping back from bidding, Tutor said it came down to the bodies available in the firm’s various subsidiaries.
“It’s a matter of their capacity in-house. Do they have the people? Do they have the resources? If they do, we don’t hesitate to support them. If we don’t, we turn off the tap and say you’ve got an adequate backlog with significant cash flow and major earnings. Go out and deliver it, [then] we’ll talk,” Tutor said.
Bigger losses
Tutor announced the pivot at the same time his firm dropped a $101 million loss for the quarter, even bigger than the $37 million loss it reported a year ago. Revenues came in at $1.08 billion, a 2% gain from the same period in 2023.
The company warned investors Oct. 21 that it would likely have a loss due to unfavorable dispute settlements that it estimated at $145 million at the time. Those charges actually came in at $152 million.
Tutor Perini has been working to settle disputes on legacy work that has resulted in litigation, an outcome that’s not uncommon on large, multiyear megaprojects. It said it settled seven of its largest disputes in the quarter, leading to the charges.
More favorable terms
In addition to having so much work it can step back from pursuing new jobs, Tutor also reiterated that the firm has been able to dictate more of its own terms to clients recently, as the number of heavy civil contractors who have the capacity to pursue multibillion-dollar jobs has decreased.
“Over the past, let’s call it 60 years, all contracts that were written by owners were completely one-sided, onerous and dictatorial,” Tutor said. “As long as they had five to seven bidders on every job, regardless of comment, when I would protest, the answer would be, ‘Well, then don’t bid if you don’t like our terms.’”
Now, however, with so much work in the marketplace and fewer large contractors with the capacity to complete those jobs, the tables have turned.
“We basically take the position that you either negotiate with us something reasonable and acceptable to us, or we don’t bid,” Tutor said, referring to owners dictating that contractors use their own capital to start a job, or imposing unrealistic timelines. “And when you have only two prospective bidders, and one says he’s not going to bid, now you’re down to one, you can’t bid it.”
As an example, Tutor cited the New York City Department of Design and Construction identifying Tutor Perini’s joint venture with O&G Industries as the likely choice for its New Manhattan Jail Facility, a win the firm announced ahead of its earnings Nov. 6.
Tutor said when the initial request for proposal came out for the job, he sent a letter to the city saying the terms were too onerous, and that the firm wouldn’t be bidding the job.
“Three months go by, I get a letter back it says, ‘Basically, you’re right, they’re entirely too onerous, we want you to bid. We’d like to discuss and meet what you expect,’” Tutor said. “We met, we got every single term of reason. And it isn’t that we were unreasonable. It’s fair terms.”
