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The Puerto Rico Government Market for Architecture, Engineering, and Construction (AEC) Services 2017-2020

By Braulio Mejia
Senior Partner
bmejia@mrmanalytical.com

Introduction

This article analyzes the Puerto Rico Government Market for AEC Services during the 2017-2020 four (4) calendar years. With this information, the AEC Contractors and the Government entities requiring future AEC Services could better define their expectations. Furthermore, contractors currently providing AEC Services to the Government will be able to compare the volume and trend of their business during these four (4) years with the corresponding government demand. In addition, those AEC Contractors who have not been participating in the Government AEC Services Market, given the information presented below, could decide to enter this market segment in the future.

General

The Government of Puerto Rico contracts during the referenced period amounted to over $43 BillionĀ¹. These agreements involved over 100,000 contractors and over 280 Government Legal Entities. During this same period, the Government contracts for AEC Services amounted to over $8 Billion, of which approximately $500 Million went to Architecture/Engineering (A/E) Design, Inspection, and Project Management Services.
Of course, these figures reflect the impact of the extraordinary natural disasters during those four (4) years. For example, on September 20, 2017, Puerto Rico was hit by the worst hurricane of the past 100 years. In addition, since late December 2019, the Island has experienced a series of earthquakes, resulting in the damage or destruction of numerous public and private structures, mainly located in the southern part of the Island. Finally, after March 2021, Puerto Rico and the rest of the World faced the COVID-19 Pandemic, which impacted the Government, the Private Sector, and the general population.
As can be noted in Figure 1, the Government Total Contracted Amount (GTCA) for AEC Services during 2018 reflects a 400% growth compared to 2017.
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Figure 1
Government of Puerto Rico Total Contracted Amount for AEC Services

The top three (3) Government entities driving this volume were:
  1. The Puerto Rico Electric Power Authority (PREPA) with approximately $2.2 Billion.
  2. The Puerto Rico Department of Housing (DOH) with $1.4 Billion.
  3. The Puerto Rico Department of Transportation and Public Works (DTOP) with $0.5 Billion.
Although the total amount contracted by each municipality may not be that significant, if we combine the contracts awarded by all the Municipalities during 2018, the Municipal Market for AEC Services ranked 4. However, this market segment evolved into the first place during 2020, having contracted a similar amount to DTOP.
Over 50% of the GTCA for AEC Services was awarded during 2018, reflecting the immediate impact of hurricanes Irma and Maria. As a result, during the following two (2) years, the GTCA for AEC Services reflects a gradual reduction, although, during 2020, it still reflects over 20% growth, as compared with 2017.
As shown in Figure 2, the municipalities accounted for approximately 14% of the GTCA for AEC Services. The Executive Branch accounted for about 86%, while the Legislature and Judicial Branches of the Government accounted for less than 1%.
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Figure 2
Distribution of the Government Total Contracted Amount for AEC Services

Although many permanent reconstruction projects are still pending execution, the Government demand for A/E Design, Inspection, and Project Management Services increased significantly during the referenced period. As can be noted in Figure 3, there is a marked increase in A/E Services, reflecting probably the design development of future important construction projects.
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Figure 3
Government Contracted Amount for A/E Design, Inspection, and Project Management Services

The important infrastructure reconstruction initiatives to be executed by the Government of Puerto Rico during the next five (5) to ten (10) years represent a significant challenge both from the demand and the supply side of AEC Services. This situation is especially relevant, considering that the financial health of some local AEC Contractors may have been adversely affected by the Government financial situation, the lack of sufficient, trained, local workforce, and the effects of the COVID-19 Pandemic. Therefore, in the following paragraphs, let us look at the contracts for AEC Services, awarded by the Executive Branch legal entities, and those associated with the Municipalities.

