The Vinci code

By Ben Thompson, Senior Editor

At the start of the year, VINCI’s order book stood at an impressive €21.5 billion – enough to make it the world’s largest concession and construction firm. In this exclusive interview, chairman and chief executive of VINCI PLC, John Stanion, explains the key principles behind the company's success.

“The Middle East is really exciting because there's a huge amount of money being spent, and there are almost no limits to what those countries are prepared to do from a construction perspective”
-John Stanion

I’ve just arrived at the VINCI PLC offices in Watford after what feels like the longest train journey ever. I’ve only travelled about 100 miles from the EU Infrastructure headquarters in Bristol, but it’s still involved a gruelling 6am start, a journey time of three-hours and four separate train rides – including one across London during rush hour that didn’t involve a seat – all for the bargain price of UK£152. I wasn’t even travelling first-class. For John Stanion, my ordeal speaks volumes as to the current state of Britain’s public transport infrastructure. “The UK rail system has to be improved,” he nods, acknowledging my rather frazzled appearance.

And Stanion is not one to miss an opportunity. The CEO of VINCI PLC, part of the construction arm of the world’s largest company in concessions and construction, has a refreshingly no-nonsense approach that is completely appropriate given that the projects his company are involved in are fundamental to the way modern society operates. Transport, energy, waste disposal, sanitation: providing such infrastructural building blocks is second nature to a firm such as VINCI, and something the company’s business-like chief executive is passionate about developing.

“Major construction projects are exciting ,” he admits. “When you see some of the projects that we undertake – the Charilaos Trikoupis bridge (Rion-Antirion) in Greece or the Vasco de Gama bridge in Lisbon, for example – there is a certain thrill in doing them. We’re involved in roads and tolls and bridges and stadiums. We’re building and improving the motorway network in Greece between Athens and Corinth. We’re doing the Coentunnel in Amsterdam, the Alger Metro and the European Investment Bank building in Luxembourg, which was inaugurated at the beginning of June. So we’ve got active and exciting projects all over Europe.”

It’s an impressive order backlog that has helped propel VINCI to the top of the Fortune rankings in the construction sector, and take it to 168th in the Global 500 list of the world’s biggest corporations. Clearly, business is booming. “ Our order book is the highest it’s ever been,” acknowledges Stanion. Revenue results for 2007 show growth of 16.9 percent to €30.4 billion, with a large proportion of that growth coming outside the home market of France; international business increased by 21.6 percent. “The reason for that I suppose is that we are a business of choice for customers. They’ll come to us because we are a benchmark for major project capabilities around the world.”

One of those projects is the design and construction of a causeway between Qatar and Bahrain that consists of 40km of road over water, the longest stretch of bridge in the world. Elsewhere in the Middle East, VINCI is involved in great projects such as the Naga Hammadi dam in Egypt, and the compaction works on the second palm tree in Dubai, known as Jebel Ali. And while the company’s involvement in the construction of the massive Soyuz launcher site in French Guiana for the European Space Agency provides further evidence of the international nature of the France-based firm, Stanion insists that the market closer to home is just as interesting.

“ We have major subsidiaries in most Eastern European countries and we’re involved in civil engineering infrastructures, building and concessions in those countries,” he says, “Motorways and highways are a major part of our focus in this region, railways are another, and the other area is power production and power distribution. CEE is a big market for VINCI, and growing very rapidly.”

He points to Spain, Greece and Ireland as examples of countries that have made huge strides in terms of their infrastructure development in recent years, and expects the new EU members further east to undergo a similar transformation over the next few decades. “There’s a significant amount of development that’s going to happen in this region,” he continues. “If you think back 30 years ago, Spain was a backward country in terms of its infrastructure. Only 15 years ago Ireland had no motorways. But look at Ireland or Spain today and they have world-leading infrastructures, and because of that their economies have also done exceedingly well. Spain is now the European leader in wind power. It’s got one of the best motorways in Europe. It’s got high-speed rail. And there’s no reason whatsoever that countries in the CEE region cannot make similar advances. Countries like the Czech Republic, Poland, Slovakia and Hungary are more established members now and there’s lots of investment going in, but Romania, Bulgaria and Slovenia are also expected to see enormous growth. And the development of their infrastructure will play a big part in this.”

Key challenges

But while prospects for individual markets look good, Stanion concedes that the industry as a whole faces a number of key challenges over the next few years. The first is the question of attracting and managing top talent. “ The construction industry is primarily about human resources and it’s the most important component of the business,” he says. “VINCI consists of 158,000 employees and in 2008 we recruited 27,000 new ones, so we’re one of the largest employers in the world – but just imagine the HR challenges that recruiting 27,000 new employees each year poses from a management perspective.”

