Fluor changes approach to energy, chemical contracts citing disproportionate risk

Fluor Corp. officials announced it is changing the way it enters into energy and chemicals construction contracts, as well as for infrastructure, explaining contractors have increasingly had to assume disproportionate risks in recent years.

“Effective immediately, energy & chemicals will only pursue reimbursable or open book lump-sum conversion EPC projects,” said Carlos Hernandez, CEO of the Texas-based company.

“Many knowledgeable clients understand that their best capital program results come when there is a balanced allocation of risk and where both parties work collaboratively to reduce overall risk,” he added. Comments came as he discussed 2019 earnings, according to a Motley Fool transcript of the call.

Competition on lump-sum projects drives a number of unintended consequences and creates a transactional market. In the past several years, this transactional process has disproportionately moved risk to the contractors' side of the equation, Fluor said.

As for infrastructure, the company had already exited that businesses in Europe and Australia, but continued in some selected U.S. markets.

Now Fluor will “no longer pursue large-scale projects for clients where there is a history of onerous contractual terms” in future infrastructure contracting.

The move comes after Moody’s rating services downgraded in June Fluor’s debt to a non-investment credit rating following a “significant deterioration in its operating results.”

Experts discussed during a summer 2020 Reuters Events conference the impact of a broken model in which contractors assume most risk.

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