Martin Koffel , CEO of URS, is bullish on the U.S.
Photo: Gabriela Hasbun
By Adam Lashinsky
June 13, 2013

You may not have heard of URS — an outside CEO once joked the company is better known as “UR What?” — but you can most likely appreciate what it does: build things. From pipelines to power plants to airports, URS is one of the world’s largest infrastructure players. When current CEO Martin Koffel joined the company 20 years ago, URS did $100 million in revenue with 900 employees. Today, the company rakes in $12 billion in revenue with more than 57,000 employees all over the world. Fortune’s Adam Lashinsky interviewed Koffel about nuclear energy, the Keystone Pipeline, and the future of domestic and international infrastructure. A lightly edited transcript follows.

Adam Lashinsky: So URS is number 248 on this year’s Fortune 500, so let me ask on behalf of readers and viewers what I think is the most obvious question, which is, What is URS?

Martin Koffel: Well, its name originally was United Research Services, but it’s had the acronym URS for, oh, 25 or 30 years. And it is a full-service engineering, construction, and technical service company. And it operates in 40 countries, although it’s largely U.S.-centric. And we work on infrastructure, power plants, military contracts, in the oil and gas fields. And it’s a portfolio of markets or sectors. That’s one way to look at it. And so —

An even shorter way of saying it would be you build things, correct?

We build things, and we operate them. So we design things, we build things, and we operate them. As a result of everything we do, we come to work every day, and the result of everything we do, something physical happens: A lake is cleaned up and wildlife can [live] on it again, or a bridge is built, or an airport is built, or a power plant is built. There’s something physical [that] happens.

I like that very much. I spend most of my time covering the technology industry, and it can become very esoteric talking about software or semiconductors as opposed to a bridge.

Yes. Many people think that the things we build are quite old-fashioned things. And someone once said to me, “Well, a lot of what you do actually was thriving in the Industrial Revolution.” [Laughter] And I said, “Well, you know, airports weren’t and spaceports weren’t and servicing rocket launches weren’t.” But we actually use a lot of technology. We don’t develop technology so much, but we are greater users of information technology and communications technology.

Now briefly if you would, tell me the recent history of the company because I gather you’re a collection of several companies —

Yes.

— and that you’ve gotten bigger — you’ve gotten big fast.

Twenty years ago when I joined the company, we had about $100 million revenue, and we had about 900 employees. And today our run rate is about $12 billion of revenue, and we’ve got about 57,000 employees. So we did that through organic growth. For many years, the organic growth was, oh, 10 or 11%. And then we’ve made some transformational acquisitions, three of which actually doubled us in size. Now, along the way we bought companies whose brand name had more recognition than we had because they were older companies.

An example being?

An example would be a company called the Washington Group, which was formerly known as Morrison-Knudsen, famous construction company.

Sure. That’s a name I would recognize. And did you preserve the brand, or is the — are those brands gone?

No, it’s better for us in order to compete and in order for the clients to feel comfortable with the concept of full services, we eventually brand it URS. We take a little while, so if we buy a company we’ll keep that brand for a while, add our name to it. So in May of last year we bought a $2.5 billion company in Canada, which provides services to the oil and gas fields, and it was called Flint Energy. And today it’s called URS Flint, but by January of next year, it’ll be called URS.

I see. Interesting branding approach, to phase out the old name rather than to eliminate it immediately.

And so what we’re doing now is getting behind our brand. We’ve probably been a little slow in creating brand awareness, and the way it got called to me was when the CEO of another company jokingly said to me, “Do you know what you’re called?” And I said, “No.” He said, “You’re called UR What?” And I came back to my team, and I said, “You know, we really — deeds alone won’t do it. We’ve got to be a little promotional here and get the brand out.”

It’s time to spend some money.

Time to spend — that’s what it was about, yeah.

And what’s intriguing to me in that you’re largely a services business.

Yes.

The reason you’re in the Fortune 500 is that you’re a publicly traded company. What are the advantages of being a publicly traded company despite being in services?