According to Stanion, developing the people element of the business is key to VINCI’s financial success. “At the end of 2007, our employee savings scheme held 8.2 percent of VINCI’s capital, so the employees are actually the largest shareholder in the group,” he explains. “This links them directly with the company’s success, makes them feel part of it, and gives them a sense of ownership.” And to help nurture this close relationship between employer and employee, VINCI puts significant emphasis on personal development and training. “In 2007, we notched up no fewer than 2.5 million training hours, which was an increase of 28 percent on 2005. So I think it’s right to say the primary challenge for us is human resources.”

The second major challenge for the industry is the increasing intricacy of projects. “They have become extremely complex,” he says. “Not only do you have to build them, you have to design them, you have to work out the impact on the environment, you have to finance them and you have to do it all within a framework that’s agreed upon upfront. So they’re very, very complex.”

One of the ways the industry, and VINCI in particular, is addressing this concern is through so-called early contractor involvement. Rather than going through the traditional process of designing everything upfront with a designer, getting a series of contractors to put a price on the work, awarding the contract, having someone build it and then somebody else operate and maintain the finished build, early contractor involvement uses a system whereby a number of preferred contractors are ‘pre-qualified’ for participation. “This pre-qualification process allows project managers to identify and choose a preferred contractor who then becomes involved in the concept development right at the beginning, long before anything gets designed – the idea being that as a team you design it more efficiently so you can build it more efficiently,” explains Stanion.

The final major industry challenge he identifies is the sheer size of the projects currently being undertaken. The Qatar-Bahrain causeway project, for instance, is worth over €2 billion – a sizeable piece of business. “The Middle East is really exciting because there’s a huge amount of money being spent, and there are almost no limits to what those countries are prepared to do from a construction perspective,” he says. “Even in the UK, you see the M25 motorway-widening project is now being managed as a single contract, where if you go back to the 1970s when that motorway was first built there were countless contracts involved. And so it’s not just the financial size but the actual scope of the construction work itself that is growing. The projects are getting bigger, we’re getting involved earlier and we’re taking greater responsibility for the financial side of things as well.”

In terms of advantages, Stanion sees this offering a number of key business benefits from a project management perspective. “I think it brings the opportunity to better manage risk,” he says. “The greatest issue is when you have the whole project divided up between different parties and something goes wrong in one section and it has a knock-on effect on everything else. That’s the way these projects used to be run, with no real sense of control, whereas now we can hold all the different elements in one hand – coming up with a concept, designing it, working out how to construct it, industrialising the process to improve the productivity, building in lifecycle costs to the design process, and working out what the best ways are to ensure that the costs of the use are minimised.

“I think having that managed as a single contract brings greater certainty to the process,” he continues. “It gives you an opportunity to manage risk better, and I think customers at large institutions realise that. It does bring complexity, and it does mean you have to have a very high level of skill, but at least you are able to trust to your own competencies.”

Market opportunities

And, as we all know, big challenges offer great opportunities for those companies with the right competencies. In this respect, Stanion sees potential for future growth in four key markets: energy, waste management, new motorway construction and, of course, improvements to the rail network. He thinks the sector holds immense promise.

“We’re in the beginnings of a new golden age for the railways,” he asserts. “As a means for transportation – mass transportation over short distances, national transportation over longer distances and even continent-wide transportation – rail makes a lot more sense than air. It’s a much more comfortable, pleasant experience to get on a fast train from London to Paris, and it’s actually quicker by the time you’ve driven your car to the airport, parked it, gone through all the security precautions, and got off at the other end.”

But while he acknowledges the potential for further expansion of the high-speed network across the continent, he maintains that the priority – for the UK, at least – must be to improve the existing network and transport the people who currently use it more comfortably, more efficiently and less expensively than we do at present. “There’s a huge amount of work that’s needed to improve what we’ve got now,” he says. “We need to improve signalling. That’s happening slowly but surely. We need to improve stations. We need to make platforms longer so they can accommodate longer trains. We need to make stations and travel safer in terms of the use of stations at night. And a massive upgrade of the underground network is needed. It’s going on but there’s still a long way to go. So there’s a lot of investment required on the basic mainline network and the basic underground network here in the UK and also in other parts of the continent such as Central and Eastern Europe, and there’s significant investment needed in Europe to complete the high-speed networks and extend them further east. So I think rail is going to be a key market for the construction industry.”

The second key area will be meeting the increased demand for energy. “ It’s a very interesting subject. How are we going to replace fossil fuels, and how are we going to do that in a way that doesn’t add to the global pollution problem? I think greener generation such as wind power can play a role, but nuclear power will also be important. At the end of the day, you need to produce high levels of base power generation and the best way of doing that, in my opinion, is nuclear.”

