SECTION ONE: INDUSTRY ANALYSIS
1.1 INFRASTRUCTURE INDUSTRY
Government Infrastructure Spending
This pattern is generally repeated across asset classes, as the assets are owned at the state and local level.
Figure 1: United States Census Bureau, “Annual Construction Spending from 2008-2016” The United States Census Bureau includes total spending on construction broken out into categories by Federal and State and Local. We averaged the spending per
Health care construction is making a slow but steady recovery. FMI is forecasting $41.4 billion in construction put in place for 2016 and 4% growth in 2017. Traditional large hospital projects are returning to the drawing boards with fewer large hospital projects in the works. The bulk of the work will be renovation and additions as well as outpatient care. New facility designs are upping the game for a patient-centered environment as well as reducing concerns for the spread of supergerms. Construction will continue to become more collaborative and integrated with the various communities involved. The prospect of changing government health care policy and challenges of updating to the latest technologies and security measures will be top challenges in the year ahead.
• The Bureau of Labor Statistics reports, “Employment of registered nurses is projected to grow 16 percent from 2014 to 2024, much faster than the average for all occupations.”
• Veterans Administration hospitals rocked by poor management and patient care, old facilities and huge construction cost overruns.
• Health Facilities Management magazine says, the “industry is moving away from large scale new construction, according to survey results. While 70 percent of respondents said they have projects currently under construction or planned in the next three years, a full three-fourths of those were expansions or renovations.” (2016 Hospital Construction Survey, Health Facilities Management)
• The new model for hospitals is the medical center with a cluster of offices, including beds, which will deliver more of a patient’s needs.
• The number of outpatient facilities will continue to grow, pressed by the need to lower health care costs and to improve health facility profits.
• Population change younger than age 18
• Population change ages 18-24
• Stock market
• Government spending
• Nonresidential structure investment
Source: FMI Research Services
The education construction put in place for 2016 to end up around 6% higher than 2015 to $88.3 billion. Growth for 2017 is expected to be 7% for a total of $94.3 billion by year-end. Growth will be driven by population expansion and the increasing need to bring schools into compliance for safety and the health of the student populations. Higher education will either embrace distance learning or continue to compete with it, similar to retail stores versus online shopping. Schools increasingly need to have security measures in place due to increasing threats of terrorism and deranged people entering schools with weapons. There also need to be funding solutions to improve the deplorable conditions in inner-city schools in depressed areas like Detroit. To prepare students for future careers, all schools should include modern technology or be renovated and updated for modern computing and collaborative environments.
• Significantly less funding from federal government and states for K-12 schools.
• Enrollment growth 2.5 million in the next four years.
• New designs for schools will be more flexible for changing classrooms and greater use of natural light. Expect more use of modular building designs.
• Greater attention to energy reduction and green building technologies.
• Renovation and additions to current school buildings will continue to grow in comparison to new school projects.
• Greater focus on safe schools, as the threat for shootings on campus continues to rise.
We expect the growth rate for religious buildings to drop 3% for 2016 and gain back just 2% in 2017 to reach $3.6 billion. With more people working, there is more money available to support religious building, in some cases involving larger building projects. Nonetheless, we expect slow growth will return to this sector. Future uncertainty for growth is due to many changes in the religious landscape, including the mix of religious faiths in America and fewer people who consider themselves regular churchgoers, even if they still belong to a certain faith. Many new churches are small and established in existing buildings like those found in vacated shopping centers
• The lending environment continues to be a challenge for many congregations.
• Establishing a capital campaign is becoming increasingly common.