I think access to capital and fluidity of capital. I think there’s a certain cachet or assurance to our customers. I mean, our own customers, other than the government sector, which is a large part of our business, but our own companies, our own customers are in the main Fortune 100, Fortune 200 multinational corporations. I think there’s some comfort that they can see our balance sheet and see our numbers and have a sense that we’re a ranking public company in our own right. Having said that, many companies in our business are not. They’re privately owned.

I want to talk a little bit about some of your important verticals, and I thought I would start with the one that gets probably the most attention these days, which is energy. And so without drilling down — pun intended — too much, can you give me the overview of the global energy sector and where you see things going in it?

Yes. We were relatively small in energy until five or six years ago, and we bought the Washington Group, which brought with it the capability of building power plants, both gas-fired plants, fossil plants, and nuclear plants. And through our legacy companies, through our history we built or engineered 25% of the existing nuclear fleet in the United States and vast numbers of traditional power plants. We had a small position in oil and gas, but with — like many companies, you know, we’ve obviously become aware of this push towards North American energy independence. I mean, it’s a political dynamic, it’s a geopolitical dynamic, and it’s a national security dynamic. And we said the next move for us is — I mean, holding onto the excellent positions we have in infrastructure, that we have in government contracting and so on — let’s add a substantial piece in oil and gas.

And you know, there’s the real prospect, as you well know, that by 2020 or thereabouts, North America will be essentially independent for energy. Now, there may be — I mean, the U.S. consumes today 19 million barrels of oil a day. We could get that to 17 million barrels from the United States and Canada and the balance could come from alternative energy or from Mexico and perhaps a little bit from Venezuela. But the dynamic of the U.S. becoming independent by 2020 is a complete game-changer for this country.

Not only is it a game-changer, but as someone who does follow it day to day, I feel like it came out of nowhere. I feel like it was 10 minutes ago that our politicians were railing against this as an impossible goal.

Well, you know, five years ago it was technically difficult. But there have been huge developments in horizontal drilling, which you heard about. And in fracking, fracking in Canada and in the United States. And the acceptance of fracking and the development of — the application development of horizontal drilling has really opened this up, plus more geological discoveries. And it has completely changed it. So here we are with the prospect of being completely self-sufficient, giving our manufacturing industry an enormous boost. I mean, you imagine manufacturing with the cheapest energy in the world, cheaper than anything in Europe, cheaper than anything in Asia, cheaper energy than — and more reliable energy than China.

And then we also have coupled with that we increasingly — first of all, we lost our wage cost disadvantage. You know, we had a disadvantage.

Interesting. We lost our wage cost disadvantage in North America.

Now it’s swung the other way.

Partly because the rest of the world got more expensive from a labor perspective?

More expensive.

And ours have been stagnant, broadly speaking.

For the wrong reasons, because of stagnation, I think that’s the right word, and cost pressures. In the last five years there have been no real wage cost advances in the United States. It’s been stagnant. China has been 15% a year. So at some point —

15% growth in wages.

Yes, in wages. So at some point you get this transition from you lose the wage cost disadvantage, and suddenly then you have this confluence of several things. You’ve got the cheapest energy in the world, but not only that, an abundant supply, no international threat to it. You’ve got wage advantage. But then the other thing we’ve got is huge productivity advantages. I mean, right through the recession, we never stopped making productivity improvements.

I was going to say, we essentially never lost the productivity advantage.

Never lost it.

You know, it’s such a pleasure to have an interview where I see a hopeful end to the conversation. I feel like talking about the American economy, the American government, most of the conversations have a negative view to the end of the conversation. But I think we’ve recovered in manufacturing in this country. We’re building more cars not fewer. Now we’re going to be — from listening to you, we’re going to be doing more energy in North America, which means more construction —

Yeah.

— which probably begets yet more manufacturing.

Indeed. And then the other huge asset we have is our tertiary education system, and the two-year colleges and then the university system. And if you add up the aggregate endowment at our universities, state and national universities, and private universities, and compare it with Europe or any other place on earth, it’s absolutely staggering. And this is why you see this flight of research people and flight of faculty to the United States.

