Tunneling Industry Outlook 2016

Each year TBM: Tunnel Business Magazine takes a look at the coming year by polling a sampling of tunneling professionals. How is the year ahead shaping up? What is the longer term prognosis? Where are the hot spots?

Most of the respondents are in agreement that the tunneling market, both in North America and beyond, is healthy. However, the market in the United States and Canada likely won’t see the same growth rate as other parts of the world. The good news: the demand for new and renewed infrastructure remains high here.

Our panel includes:

Jon-Klug-Headshot _Jonathan  D. Klug is Vice President of David R. Klug & Associates, Inc., which provides international and national manufacturer representative services to the underground heavy civil and mine construction industries.

Chris-Laughton _Chris Laughton, is a Principal Engineer with ILF Consultants. He has been involved in the design and construction of mining, heavy civil infrastructure and underground science projects constructed in North America, Europe, Middle East, Asia and Africa. Over his 40 year career, Chris has worked for owners, contractors and designers.

Verya-Nasri _Verya  Nasri, is Global Tunnel Lead for AECOM, which has more than 300 tunneling professionals worldwide. He has a Ph.D. in geotechnical and structural engineering from Ecole Centrale Paris, and more than 30 years of experience in design and construction of all kind of tunneling projects in Asia, Europe, America and Africa.

artie_silber_0 _Art Silber is Senior Vice President-Northeast Transportation and Infrastructure Division Director, Hatch Mott MacDonald_. He is also the Chairman of the UCA Executive Committee.

What is your overall assessment of the North American tunneling industry as we enter the New Year? Is the market growing? Stagnant? Shrinking? Why?

KLUG – The overall state of the North American industry is strong and continues to grow. Large-scale programs such as the Los Angeles subway expansion and the Indianapolis and Cleveland CSO programs will continue for the next 5 to 10 years and help to drive the market. In addition to the mega-projects, the need for mid-range tunnels is strong and shows no signs of slow down.

There will always be a need in the market for transportation system upgrades. From the large major metropolitan areas which have outgrown their current capacity and need to expand/upgrade, to the mid-sized cites looking to utilize underground transportation for the first time, these types of project will continue to be the baseline for our industry.

One of the major items that is, and will continue to drive the market, is water. Transportation of clean water and storage/treatment of storm water and sewage is a huge issue in all parts of the country. Projects like the NYC DEP Rondout BT-3 Project in New York and the proposed Bay Delta Project in California are critical to providing clean water to the major metropolitan areas. While in the Central and Midwestern areas of the country, the focus shifts toward CSO tunnels to help divert and prevent storm water overflows during heavy rains. While the EPA continues to mandate cities to clean up their waterways, there will be a continual need for upgraded water and sewer infrastructure throughout all regions of the country.

LAUGHTON – Moderate growth ahead, with major transit projects continuing on the coasts and in Canada, a steady stream of CSO and flood control tunnels in the Midwest and Southwest, and, as always, the promise of new mega projects on the horizon. One concern I raise with respect to mega projects; it appears to be taking longer than ever for these projects to reach the marketplace. Delays in moving projects from CADD to construction are par for the course. Frustrating for project proponents, and equally, if not more so, for those asked to forecast the market and make plans to team and bid on the work.

NASRI – The market is stable and slightly growing in North America although it is not booming. There seems to be a sufficient amount of work for both consulting and construction firms. I see  2016 being better than 2015, but the U.S. market is certainly not comparable to the growing market in Asia and Middle East, which the scale is on a different order of magnitude. The economy overall is not bad here, but certain political factors are limiting investment. It is an election year; therefore it is not a time for investment in major new programs. The passage of the new transportation bill did facilitate the start of some projects and could help with some others in the near future.

SILBER – The tunneling industry is very strong and growing stronger every year, which has been the case over the last dozen years or so. There is a need for tunnels in fresh water distribution systems, wastewater applications for combined sewer overflow (CSO) control, as well as many significant transportation projects. But in the last few years, the availability of funds for transportation projects is constraining growth of tunnels, water/wastewater and transportation projects in general. New money will begin to become available for transportation projects with the Fixing America’s Surface Transportation (FAST) Act that was passed in December, but projects also need state and local matching funding which can affect all infrastructure projects. So, public and private projects are moving forward, but not at lightning speed. If we were in a booming economy, we would have a lot more projects occurring.