Executive Branch

The Executive Branch Agencies and Public Corporations awarded contracts for AEC Services amounting to over $7 Billion during this period. These included over 13,000 contracts or contract amendments, awarded by over 130 Government Legal Entities to over 1,500 contractors. The most significant investments fell in the following three (3) Types of Services:
  1. Construction and Repairs of Electrical Installations - $3.0 Billion.
  2. Construction and Repairs of Housing - $1.8 Billion.
  3. Construction and Repairs of Public Roads - $0.9 Billion.
As can be noted in Figure 4, during 2018, the amount contracted for AEC Services by the Executive Branch exhibited an extraordinary increase, resulting in a 500% growth, as compared to 2017. However, the Total Contracted Amount by the Executive Branch reflects a gradual reduction during 2019 and 2020, although, during 2020, it is still higher than that of 2017.
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Figure 4
Executive Branch Contracted Amount for AEC Services

Figure 5 shows the trend of Executive Branch contracts for the principal professional services associated with construction projects during this period. These services include A/E Design, Project Management, and Project Inspection Services. The contracted amount for Project Inspection Services during 2020 is comparable to that of 2017, while the contracted amount for A/E Design and Project Management Services during 2020 reflects over 400% growth compared to that of 2017.
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Figure 5
Executive Branch Contracted Amount for A/E Design, Inspection, and Project Management

During 2017, the following five (5) Executive Branch legal entities, awarded the most significant contracts for AEC Services, accounting for approximately 73% of the GTCA:
Executive Branch Entities AEC Services
Puerto Rico Electric Power Authority 54.5%
Puerto Rico Highways and Transportation Authority 9.3%
Puerto Rico Department of Transportation and Public Works 4.7%
Puerto Rico Aqueducts and Sewers Authority 2.9%
Puerto Rico Emergencies and Disasters Management Bureau 1.7%
Total 73.1%
During 2020, however, the following five (5) Government agencies awarded the most significant contracts for AEC Services, accounting for approximately 50% of the GTCA for AEC services:
Government agencies AEC Services
Puerto Rico Highways and Transportation Authority 23.6%
Puerto Rico Aqueducts and Sewers Authority 10.4%
Puerto Rico Electric Power Authority 9.3%
Puerto Rico Ports Authority 4.2%
Puerto Rico Public Housing Administration 2.3%
Total 49.7%
According to the information published by the Central Office of Recovery, Reconstruction, and Resiliency (COR3), as of April 2021, the demand for AEC Services is expected to increase significantly in the future. Two (2) of the most relevant programs which will drive this increase in demand are:
  1. Public Assistance Program after Hurricane Maria (Stafford Act Sections 406 & 428): Approximately $29 Billion were requested to fund 10,936 Projects.
  2. Hazard Mitigation Grants Program after Hurricane Maria (Stafford Act Section 404): Approximately $3.48 Billion were requested to fund approximately 535 projects, of which about $1.14 billion were approved to fund 12 projects.

Municipalities

Over 90 Municipal Legal Entities awarded over 25,000 contracts or contract amendments for AEC Services during this period. These agreements amounted to over $1 Billion distributed among over 2,000 contractors. These contracts included over $300 Million for the Construction and Repairs of Structures, over $200 Million for the Construction and Repairs of Public Roads, and over $100 Million for Professional Services, mainly A/E Design, Inspection, and Project Management Services.
In the Municipal Government Market Segment, the Total Contracted Amount for AEC Services during 2018 grew by over 50%, compared with the previous year, and continued this trend, resulting in an overall growth of over 200% throughout this four (4) year period. Therefore, in Figure 6, we can examine the amount contracted by the Municipal Government Entities for A/E Design, Inspection, and Project Management Services during this four (4) year period.
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Figure 6
Municipalities Contracted Amount for A/E Design, Inspection, and Project Management