• Many churches are seeing tremendous declines in contributions and tithes
Their drivers are GDP, Population, Income and Personal savings rate
Amusement and Recreation
For amusement and recreation construction, 2016 has shown strong growth at 9%, but much less than 2015’s rate of 19%. For 2017, we expect growth to continue at a solid rate of 7%. There are several large stadium projects underway and planned to open in 2017. Sports venues are promoted as job creators with the ability to revitalize many dilapidated areas around a city. The market for amusement and recreation will continue to grow as large professional teams try to keep up with the Joneses. With the addition of domes and retracting roofs as well as bars, restaurants, shopping, and luxury boxes and on and on, sports venues are creating the model for a future of climate-controlled cities.
• The Rams return to Los Angeles will mean a new home for the team. The recently announced 70,000-seat stadium for the Los Angeles Rams will be a mixed-use project in Inglewood, California. (prnewswire.com, July 14, 2016) The new stadium is set to open in 2019.
• The new stadium for the San Diego Chargers was turned down, so now the team is moving to Los Angeles. San Diego State will use the old Chargers stadium. Ohio Stadium is planning a $42 million renovation project.
• A dedicated soccer stadium is being built in Orlando for the Orlando City Soccer Club expansion franchise. The opening is planned for the 2016 season.
• The $1.4 billion Mercedes-Benz stadium will host the Atlanta Falcons and the Atlanta United FC in 2017. The stadium will have a retractable roof.
• Competition in the gaming sector will draw business away from some existing gambling centers, such as Atlantic City and Las Vegas, as well as from other public arenas.
Income, Personal savings and Unemployment rate
Construction for power-generating facilities grew 6% in 2016 to reach $92.0 billion for construction put in place. We expect another 8% growth in 2017. New electrical capacity has been largely generated by solar and wind facilities from large facilities to rooftops in your local shopping mall. Traditional power plants must be updated to keep up with changing requirements as well as to manage distributed generation sources. Most expect the new administration to approve the Keystone XL pipeline, which could increase construction by year’s end. The power industry will continue to consolidate as the average consumer reduces power use, but growth will be slow but steady in 2017 through our 2020 forecast horizon.
Industrial production, Population, Nonresidential structure investment
• Power companies are placing greater emphasis on flexibility to respond to peak needs alongside hydropower, solar and wind-generating facilities.
• “The U.S.’ large solar power generation capacity in operation rose by 4,960 MW in January-October 2016 across 289 projects, and wind farms added 2,972 MW.”
• Large-scale solar additions in the period more than tripled from 1,698 MW in the same 10 months of 2015, according to a report by the Federal Energy Regulatory Commission (FERC).”
Highway and Street
Highway and street construction increased just 2% in 2016 to $91.6 billion. FMI forecasts 3% growth for 2016 and another 4% in 2017. The Fixing America’s Surface Transportation (FAST) Act for highway and transportation funding removed some uncertainty for highway funding; however, we do not expect a significant jump in spending over current levels. The new president has vowed to increase infrastructure spending, although the details are uncertain at this time. Much of the new spending is expected to come from public-private partnerships or some variation on that approach.
• “Recent increases in state gas taxes and user fees as well as a number of local funding initiatives approved on the Nov. 8, 2016, ballot should help support some local markets over the next few years. Voters in 24 states approved 267 ballot measures in 2016, which will support $207 billion in highway, bridge, port and transit spending over the next 40 years.”
• The Trump campaign pledged to spend $1,000,000,000 on infrastructure, spread out over 10 years. While there is a lot of bipartisan agreement that the country needs to invest in infrastructure, the financing question remains unsolved.
1.2 Emerging Trends in the Security and Infrastructure Industry
The problem in today’s economy is that infrastructure is not keeping pace with the changes we are experiencing; developing assets with 50 to 100-year lifespan expectations, assuming fixed technology sets will remain for the foreseeable future and ignoring the risk that the completed asset will be out of date before it comes into operation. But infrastructure planners are starting to think about flexibility, having in mind that it’s not just technology that is rapidly and fundamentally changing, so too are social norms, demographic trends, economic truths, the boundaries between our public and private lives, environmental realities and customer expectations.