What is driving the market? Conversely, what may be holding it back?

KLUG – The advancements in technology in all sectors continue to push our industry. By combining advancements from different sectors, this has allowed tunnels to be constructed in areas where, even 25 years ago, would have been thought impossible.

The advancements in TBM technology have grown leaps and bounds in the past 20 years. As machines continue to grow in size, the technology and engineering that goes into them also increases exponentially. Multi-mode machines allow for tunneling in changing ground conditions. As designers continue to put tunnels deeper underground, machine manufacturers are coming up with innovations to tackle these high pressures.

Precast segmental lining technology continues to see major advancements. High strength precision linings can be produced to within 0.1 mm tolerance on a consistent basis. Gaskets can provide sealing for pressures up to 25 bar and more, and resist acidic groundwater with a pH of 3. Dowel and bolting systems allow for rings to be built quickly and accurately, while providing high pull-out and shear performance. Steel fiber reinforcement helps minimize cracking and maximize casting time. Corrosion-resistant linings can now be cast into segments without the need for seam welding.

Admixture companies are now able to customize soil conditioners and grout mixtures to tackle any type of ground conditions. Admixture technology for concrete has also allowed for concrete mixes that limit deterioration and greatly increase strength.

Tunnel scanning systems allow for real-time feedback of excavation and shotcrete installation, helping to minimize down time for rework. Tunnel scanning systems are also a great tool to the tunnel rehabilitation market, helping to provide accurate as-built recordings for further analysis.

But the North American market typically is one that follows technological advances, not create them. If a product or idea had not been used previously in North America, designers were very hesitant to specify something new. While international references are now becoming more accepted, the design community is still reluctant to be on the cutting edge. This can be traced back to the litigious nature of our society. No one wants to be in a dispute and stand up for a product or idea that has not been used elsewhere for fear of legal ramifications. This has hampered our ability to be on the cutting edge of tunneling technology.

LAUGHTON – Many projects are being driven by an immediate need to fix failing systems or build new infrastructure to comply with environmental regulation. Other projects are driven by a more deliberate analysis that results in the identification of a tunnel as the best alternative. A tunnel will not be the answer to every infrastructure problem, but support for subsurface solutions is growing, especially where local precedent exists; cities with tunnels want more tunnels. Tunnels are hidden assets delivering reliable service, bringing environmental and mobility benefits, and positively contributing to a better quality of life. Our finished product is our best advertisement.
Infrastructure development is being held back by a lack of funding. The ASCE report cards are an annual testament to a general deterioration in the health of our nation’s infrastructure. Most relevant to us; our nation’s underground assets are getting old. As facilities age, operating budgets rise, and the likelihood of a service interruption increases. Additional funds are needed to rehabilitate and replace old systems before capacities are exceeded or operational reliability declines further. More political will is needed to secure a level of funding that can support a more proactive approach towards infrastructure renewal. This long-term investment will provide for healthier infrastructure networks which in turn will support a stronger economy.

NASRI – Driving the market is the need for infrastructure. The U.S. infrastructure was practically the best in the world and is still considered as well advanced, but it will not always remain like that if there is no budget and no significant involvement from local, state and federal government to invest. The first thing we need to do is to maintain the existing infrastructure, which is aging. I see inspection and maintenance of existing tunnels becoming a much more important part of the market, although not as large as new construction. Many of the structures built in the U.S. are between 50 and 100 years old, so there is a need to address the issues related to these structures now with innovative rehabilitation and maintenance methods. Many areas are already taking measures in that direction, but others have yet to act. However, the problem cannot be ignored for a long period.

As far as new construction, a portion is being driven by environmental regulations including CSO tunnels, which are continuously coming out to bid and that will be the case in 2016 too. That is a continuous source of revenue for the tunneling industry here. On the other hand, we don’t have sufficient transportation projects in the U.S. There is, however, opportunity for transportation tunneling in the future, particularly in high speed rail projects – that is where I see significant opportunity farther down the road.