Wait. Didn’t you get the memo that the education system in the United States is completely broken and dysfunctional?

[Laughs] Indeed. But look at the results. I mean, we’ve just got a phenomenal educational machine.

So, ballpark figures, what percentage of your overall revenues are in North America versus outside of North America?

We’re a solid 80% in North America. Compared with our competitors, we are the most U.S.-centric company. A typical firm of our type and level would be 25 to 35% at least outside [the U.S.]. The reason is we’ve built this fairly quickly, and we said, “Let’s build something very substantial with a great name at home here in the United States and then take it abroad.”

And we said, “We’ll firstly take it abroad for our multinational clients, so we’ll go abroad for Shell and BP, companies like that.” And so it’s only lately that we’ve been doing that. And we’re — we have a good network overseas, and now we’re taking one country at a time and building a platform that would be proportionately comparable and qualitatively comparable to what we have here in the United States.

It’s interesting to hear someone talk about North America as a contrarian investment. What part of the rest of the world, where are you looking next, or where do you foresee being growth areas?

Well, obviously we count Canada as North America, so we don’t think of that as being international or foreign. We’re well-established in Europe but particularly well-established in the United Kingdom. And the U.K. has made a major long-term financial commitment to infrastructure: high-speed rail, road systems, bridges and so on. And we’ve got 3.5 thousand people in the U.K. We manage another 10,000 for the government on some nuclear cleanup projects. So we have in the U.K. something equivalent to what we have here. We’re well-placed in Australia and New Zealand, Australia because of the mining.

And then we have an excellent base on continental Europe. Right now, there’s a very strong infrastructure growth — outside the United States, the infrastructure growth is obviously in China. It should be in India because of demand, but it hasn’t quite happened. There’s excellent infrastructure opportunities in Europe despite the fractious economic conditions. And we’re seeing strong infrastructure business in the United Kingdom and in the Nordic countries.

So it’s interesting. Take the Nordic countries out for a moment because my image of the Nordic countries is that they are relatively flush in petrochemical wealth.

Yes.

But the U.K., continental Europe, and the United States, conventional wisdom suggests that all of those entities are having trouble paying their fiscal bills.

Yes.

But you’re not seeing that.

Well, we are generally in Europe, but not when it comes to infrastructure. The United Kingdom, the chance for those chosen infrastructures as a means of holding or building the U.K.’s competitive position, but also I think it’s — I mean, certainly the present government, they’re certainly not Keynesians, but I think they’re using infrastructure as a direct economic stimulus.

What’s your outlook for nuclear?

Well, new nuclear build in the United States obviously has slipped. And I mean the fundamental condition you need for new nuclear is a growth in electricity demand. And to sustain the electrical generating industry in terms of capital investment you need electricity demand growth of about 4% and it’s been dead flat since 2008.

Wow! In the United States, you’re saying?

In the United States. On top of that, you’ve got the whole attitude towards nuclear.

Yeah.

Now, that’s not shared by everyone, but clearly there’s a contrarian view towards nuclear. The irony is that our nuclear business, which is not new nuclear, but it’s the building and maintenance and enhancement of existing nuclear plants, is one of our fastest-growing businesses.

Explain why is that?

Well, it’s several reasons. One is because new plants won’t be built for a while [and] the operators want to extend the life of the existing fleet. You know, we have over 100 plants operating in the United States. So we do upgrades and uprates. So upgrade means, you know, maintenance-related. And an uprate means lift the capacity perhaps by 10%, so we replace the steam generators and we replace the nuclear caps. But then on top of that, as a result of a tragic occurrence in Fukushima in Japan, you’ve got the NRC in the United States, which is the regulatory agency insisting on improvements and upgrades and safety installations and investments and training in the existing fleet. So we have a brisk business first of all upgrading and extending the life of the existing plants, but secondly meeting what are called the Fukushima-related requirements.

