Two large construction firms based in Los Angeles County have landed contracts in Africa and Afghanistan, examples of companies reaching farther and farther around the world for work – sometimes regardless of the risks of doing business in war-torn and otherwise politically unstable regions.
Tetra Tech Inc., an environmental construction company in Pasadena, has won two new contracts from the U.S. Agency for International Development to build water projects in Afghanistan and sub-Saharan Africa. The combined value of the projects exceeds $69 million, with about three-fourths of the money going to war-ravaged Afghanistan.
Meanwhile, Jacobs Engineering Group Inc. has signed a joint venture to construct a fertilizer plant in Morocco. The Pasadena-based builder will partner with a longtime client from that nation, Office Cherifien des Phosphates, on the project. The job will put 200 employees to work there in the next year.
Afghanistan is under increasing pressure as American troops battle the Taliban from village to village.
In Morocco, 24 people were arrested in September on suspicion of having ties to terror cells plotting suicide bombings in Iraq.
“These aren’t emerging markets, they’re troubling markets,” said Ray O’Hara, executive vice president at Andrews International, a corporate security firm based in Valencia. “Sometimes you scratch your head because the risks are big. But the rewards are big, too.”
Other local companies are also increasing their presence in the Middle East.
They include downtown L.A.-based Parsons Corp., which in September announced a contract to help support U.S. military installations in Puerto Rico and Guantanamo, Cuba; Westwood-based Occidental Petroleum Inc., which agreed to develop a Bahrain oilfield in April; and downtown L.A.-based Aecom Technology Inc., which in July won two construction contracts worth $60 million in Abu Dhabi and Saudi Arabia.
Finance and personnel
Michael Bieber, vice president of corporate development at Tetra Tech, said that when the company moved aggressively into Iraq, it quickly built up to about $200 million worth of business per year in the country, a significant portion of its $1.4 billion annual revenue.
Now that the contracts in Iraq are nearly completed, the company is looking elsewhere. “As Iraq winds down, Afghanistan is ramping up,” he said.
Bieber cited two potential issues when working in dangerous countries: financial risks and personnel risks. For Tetra Tech, the financial danger is very low because its contracts are with the U.S. government.
As for the personnel risks, Bieber said the company takes security seriously, but its contracts prohibited him from revealing any details.
Jacobs also intends to expand the joint venture’s infrastructure engineering services in West African markets. Chairman Noel Watson said in a statement that the deal “enables us both to further penetrate the Moroccan and West African markets.”
Jacobs executives did not return repeated requests for interviews.
O’Hara of Andrews International said most construction companies working in high-risk regions build secure compounds for their personnel. They also provide drivers, armored vehicles, bodyguards, kidnap and ransom insurance, and have plans for emergency evacuations.
The costs for these security measures are significant and constant, but they are usually included in the bids for construction projects, O’Hara explained. Also, a company that works in various high-risk countries can spread costs such as employee training, insurance and contingency planning over many projects.
Investors certainly don’t perceive Tetra Tech and Jacobs as risky companies. On the day they announced their contracts, their stocks rose 0.4 percent and 1.4 percent, respectively.
EVA Dimensions, an equity research firm in Locust Valley, N.Y., rates Tetra Tech as a low-risk company for investors. Tetra Tech also has a high performance rating, so EVA rates Tetra Tech a “buy.”
Jacobs gets an even lower ranking for risk and a higher one for performance, which combine to yield a “strong buy” rating.
Andrea Wirth, an analyst at brokerage Robert W. Baird & Co. in Milwaukee who covers both companies, cited pent-up demand for Army contracts as a growth factor in 2010 for Tetra Tech. She noted that last year, 43 percent of the company’s revenue came from federal contracts, up from 33 percent in 2003, a reflection of its overseas work, nearly all of which involves federal dollars. Federal work is much less risky – but also less profitable – than working for private clients in foreign countries.
Wirth rates both Jacobs and Tetra Tech as “neutral.”
With a new oilfield recently discovered off the shores of Ghana and the prospect of opening the Iraqi oil sector to private investment, O’Hara sees a bright future for construction projects in high-risk regions.
“Infrastructure companies are waiting to get that work because it’s extremely lucrative,” he said.
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