When building a new high-speed rail line, for example, proponents should be thinking about how other technologies such as hyperloops or drones might utilize the same space and provide more flexible solutions. When building a new electricity grid, they should be thinking about how the introduction of electric vehicles might influence and alter the nature of demand. When looking at transport investments, and spatial planning generally, planners need to consider that autonomous vehicles (AVs) could radically change the way people travel and indeed how they live and how they work. AVs also creates opportunities for businesses to change the way they operate including how they import materials and distribute their products, and many more.
Competing forces are clashing. Rather than coming closer together, the societies, markets and institutions seem to be rapidly fracturing. Schisms are opening everywhere: between the West and the East; between the young and the old; between the ‘haves’ and the ‘have-nots’; between the left and the right; between protectionists and free-marketers. The public discourse has become more divisive and as such, policy-makers and politicians will need to focus on building bridges between opposing viewpoints and finding ways to balance the needs of all stakeholders if they hope to get anything done.
The past years has clearly demonstrated that infrastructures are continuously under attack and this threat will probably continue to evolve and broaden. Standards have improved and the governments have now identified their strategically important assets and started to set clear guidelines for protecting them against the threat of cyberattack. Asset management techniques have also moved into the digital era and security protocols (both physical and virtual) have become more sophisticated.
1.3 Factors Impacting the Market
Market Growth Drivers
• Rising number of adverse incidents in electric Infrastructure
• Prioritizing critical transport infrastructure protection
• Awareness of the significance of disaster management information
• Government policy
• Adoption of critical infrastructure protection solutions and services
• Increasing frequency and complexity of cyber attacks
• Cost effectiveness
• Stringent government regulations and policies
There is much to be excited about. Governments continue to demonstrate a strong desire and ambition to invest in infrastructure, both as a path to economic growth and as a way to hold back the rising tide of populism. New technologies and rapid innovation are creating new approaches, models and tools force infrastructure development and helping to bring down costs. The quest to identify new pricing and funding models offers the potential to unblock pipelines and unleash a new era of rapid development. And new perspectives on key issues such as sustainability, governance and investment are driving greater sophistication in many markets. Generally, the major opportunities in the industry includes:
• Growing trend of mobile devices at workplaces
• Improving technology and rapid innovations
• Increasing ambition of the government to invest in infrastructure accounts for a significant portion of the industry
• Businesses will expand their security staff as budgets improve, boosting industry demand
• The industry is expected to endure competition from high-tech security systems
• Politics have grown more divisive and fractured in the West
• Institutions have lost some of their legitimacy and public trust
• The gap between the ‘haves’ and the ‘have-nots’ has grown wider
1.4 Infrastructure Expenditure in the US Federal, State and Local Sector
The overall level of infrastructure spending by the US public and private sector has increased for decades and more infrastructure spending is needed today than in the past. However, infrastructure does not necessarily get used up as more people benefit from it and as usage increases, there is greater congestion on roadways and on other transportation systems which might increase infrastructure spending needs.
The figure below provides a 2014 snapshot of the total spending for each type of infrastructure by level of government using the 2015 Congressional Budget Office (CBO) data. Public spending (spending by federal, state, and local governments) on transportation and water infrastructure totaled $416 billion in 2014. Most of that spending came from state and local governments; they provided $320 billion, and the federal government accounted for $96 billion.
The chart supports the trend that highways require the most resources and state and local governments make the largest contributions. It also reveals the low share, 4 % of federal spending on water utilities. Since the benefits and concerns of water utilities are specific to local regions, it is not surprising that the bulk of the responsibility rests on state and local governments. Aviation and water transportation, representing national infrastructure benefit, are at an almost even split.
1.5 Accessing the Security Landscape
Each year, Security Sales & Integration and Parks Associates partner to complete The Residential Market Report, a survey of electronic security dealers and installing security contractors.