He concedes that nuclear is an energy source that has proved deeply unfashionable in the past, but points to France (where nuclear accounts for over 40 percent of the country’s primary energy supply) as an example of how it can be used successfully. “The French made a conscious choice to go nuclear in the 1970s and how many French people have actually been harmed by nuclear pollution? Very few that I’m aware of, if any.” According to Stanion, VINCI’s interest in the nuclear industry is twofold. “Firstly, we’re heavily involved in decommissioning and cleaning up the mistakes of the past. There’s a big task there. And that’s quite separate from the issue of new nuclear generation, which is much cleaner and more sophisticated than it was when people were pioneering it. We’re involved in both and will be very much involved in the construction of new nuclear power stations should they come – and we think they should.”

As with any such policy decision, the final determination will come down to two key drivers. “Economics is one; until you can say what the real cost of burning coal is, it’s tough to make an informed decision. But if you actually cost a carbon emission and create a level playing field, the economics become a little clearer. The other driver is politics, and it’s about security. Do we really want other countries to have the gas tap on their side of the wall?”

The third area of opportunity is that of waste management. “The issue of waste will be critical,” Stanion says. “We can no longer tip all our waste into holes in the ground. That’s no longer possible for a host of reasons, from lack of space to the need to be more environmentally responsible. To reduce the amount of waste we need to recycle much more, and that which we can’t recycle we’ve got to dispose of in an environmentally friendly way, so every city and every town in Europe needs better waste treatment facilities. The required investment is huge, but it will come – it’s coming now. We’re getting to see the first projects, and I predict that’s going to be a really rewarding market.”

Finally, Stanion pinpoints motorway construction as a key market for VINCI, although stops short of recommending more roads for developed countries such as the UK. “Motorways are important in countries that don’t have them,” he explains. “I question whether we need more motorways in a country like Britain. I think we just need to use them more efficiently; the issue in the UK is making the motorways work better, maybe some widening, traffic management and so forth. Really, we should be concentrating our efforts on making public transport systems better. I think if you want to make public transport work properly, you have to have the guts to back it and invest in it. It has to be sustainable.”

And it is here that Stanion’s real passion shines through – his belief in the importance of corporate social responsibility. Stanion himself oversaw the production of the company’s first CSR report earlier this year, and the value of sustainable development that encompasses environmental and social considerations as well as economic and engineering ones remains a subject close to his heart. “This is a huge area for us,” he says. “VINCI already has a policy of sustainability that measures all sorts of areas of activity. We’re measuring our waste production, we’re measuring our power consumption, our fuel consumption, and we’re setting targets to reduce in every area.”

For Stanion, such an approach is critical given the societal impact of the projects his firm undertakes. “I think this whole question of European infrastructure in the wider sense – not just the construction of it, but the funding of it, the operation of it, the choices of what we do – involves big issues that concern everyone, not just the construction industry,” he concludes. “They impact the man on the street. They’re going to have a dramatic effect on the way people live in the future, and the revolution we face today is just as great as the revolution they faced 200 years ago with the invention of the steam engine. Now we have to re-engineer our whole infrastructure for the future and get away from our dependence on fossil fuels. I think it’s really fundamental. I think it’s the most important issue we face as a race.”

Fast facts
€30.4 billion. Total VINCI Group revenues for 2007
158,000. Total employees worldwide
€21.5 billion. Value of order book at December 2007

Greek motorway concession
In Greece, VINCI is leading a consortium to finance, design and build/upgrade the Athens-Tsakona motorway, the country’s biggest motorway concession project. The project calls for the construction and modernisation of 365km of toll motorway between Athens and Tsakona in the southwest of the Peloponnese, via Corinth and Patras. The project also involves operating the motorway for 30 years, and means VINCI now operates 600km of motorway in Greece.

Dutch tunnel project
Earlier this year, a VINCI-led consortium signed the concession contract for the Coentunnel in Amsterdam. The project, worth over €500 million, requires the financing, design and construction of a submerged, eight-lane road tunnel, as well as renovating the existing tunnel there and maintaining both tunnels for a period of 30 years. The tunnel will connect the centre of Amsterdam with the northern part of the Netherlands, and should take five years to complete.

Chernobyl containment shelter
The €432 million contract comprises the design and construction of a confinement shelter in the form of an arch of exceptional dimensions, designed to permit the future dismantling of the old sarcophagus and the wreckage of the reactor that exploded on 26 April 1986. The arch will consist of an 18,000-ton metal framework spanning the existing sarcophagus, and will be 105 metres high, 150 metres long, with a 257-metre span. Work started at the end of 2007 and will take 53 months.