One thing that has hampered the tunneling industry is the fact that projects often cost more than estimates and take longer to complete. There are notable examples all over the world, including the U.S. But there are also some success stories. For example, the $4.5 billion first phase of the Second Avenue Subway was completed on time and on budget with no major claims. So projects like this help encourage the public and politicians to be more interested in investing in the underground infrastructure jobs.

SILBER – Consent decrees to improve CSOs across the country is a big driver for the tunneling market in the United States. During the industrial revolution, planners were a little short-sighted when it came to the environment in designing sewers that overflowed directly into our rivers and lakes. Because of that pollution, we are doing a lot of cleanup work now by building larger interceptors and underground storage facilities that retain potential overflows until it can be safely returned to the system and ultimately treated before being released. Additionally, a lot of the infrastructure in the water conveyance, waste-water conveyance and transportation sectors built at that time are aging and the time for rehab and replacement is here. We are also seeing, as the economy improves, further expansion into undeveloped areas, which necessitates infrastructure construction.

What trends are you seeing in the North American marketplace? How are these trends affecting the market?

KLUG – Both local municipalities and the EPA have placed an emphasis on cleaning up America’s waterways and changing how growing cities handle storm water overflows. This has helped push the design and construction of CSO tunnels throughout the U.S. As they are shown to be an effective and efficient way to handle these issues, we will continue to see their use increase.

The use of steel fibers in precast segments is also a growing trend. Typically, we have only seen steel fibers used in water tunnels and not in transportation tunnels. With the upcoming ACI guideline for design of steel fiber reinforced precast segments, transportation projects might soon go to fully fiber reinforced as well. The advancements in steel fiber material and design have also helped push this technology forward.

LAUGHTON – Trends I see in the marketplace include the increased use of design-build contracts, more bid competition, and a greater focus on tunnel inspection and rehabilitation.

Design-build contract formats have been used on a number of large, U.S. tunnel procurements. The shift of final design responsibility to the contractor makes sense, providing more opportunities to innovate and match the final design to the contractor’s preferred methods and means. Going forward I believe we’ll see the design-build procurement process for tunnel work become streamlined and standardized; paving the way for its’ broader use across the industry.

Competition for tunnel work has been on the rise in North America with multi-national design and construction teams now routinely bidding on larger tunnel projects. In the near-term this heightened level of competition is likely to be sustained thanks to the relative strength of the North American marketplace.

The advanced age of our underground infrastructure and lack of “new-build” funds is obliging tunnel operators to pay greater attention to inspection, maintenance and repair works. I expect to see the market for tunnel inspection and rehabilitation work grow significantly in the coming years.

NASRI – Some of the major trends I see are increasing use of alternative delivery methods and the expanding use of new technology. Alternative delivery methods, particularly P3, have become more popular in less developed areas like South America. In more developed areas, design-bid-build is still a viable option because many owners want to retain control over the quality of the final product. But in areas where the public sector – the local, state or federal governments do not have enough money to pay for projects – private investment is needed. We are beginning to see P3 now in the U.S. with the Port of Miami Tunnel and the Elizabeth River Crossing, it remains to be seen how successful P3 will be in the U.S. over the long term.

Technology is advancing very fast. The use of larger diameter TBMs is becoming more and more common. There are success stories in the U.S., again the Port of Miami Tunnel, and worldwide there are several larger projects that have been built successfully. In fact, recently we were involved in a subsea project in Hong Kong with a diameter of nearly 58 ft (17.6 m) that was successfully completed in difficult geology.

The tunneling market is becoming more global. AECOM as a U.S. company and with the largest global tunnel team, for example, is more involved in tunneling projects outside the U.S. than inside the U.S. In fact, our largest tunneling group is in Asia. U.S. contractors are a little less involved in global projects, but we have seen many international contracting companies active in the U.S. and Canada. In most cases those contractors were pushed to find work elsewhere due to economic factors in their home country.

SILBER – More and more we are seeing owner agencies looking at alternative funding concepts like public-private partnerships (P3s) and design-build-operate-maintain (DBOM). I think ultimately it remains to be seen how these alternate delivery mechanisms impact the price of the infrastructure construction. With conventional delivery mechanisms, public projects were funded with bonds, which were partially tax exempt. When a private institution issues bonds, there is a tax, so the cost has to increase to cover that differential as well as allow for a profit margin. But the off-setting advantages associated with P3s are leading them to become part of the conversation more and more.