Sure. And does the vast increase in access to natural gas and the ability to generate relatively clean electricity from natural gas in the long run hurt the new nuclear business in North America and elsewhere?

I think it creates an argument for those who would want to delay the nuclear plants. But the economics of the nuclear plants in a rising economy are pretty attractive. It depends on the region. But the availability of abundant gas obviously has changed the outlook for coal-fired plants, and —

To the negative, I assume.

To the negative, yes. Now, we have a substantial business adding scrubbers to the back end of coal-fired plants to make them comply, and there’s a whole set of EPA —

Scrubbers are devices that clean — essentially clean the air that’s coming out of the coal-fire-burning plant.

Yes. And so the — you clean up the emissions. Without getting technical about it, you clean up the emissions to help those plants comply with both EPA regulations, but with court stipulations and legal agreements that have been made by the operators, you know, to comply with various regulations. So that’s still a thriving business. But I think the emergence of gas as the alternative, natural gas, really has been a game-changer. And I think you can’t discuss this without really recognizing the possibility of the Keystone pipeline. Which is essentially about bringing oil from Canada to the refineries in the Gulf.

And I should interrupt you and ask if URS has a role in the Keystone pipeline.

We’ll have a role. Everyone will have a role, but we will definitely have some role in that. And I mean, I think a decision in favor of it looks increasingly likely. I mean, technically, it’s the right thing to do. Strategically it’s the right thing to do. If you take an oath of office to defend the United States, and you have an opportunity to reduce our reliance on foreign oil and to make us independent and improve our competitive position, you approve the Keystone pipeline.

And why do you bring this up out of — there are many energy projects in the United States and elsewhere, right? But do you bring this up for a reason?

Yes. I think it creates a lot of jobs. It helps the refineries. And it’s an important element in integrating this concept of North American energy independence. So we can —

You’re making the case that it’s — among other things, it’s symbolic.

It’s symbolic, but it’s strategically very, very important. But it does tie Canada and the United States together. Now, we can get that oil down here without it. It can come by rail tankers. It can come by road tankers. But you’re 10 times more likely to have an environmental problem with road transport or rail transport.

Yeah.

And so although there’s a great environmental opposition in some quarters to the Keystone pipeline, it’s environmentally the safest course of action for us.

Some of the opponents of course you realize are not susceptible to this argument in that their alternative is to not bring that oil anywhere.

They don’t want the oil anywhere.

Which is the environmentally safest approach.

Yeah. Probably unrealistic. We can’t satisfy our needs on alternative energy. I mean, the sun only shines part of the day, and it doesn’t shine where the greatest demand for electricity exists.

When I think of global construction and engineering firms, I think of them being very good at making and servicing things, but also assessing political risk. And I’ve — it’s interesting. I’d like to ask you how as a company you go about the business of political risk assessment, including in the United States, which is what we’re talking about right now, isn’t it?

Yes, it is. Well, risk assessment is key to what we do. I mean, if you think about a manufacturing company that’s got a couple of hundred SKUs, and they’ve worked their product out, and they’re making them in the static situations, and they’re training a work force, they have risks. But nothing like the risks of say setting up to build a bridge or build a dam.

I mean, you’re dealing with rugged conditions with nature, with great forces of energy. So we go through quite a process before we sign on to a project. We have an internal risk management group. It takes into account political risk, financial risk, and then the technical risk. I mean, is this our thing? Are we likely to be successful at this? The political risk is obviously a huge dynamic overseas and the more so when you go into the Third World. But it isn’t — people think, well, political risk means perhaps stability of the government. But it really is the — the elemental form, it’s the stability of the funding source. I mean, if a project — if a five- or seven-year project is initiated, does that government — whether it’s a state and local government, whether it’s a city government — does it have the wherewithal and the political sustainability to keep that project going. So we have to make sure we don’t start on something that the owner can’t complete.

Very good. I don’t know how much you like to talk about specific projects, but can you give us an example of something that URS is working on that you’re proud of and excited about?

