The North American construction market is, after China, the second largest, and the most open and transparent in the world. The magnitude of the construction market opportunity and the low barrier to entry make North America an attractive destination for foreign construction companies. This is evidenced by the large number of international construction companies who have come to the North American market. In the latest Engineering New Record Top 400 list (ENR, May 14, 2018), eleven of the top fifty contractors have international ownership. And that number is expected to grow as the North American construction market continues to grow and attract new entrants.
The Global Construction Market
A recent report on the global construction market by Euler Hermes (Soft Landing with a Loose Seatbelt, Euler Hermes, December 2018) suggests that after ten years of growth, the global construction market is beginning to cool down. Globally, year on year growth is expected to be around 3%. The US construction market is expected to grow at a rate slightly above 2%. Though a 2% growth rate is low compared to the past few years, it is still well above the growth rate expected in the construction segments in many European countries.
In addition, as public private partnerships (P3s) and other new construction financing /delivery methods begin to take hold in the United States, foreign companies are bringing their overseas experience – and their financing – to bear on those projects. The number of P3 projects in the US is increasing as states are passing enabling legislation. Some of the large projects underway include the $4 billion LaGuardia Airport improvement project, which includes the Swedish firm Skanska and the $1.4 billion UC Merced project which involves Webcor, a subsidiary of the Japanese construction firm Obayashi. International companies are taking a leading role in this growing trend.
The entrance of international firms has taken many forms in North America. Some of the largest multinational builders to small specialty subcontractors have come to the US by planting their flag and bidding on work. Other companies have come into the US through the purchase of US-based companies, leveraging an existing workforce and market presence.
Adapting to North American Surety
In all cases, coming to North America involves an education on the construction marketplace. Construction techniques may be similar around the world, but the labor, regulatory, and market environment in North America is unique. One area where the US stands out is the importance of 100% performance bonds. Most foreign companies use their banks to provide 10% performance guarantees for their contracts. In the US, those companies must provide 100% performance and payment bonds issued by a surety. Adapting to North American surety is one of the transitions that international companies must make.
To those of us familiar with surety in North America, issues such as the indemnity agreement or the information required for a US surety program are second nature. But for many companies coming into the North American market for the first time, the surety indemnity agreement is difficult to understand, let alone sign. Additional requirements such as capital retention or parental indemnity are common for international surety programs. But these requirements often lead to difficult and protracted discussions as the surety, the broker and construction company go through the process of education, negotiation, and finally, acceptance.
A surety that has extensive experience with international companies and an international network can be can be extremely helpful to advance the learning process for contractors entering the North American market. Sureties, like Euler Hermes, that have underwriters on the ground around the world can be an effective bridge between a contractor’s home market and the North American market. A surety which is more global in it outlook makes a better long term partner for a contractor that shares a similar world view.