Fluor Corp. said it is eyeing more work in Iraq as some U.S. spending shifts from security to reconstruction after the country’s election last month.
Meanwhile, the Aliso Viejo-based engineering services company is looking ahead to bidding on some $4 billion worth of reconstruction work set to get under way this year in Afghanistan.
“We’re seriously evaluating those contracts,” Fluor spokesman Jerry Holloway said of the pending Afghanistan work.
Back in Iraq, the Pentagon and State Department could speed up rebuilding spending there after elections went better than expected last month, according to one analyst who follows Fluor.
“There has been more talk by the U.S. government about allocating more money to repair oil fields and other sectors,” the analyst said. “Some more task order issues may happen, and things might start to happen much faster than previously expected.”
U.S. officials said last week they were revising their $18 billion Iraq reconstruction plan and likely would hand over some contracting power to Iraqi ministries.
The change doesn’t stand to dramatically impact the $10.4 billion already allocated to companies working in Iraq, including Fluor. But it could mean some of the $2.6 billion worth of work Fluor has been doing may wind up being worth less as spending shifts among projects.
“There is a chance the maximum dollar amounts might not be reached for some of the projects we are working on,” Holloway said. “We’re still waiting to hear more details.”
The State Department said the reallocation of the remaining $8 billion in funds would be done within about a month.
Last year, the State Department shifted $3.4 billion in U.S. funds from water and power projects to boost security work in Iraq. If the security situation improves this year, then more money could get funneled to the reconstruction itself.
Things in Afghanistan are a little clearer, according to Fluor.
The company said it should have a crack at four contracts worth $3.5 billion to $4.5 billion. The U.S. Agency for International Development is expected to issue requests for proposals next week.
Fluor and others have until May 15 to submit proposals.
At the start of the year, USAID gave companies a heads up regarding the pending Afghanistan work. The agency requires the primary contractor to be American, though U.S. companies are free to select partners or subcontractors from any country.
Fluor officials hadn’t yet decided whether to bid alone for the Afghanistan work or to team with Britain’s AMEC PLC, according to Holloway.
On its own, Fluor has won about $1 billion of Iraq work. It’s won another $1.6 billion worth in Iraq with AMEC.
The four Afghanistan contracts are set to cover transportation, water, structures as well as energy and natural resources work. USAID officials said the contracts are expected to last up to five years.
Fluor will have stiff competition for the USAID work, according to the Fluor analyst, who asked not to be named.
That’s because USAID in the past has shown a tendency to award contracts to Fluor archrival Bechtel Group Inc., more so than anyone else in recent years.
“Fluor would have a shot at the Afghanistan work, but the Army Corps of Engineers appears closer to Fluor, while USAID is closer to Bechtel,” he said.
Fluor lost big contracts in Iraq to San Francisco-based Bechtel as well as Houston-based Halliburton Co. Bechtel to date has beaten Fluor and other rivals for $2.8 billion worth of Iraq work.
Boise, Idaho-based Washington Group International Inc. and Halliburton’s Kellogg Brown & Root likely will bid on the Afghanistan work, along with Fluor and Bechtel.
KBR would be a tough competitor, despite the unit’s recent woes, the analyst said.
The Army could end up rebidding some of KBR’s $13 billion of military logistics work in Iraq because of controversy over how the work was awarded.
KBR won the work back in 2001 as part of a broad-based military service contract.
Pentagon officials last year said they were considering breaking up the contract into several smaller ones to improve efficiency and cut costs. The work involves feeding, housing and looking after U.S. troops in Iraq.
Fluor, which has bolstered its military logistics business with acquisitions, could be a contender if the Army goes ahead with plans to rebid the contracts.
The company’s Holloway said he has yet to hear anything on the rebidding.
Iraq’s elections were a step in the right direction, Holloway said. But it’s too early to predict when the security situation will stabilize, he said.
“The long-term solution for security issues that do impact some of the work we’re doing is for a stable, violence-free environment,” Holloway said.
Fluor’s security costs are 25% to 40% of the total value of contracts in Iraq,up from between 10% and 15% a year ago, Holloway said.
The U.S. government fully reimburses Fluor’s security expenses, so the increased costs are not a deal-breaker for the company’s Iraq work, according to Holloway.
A prime U.S. contractor did pull out of Iraq last year, citing security concerns. Officials at Arlington, Va.-based Contrack International Inc. said they pulled out “because the original scope of work that was envisioned could not be executed in a cost effective manner under the present circumstances.”
Security concerns at times have delayed Fluor’s work, Holloway said.
“Those issues can slow a project for a period of time,we’ve seen that but we’ve been able to continue working on projects,” he said. “The kind of work Contrack was doing tends to bring on higher security costs than ours. They were doing transportation work, which tends to be more exposed and more difficult than some of the projects we’re working on. Our stuff can be made more fortified and secure.”
Most of the work Fluor has won in Iraq so far involves electricity and other public works projects. The company currently counts about 270 expatriates and more than 1,000 Iraqi workers there.
