After several boom years for the global construction industry, many expected bust, especially in these turbulent economic times. However, KPMG's Global Construction Survey 2009 reveals there is much to be optimistic about, despite falling demand and commercial and residential building work inevitably suffering as funding dries up in the wake of the financial crisis.

Natalia Malioutina, Tax & Legal Partner, Head of Building, Construction and Real Estate, KPMG in Russia and the CIS, comments "There is a perception that the global financial crisis has devastated the construction industry. While it certainly has had significant impact on the way these companies do business, we found that they view these conditions as an opportunity to get leaner. When the recovery does finally arrive, these companies should be well-prepared to succeed."

Fifty three percent of global respondents (and 67 percent of Russian respondents) stated that their backlog volume of jobs has gone up or stayed level. Ninety percent of Russian respondents positively measured its ability to negotiate advantageous terms with suppliers in current economic conditions. While the picture with profits in the current order backlog in different regions differs significantly. Contractors in Europe, Middle East and Africa (EMA) appear to have been hardest hit with 54 percent indicating their projected profit rates have declined. In Russia this indicator is even bigger - 89 percent of respondents noted that projected profit rates in backlog have decreased compared to 2008. With just 40 percent of global respondents claiming a decrease in average.

The future for the industry promises huge government stimulus packages with the potential to reinvigorate the infrastructure market, but how much money will be made available and where it will find its way to is a matter of much debate in the boardrooms of engineering and construction companies around the globe.

Indeed, only 12 percent of global respondents believe that the proposed government stimulus packages will bring a significant increase in opportunities over the next 24 months. Although contractors in Asia Pacific had the most confidence in government packages with 82 percent expecting a moderate or significant increase in opportunities over the next 24 months, 43 percent of respondents from EMA believe that such stimuli will have no demonstrable impact in that timeframe. In contrast American respondents tended towards the middle, with 73 percent expecting some impact by mid-2011.

Somewhat surprisingly given the global economic climate, 35 percent of global respondents have not reduced their workforce at all. Though for Russia - only 10 percent of respondents admit that they have not reduced their workforce. Russian respondents showed that functional staff (i.e. marketing, accounting, etc) is mostly affected by workforce reductions.

In fact, very few contractors have even felt the need to cut workforce costs via salary reductions, reduced working hours, or unpaid sabbaticals (in Russia these actions were taken in every third company, that participated in the survey), and, in a very bold move given the intensity of the global recession 28 percent of respondents have taken no action at all.

KPMG's Global Construction Survey shows that the recession, rather than forcing cutbacks as would be expected, has in fact intensified contractors' efforts to manage the risks associated with projects. What was once considered a weakness in the sector is now receiving continued attention.

Seventy three percent of respondents of KPMG's Global Construction Survey say they have put even more effort in the last 12 months into due diligence and checking the financial stability of clients (80 percent in Russia). The majority of respondents reported carrying out more in-depth analyses of performance risks on "mega projects" and devoting considerable time and resources to improving risk management, through investments in systems and more comprehensive assessment of cash flow, compliance and safety risks.

When it comes to competing in a tougher marketplace, the majority of respondents see sustainability as a 'must-have' to satisfy clients and regulators. Although 56 percent reported that sustainability helps position their organization as being innovative and environmentally aware, many feel it that this is merely a minimum requirement for inclusion on shortlists. Globally, only 28 percent believe that adding sustainability solutions will result in their being invited to bid on a broader range of projects; in the Americas - 56 percent. In Russia 50 percent say that sustainability helps them to partner with additional types of clients.

Revealingly, when asked what dynamics of sustainability were most important to their customers, respondents cited a profitability/cost efficiency, energy efficiency and environmental impact. This suggests that the industry views sustainability more as an opportunity to achieve greater cost efficiency than merely as a collection of environmental benefits.

In looking at two specific financial reporting issues, more than 80 percent of global survey respondents suggested that the transition to International Financial Reporting Standards (IFRS) has had or would have either positive or neutral impact for the industry (86 percent in Russia). In stark contrast, the majority of respondents felt that proposed changes in revenue recognition would have a negative impact for the industry, feeling that the new standards would reduce understanding of their company's results, degrade the ability to forecast revenues and profits or that the existing model accurately reflects the revenue recognition process.

Commenting on the transition to IFRS, Svetlana Fonareva, Audit Partner, Head of Building, Construction and Real Estate, KPMG in Russia and the CIS, noted that most Russian construction and development companies put a hold on this process this year. The companies that started preparing IFRS financial statements long before the crisis did not stop keeping accounts in accordance with IFRS or stop transforming Russian accounting ledgers, since the main investments on the implementation of this process had already been made, and a hiatus in preparing IFRS financial statements would only have led to significant costs down the line. However, in most cases the companies that were only planning to adopt IFRS decided to postpone this step until after the crisis has passed, so there is not a lot of activity in this area right now. As for the discussion paper published jointly by the International Accounting Standards Board and the Financial Accounting Standards Board (USA), one should not rush to state categorically that it will have a negative effect on the industry as a whole. First of all, the document is still being finalized. Secondly, many companies in Russia engaged in the sale of housing prepare financial statements in accordance with IFRS. In other words, they must take the principles of IFRIC 15 into account, which in the absence of so-called "continuous transfer of work results" require that revenue be recognized at the time the finished asset is transferred pursuant to the requirements of IAS 18. Therefore, far from all development companies recognize revenue on the completion of work, which is what is being discussed in the aforementioned document.

Please find the full version of the survey here.

Comparative analysis of results of the Russian and global survey is available here.