What is your long-term outlook for the tunneling market in North America?

KLUG – The outlook for the North American market continues to be strong. The need to upgrade deteriorating infrastructure, especially in places on the East Coast where tunnels are 100 years old, will continue to be a driving force. Upgrades to water and sewer systems will also be required. As technology continues to advance in all sectors of the industry, this will allow tunnels to be built in more places in more difficult geological conditions. As the industry continues to succeed with these difficult projects, this will only further the notion that tunneling can continue to be a viable solution.

LAUGHTON – I’m confident that the North American tunneling market will grow. As cities continue to densify and expand, the demand for infrastructure capacity will surely increase. In a congested urban environment underground sites are often the only viable option for new infrastructure development.

NASRI – In general, it seems like the U.S. has ways to go to fully utilize the underground infrastructure for all uses. Elsewhere in the world, the underground is used for many different applications. For example in Asia and Europe you will see more innovative use of the underground for things like water treatment works, sports complexes and strategic storage caverns. There is some of use of the underground for non-traditional purposes in the U.S., but it is not the norm. Worldwide, the innovative use of underground space is growing fast.

One thing we need to do to ensure the future of the industry is to invest in the young generation of tunnel professionals. Compared to some other parts of the world, there are fewer students and young engineers attending and participating in tunneling organizations, university programs and conferences. This is an issue that needs to be addressed.

SILBER – Ultimately it comes down to the need in combination with the drive of the public and owners to take on the projects. Would they rather have a new tunnel and pay for it, or sit for an hour or two in bumper-to-bumper traffic or continue to pollute the waterways. And, of course, the public has to buy in too. There has to a willingness on the part of the public to pay for it. There are plenty of projects that have been proposed that are in a holding pattern because there is a lack of commitment to moving them forward.

What can we do to help promote the use and growth of tunneling in North America?

KLUG – Education at all levels is the key to the growth and promotion of our industry. While the schools with dedicated tunneling degrees do a great job, we still must venture out into the other engineering fields to show graduates what opportunities the tunnel industry can provide. There are many young people out there looking for a challenge, but are unware of exactly what our industry can provide to them. I recently gave a talk to the SME Student Chapter at West Virginia University. Many of the students were mining engineering majors, and had very little to no idea about the tunneling industry. After the talk, I received notes from several students who said that they are now interested in pursuing employment in the tunnel industry, and have started submitting resumes to tunnel design firms and contractors. I would encourage people to reach out to their local schools or alma maters and do the same.

However, the teaching cannot stop at the university level. We must continue to educate owners about the advantages of tunneling and to show that their pre-conceived notions (too costly, too risky, unsafe, etc.) are outdated. The recent decision by Maryland Governor Larry Hogan to cancel the Baltimore Red Line Project is a prime example of this. He called the Red Line Project a wasteful boondoggle, that the project made no sense whatsoever, and questioned the engineering behind the project. This was even after the project was reviewed and received $900 million dollars in federal funding. While tunnels and underground construction will always be subject to the political swings, it is up to us to educate and promote our industry to those who look to us for solutions.

LAUGHTON – We can help promote our industry through supporting infrastructure planners as they compare tunnel solutions against other infrastructure options. There are a lot of successful projects and satisfied users across North America, but unfortunately these are not the projects that receive the publicity. We need to adopt a consistent, more user-friendly framework for reporting on projects through reference to common design, construction and in-service performance parameters. Objective case history reporting can help offset the negative press that surrounds outlier projects, facilitate the sharing of project information among users, help identify best practices, and, ultimately, achieve a higher rate of project success.

NASRI – One of the major issues here in the U.S. is that we don’t invest in research and development in tunneling as they do in some other parts of the developed world. If you look at advanced countries like France, Germany and Japan, they have specialized tunneling research centers that are paid for by government and also the industry, and they are investing millions of dollars in development of all tunneling fields. We don’t see that level of investment in the U.S. This investment translates into improvements in machinery, equipment and materials for tunneling.
We also do not do a good job of lobbying for underground infrastructure projects. Internationally you see a lot more effort in this regard. Some tunneling associations in developed countries are even coming up with underground master plans to map and coordinate underground construction projects. Paris and Helsinki are two examples of cities developing such underground master plans.