The 2016 survey experienced much higher than standard growth as the economy began its recovery and pent-up demand was clearly demonstrated in the market. With a net of nearly 2.8 million new security system sales (after attrition and replacement calculated) in 2014, the following year, 2015 experienced strong but more normal net sales of about 2 million systems and an estimated 1.9 million sales in 2016, a slightly lower net sales.
Nearly 50% of the 2016 SSI and Parks survey respondents are sole decision makers for their firms and firm owners while more than 80% are sole decision makers or managers who share in the decisions of what to offer and what not to offer. Also, approximately one-quarter of respondents are from firms providing monitoring while a larger percentage of 62% offer monitoring through a third party. Only 10% claim to offer no monitoring at all.
As ever, small firms dominate the security dealer landscape. About 50% report revenues less than $1 million while one-quarter report revenues exceeding $5 million. Small firms can act quickly in the face of competition or changing conditions, but also have disadvantages in certain areas. For instance, credit lines are imperative, and decisions as what and whether to add new capabilities can be difficult due to risk and scarce resources in both people and money. The top six types of systems sold by security dealers between 2013 and 2016 are reflected in the chart below and note the percentage of security dealers selling IP cameras, CCTV, structured wiring and smart home devices has increased. The impact of the latter, in particular, was revealed as it jumped 8 percentage points from its initial listing in the 2015 survey.
The network security cameras category has risen from being offered by 62% of responding dealers in 2013 to 81% in 2016. They are fast becoming table stakes. In addition to categories that are increasingly sold by security dealers, several have declined, some dramatically over the same span.
About 70% of respondents offer smart home additions to their installations of traditional security systems. For the consumer, the most obvious and easily understandable additional device to a security system is a network security camera. These have improved greatly the past five years. Formerly clumsy, difficult to operate, and often delivering fuzzy pictures, all at a significant price as adoption was low and slow. Of interest is that when asked which products dealers desire most from their interactive security providers, the responses are smart door locks, IP cameras and smart thermostats, in that order.
1.6 Market Growth and Size of the US Infrastructure and Security
North America is expected to have the largest market share and dominate the CIP Market from 2017 to 2022. The North American region is always under threat from criminals and cyber-attackers, which can disrupt the functioning of the critical infrastructural assets. Surveillance measures in public places and industrial sites have been tightened. Various airports, marine ports, and border control areas have adopted biometrics for access control. The Middle East and Africa (MEA) region is expected to grow at the highest CAGR as major oil field projects are set up in MEA, which require protection from physical attacks, cyber-attacks, and natural disasters.
The global critical infrastructure protection (CIP) market size was valued at USD 57.23 billion in 2016. It is anticipated to register a CAGR of 10.1% over the forecast period. Cyber security of nation’s asset is vital and thus, securing cyberspace is of utmost importance in growing digitization. Rising concerns regarding advanced threats such as cutting populations off from clean water, power, transportation, and emergency supplies, thereby disrupting economy and nation, are one of the key trends escalating market growth.
1.7 SWOT ANALYSIS
• Government strategy is picking up on Foreign Direct Investment related to technology – this is an important market being grown for the servicing sector
• Passion for technology (also from the top-down e.g.: Government is willing to make technological changes / upgrades)
• Limitations of our market when it comes to the investment, R&D due to limited / saturated market – barriers to foreign market penetration
• Lack of specialized skills available
• Improvements in quality and service based on regularly collected customer feedback, or endeavors to perform good public service.
• Too low levels of investment and public procurement rules,
• A bureaucracy that may slow down decision-making.
• A significant threat is tax legislation change that removes the preferential tax treatment.
2.0 MARKETING PLAN
Many government contractors rely on bids and RFPs as their main source of opportunities in the public sector. Bids and RFP notifications present near term leads that vendors can pursue immediately, but they come with their own challenges, including short response time windows and high competition from other vendors.