Impact on AEC Contractors

During the referenced four (4) calendar years, 5% of the contractors accounted for approximately 85% of the GTCA. However, analyzing each year will reveal in more detail the impact on large and small AEC Contractors, including those who have been doing business in the Island for over four (4) years, as well as those recently registered to do business in Puerto Rico.
In 2017 approximately 120 contractors, out of the over 1,600 contractors who participated in the Government AEC Market that year, were awarded contracts for over $6 Million. These contractors accounted for over 75% of the GTCA for AEC services during 2017.
Among the ten (10) contractors with the most significant contracts in this group, three (3) of these were large contractors who registered to do business in Puerto Rico during the latter part of 2017, after the hurricanes hit the Island. The other seven (7) contractors in this category were registered to do business in Puerto Rico between four (4) and forty (40) years.
Similarly, during 2020, over 130 contractors, out of the over 1,700 contractors who participated in the Government AEC Market that year, were awarded contracts for over $6 Million. These contractors account for over 67% of the GTCA for AEC services by the Government during 2020. The top ten (10) contractors in this group included companies that were registered to do business in Puerto Rico between eight (8) and forty-three (43) years.
Although the information is available on the principal contracts awarded by each of the Government legal entities, a detailed analysis of each entity is beyond the scope of this article. However, to illustrate the granularity of the available data, we hereby present the business volume and trend of the principal Contractors retained to provide AEC Services to the Puerto Rico Aqueducts and Sewer Authority (PRASA).
During the 2017-2020 four (4) calendar years, PRASA awarded contracts for AEC Services amounting to approximately $273 Million. The top ten (10) PRASA contractors received about 67% of the total contracted amount by PRASA during the referenced period.
Figure 7 illustrates how the top ten (10) PRASA contractors ranked each year during the referenced period. Each one of these AEC Contractors has a different color. As can be noted, the total amount contracted by PRASA grew by over 350% during this period, attracting at least three (3) contractors to enter this market in 2020. However, these contractors had not participated in the PRASA Market Segment for AEC Services during the previous three (3) years. All these ten (10) contractors represent well-established companies, most of these, registered to do business in Puerto Rico for over ten (10) years.
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Figure 7
Ranking of PRASA Top Ten (10) AEC Contractors

Summary and Conclusions

In general, the Government Market for AEC Services presents a positive outlook. As the demand for AEC Services continues to grow, more Contractors will be attracted to participate and compete. What follows is a summary of the most significant conclusions derived from the information presented in this article:
  1. Approximately twenty percent (20%) of the GTCA during the 2017-2020 four (4) year period went to AEC Services, amounting to over $8 Billion.
  2. Although Hurricanes Irma and Maria occurred during September 2017, the GTCA for AEC Services during 2018 reflected a 400% growth compared to the previous year.
  3. Although Hurricanes Irma and Maria occurred during September 2017, the GTCA for AEC Services during 2018 reflected a 400% growth compared to that of the previous year.
  4. Approximately $500 Million of the GTCA during this four (4) year period was associated with Architecture/Engineering (A/E) Design, Inspection, and Project Management Services. The government demand for these services shows a clear growth trend.
  5. The Executive Branch accounted for approximately eighty-six percent (86%) of the amount contracted for AEC Services, while the Municipalities accounted for about fourteen percent (14%).
  6. Notwithstanding the prevailing financial constraints associated with most Municipal Governments, the demand for AEC Services from Municipal legal entities exceeded $1 Billion during the referenced period. Thus, it shows a clear growth trend.
  7. The most significant contracts for AEC Services during 2017 were executed by three (3) government entities: the Puerto Rico Electric Power Authority (PREPA), the Puerto Rico Department of Housing, and the Puerto Rico Department of Transportation and Public Works.
  8. During 2020, however, the Puerto Rico Aqueduct and Sewer Authority replaced the Puerto Rico Department of Transportation and Public Works, among the top three (3) government entities responsible for the highest contacts for AEC Services during that year.
  9. The expected dramatic increase in the Government demand for AEC Services associated with the reconstruction work after the hurricanes and earthquakes will probably attract large contractors currently not doing business in Puerto Rico.
  10. Contractors appear to be successfully competing for business opportunities in the Government Market for AEC Services.
(1) Information downloaded from the Office of the Comptroller of Puerto Rico, Public Registry of Government Contracts web page, as of February 2021.

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