SILBER – For everyone who is involved in the underground construction and tunneling industry, it is our responsibility to focus on educating owners and the public on the advantages of underground construction and tunnels vs. just solely the cost. Everyone has certain projects on their minds that cost hundreds of millions or billions of dollars, and the alternatives are almost certainly less costly. But, sometimes the long-term benefits and economic development factors are not considered. For example, when you build a bridge, you basically take any value from the land underneath. With a tunnel, on the other hand, you can create value in the space above it.

We also need to be careful about how we present the cost and schedule. We have come a long way in controlling cost and schedule, but it is highly publicized when they come in late or overbudget – or both! Part of controlling cost and schedule goes back to controlling scope creep. There have been many projects in which the scope of work expands, which obviously increases cost and adds to the schedule, but that isn’t something that is commonly known among the general public. One famous example is the Big Dig, which had major scope increases that increased the price without the public really understanding the changes and their impacts. Another component of increased cost is project delays, awaiting the availability of funding. The original cost estimates need to include funding availability delay costs and escalation, which drive up total project costs.

How do you view the international market? Is there opportunity for North American companies abroad? Where do you see the largest markets or most likely potential?

KLUG – The tunnel business is an international business. Many of the large design firms are already very active in the international marketplace, and have staff and offices throughout the world. I see this as a continuing trend. The challenges faced in the design of major works are the same across the oceans. And the experience gained by those involved in previous projects is invaluable and cannot be limited to a specific continent.

We have seen various international construction companies come to North America to pursue work over the past decade. As you study history, you can directly correlate this to a slowdown in their home market. But the North American based contractors have continued to concentrate their work in North America. As long as there is a strong market this trend will continue, and I do not foresee North American contractors expanding into the international market on a large scale.

LAUGHTON – On a technical level, North American-based engineering teams have been working internationally for decades, supporting the design and construction of major tunnel projects, and servicing equipment. On a corporate level, participation in the overseas marketplace has been more limited. However, as JV relationships with overseas partners mature, I anticipate there will be more opportunities for North American companies to work abroad. Specifically, international partnerships can open doors for our companies to participate in the tunnel markets of Asia, Europe and the Middle East.

NASRI – While areas outside of the U.S., like Asia and the Middle East, are catching up in their infrastructure construction, they are building state of the art projects. On a worldwide basis, there are many projects built, under construction, or in planning stage using TBMs with diameters in excess of 50 ft, but their use is very limited here.
With the World Tunnel Congress coming to the United States this year (April 22-28 in San Francisco), that presents an opportunity for the U.S. companies to become more involved with the worldwide industry. In the past, the U.S. involvement in World Tunnel Congresses has been relatively limited. This is a good opportunity for the U.S. tunneling industry to get in touch with global tunneling industry, especially with this being the biggest event of the year for the U.S. tunneling industry.

SILBER – The tunneling market is basically an international market. We have a lot of international companies working here, and a lot of domestic companies working outside United States. So, it boils down to simply whether a company has the resources to do the work and the people to do the work across borders. There aren’t really any significant hurdles or boundaries that are in the way.

Concluding thoughts?

KLUG – The tunnel industry will continue to grow in the coming years with the amount of work that is currently in the planning and design phase. It is the responsibility of everyone in the industry to ensure that this level of work continues by helping to educate people who are not knowledgeable of what we do, and to push those who are knowledgeable to come up with new ideas to face the technological challenges that will continue to arise.

LAUGHTON – It’s an exciting time for our industry as, thanks to those who went before, we now have a proven track record at delivering long-term, sustainable solutions, and a citizen mandate to develop more. All we need is the funding and the enthusiasm of a new generation of engineers to make these jobs a reality.

NASRI – Overall I am optimistic about the direction that the industry is going. There is a need for developing the underground as well as the need for more environmentally friendly projects. The technology continues to advance and tunnels are getting bigger, deeper and longer.

SILBER – The biggest underground infrastructure needs continue to be in the biggest cities, particularly on the coasts. We have seen recent megaprojects being built in Seattle, San Francisco, Los Angeles and New York – with further needs unaddressed. We need to continue to be innovative to help improve efficiency and safety, and we need to continue to market tunnel and underground infrastructure facilities as the preferred solution.

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