Well, we’re very proud of what we’re doing in the Canadian oil service. And we do field service work, we do maintenance work, we build pipelines, we build equipment that goes with the pipelines. And I think we’re — I mean, one of the things I’m very proud of is the significant role that we’ll have in this whole North American energy program. I’m very proud of the work we do for the military. You know, we operate bases. We operate highly technical programs. We do flight training. I’m proud of the work we do in operating plants or facilities for the Department of Energy. We operate former nuclear facilities that — where the environmental operation has to be maintained or the plant has to be shut down.

I love the infrastructure work we do. And we haven’t talked about infrastructure because I actually think that in the United States, despite all the talk about the backlog of infrastructure work, you know, the deficit of bridges that need to be maintained —

Yeah, we’re a country of potholes and ramshackle airports compared with the airports in China.

I think we’re at the very start of a recovery cycle in infrastructure. And we see that. We’re as competitive as anyone. We’re in every state and every municipality. And we see it in the number of jobs being initiated and put out for bid. But what I’m encouraged by is the growth in tax receipts by the states. Tax revenue is up, oh, 3.3, 3.4%.

Over what period of time are you talking?

Over the last several years, but there’s been 13 consecutive quarters of tax revenue growth in the aggregate. Now, there are some states that, you know, aren’t growing, but in the aggregate, we’re up that much. That’s leading to some real appetite for the states to even tap into the rainy day funds and their infrastructure reserve funds because they have new tax revenues coming in. And then you’ve got federal matching funds, you know, through federal programs. And you’ve got programs to underwrite or guarantee bond issuances at the state and city level. So once it used to be you had to rely on the highway fund for most of your money, and now the states have taken the initiative and the cities have taken the initiative with special tax increases, use fees, and the like. So I’m pretty bullish on infrastructure.

I’ll ask you one last infrastructure question. I know that you have — that you are involved in the California high-speed-rail project.

We are.

What are you doing, and what is the likelihood that this project will be completed and when? What will it look like? And how much will it cost?

The answer to many of those questions actually lies in Sacramento.

The capital of California.

The capital of California. We’re doing a front-end environmental and design and siting work. As you know, there’s a section of it being built in the Central Valley from I think it’s Modesto to Mandira. It’s a major project. Its real viability rests on linking two cities: San Francisco and Los Angeles. And the concept is very grand. The cost is somewhat unpredictable at this point. I mean, it started out as being, you know, perhaps $30 billion and if we look at the cost of these things overseas, I think there’s quite a bit more in that. And as to how long will it take, I think it’s a question of the political willpower to keep financing it. The present governor is the champion of it, likes it. The present administration in Washington got behind it. So you’ve got some powerful political support for it. I don’t think that the California taxpayers have yet fallen in love with it, but if they could see a piece of it operating, you know, perhaps they will.

I guess from a popular perspective, it’s not terribly difficult to, number one, drive to Los Angeles from San Francisco, and it’s extremely easy to fly to Los Angeles from San Francisco.

Yes, it is.

Even given the hassle of going through two very busy airports, it’s not that difficult. So I guess I’ll let you make the pitch in closing: Why do we need this thing?

Well, we can’t rely on a couple of road arteries, you know, to link the two population centers.

Yeah. Really one, right? Interstate 5.

Well, Interstate 5 really, unless you want to go on a cruise through the towns.

Right.

And ultimately, you know, I think the risk with air travel with fuel costs and what they may become and we have under-invested in the whole air traffic control system. We’ve under-invested in airports. But you could — I mean, I’ve heard people make the argument that if you invested a similar amount in the air transportation structure and the road structure, you’d have a viable alternative. I think the real answer, and they’ve proven it in Europe and they’ve proven it in China, is the real answer to mass transit, mass transportation is a multimodal system.

Yeah. The answer is yes.

Yes. The best outcome is an excellent highway system, a European standard highway system; an outstanding air — you know, air system, which we have; and then a good high-speed rail system.

Thank you very much. Terrific.

Thank you for having me.

For more Q&A and video, go to fortune.com/connected.

A shorter version of this interview appeared in the July 1, 2013 issue of Fortune.

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