The most successful vendors in the public sector supplement bid and RFP alerts with additional forms of market intelligence to grow their sales. Government market intelligence helps vendors find upcoming projects before the bid or RFP is published as well as identify sales opportunities that fall outside of the traditional competitive bidding process — either through under-threshold purchases or those carried out through cooperative purchasing vehicles.
Strategy #1: Analyze Past Procurement History
One of the greatest areas overlooked by vendors pursuing government business is past procurement history of agencies. Looking at past bids, RFPs and awards allows you to find the agencies that have purchased products or services related to your specialty. The buyers at these agencies should become your new targets for future business. Why? They have a documented need for your solution, you know their key requirements and concerns based on their previous bid or RFP specifications, you know when they last purchased, and you know who they purchased from and, you may even be able to find out how much they paid. With this procurement history, you can have an in-depth conversation with agency buyers about upcoming purchases they are planning and their level of satisfaction with their current solutions.
Here are a few examples on how you can leverage past procurement history data to give you a competitive advantage in the public sector:
• If you know your competitor’s standard warranty period, look for past agency purchases from your competitors that fall within 6-12 months of the warranty expiration and start your outreach to the agency to ask about their plans for replacements of that product.
• Have safety requirements or standards changed in your industry in the last few years? Reach out to agency buyers who purchased in the last 2-3 years to let them know about the new safety offerings your product provides. Find out if these new features can kick start a sales conversation about upgrading to your safer, or more efficient, latest-generation product.
• For service contracts, call agency buyers 3-6 months before the contract end date to find out if the agency is satisfied with the level of service provided. An agency may have an opt-out or extension clause in the contract and reaching out to them may give you an opportunity to have a discussion about your advantages over their current supplier.
Strategy #2: Leverage Term Contract Expiration & Renewal Schedules
Term contracts are time or ‘term’ based contracts that generally have fixed expiration dates and defined renewal and extension options, giving you the opportunity to know about upcoming projects well ahead of the renewal or contract expiration.
For any target agency, you should:
• Use the early notice to start building relationship with the buyers and decision makers.
• Discover if they are satisfied with their current vendor.
• Find out if they plan to extend the existing contract or open it up to competitive bidding.
• Position yourself ahead of the incumbent by highlighting your unique selling proposition.
• Understanding the agency’s plans with a contract and if there are any existing pain points, ahead of the renewal, gives you a competitive advantage in preparing your proposal for that agency.
Strategy #3: Participate In Cooperative Purchasing Vehicles
Many agencies are adopting lean procurement models – they are seeking procurement vehicles and mechanisms that allow them to purchase goods and services without having to go through the expensive and time-consuming traditional competitive bidding (bids & RFPs) process. One of the growing ways agencies are improving efficiency around procurement is through the use of cooperative purchasing. With cooperative purchasing, agencies can leverage existing contracts with cooperative associations or other state or local agencies to avoid the time and cost associated with drafting, publishing and awarding their own custom contracts.
Finding cooperative purchasing activity can be challenging because, by nature, cooperative purchasing reduces the need for agencies to publish bids or RFPs for new work. You may see the initial bid, RFP or award from the lead state (NASPO ValuePoint picks a lead state, for example) but you likely won’t see the subsequent purchases from other state or local entities using that contract.
Because of this, Onvia encourages vendors to:
• Identify the top buyers for your products and services using procurement history data.
• Contact these agencies to find out if they are using cooperative purchasing to streamline their procurement process.
• Identify what cooperative associations they use or what other agency’s contracts they tend to piggyback off of the most.
• Inquire with those co-ops and neighboring agencies about how you can do business with them.
Strategy #4: Research Agency Budgets and Future Spending Plans
Because state and local agencies must budget for future spending years in advance, there is a wealth of actionable government market intelligence available to savvy vendors who analyze agency budgets and spending plans for future bidding opportunities.
This form of intelligence is unique in that vendors can discover upcoming projects years before they approach the bid or RFP stage. Searching for keywords related to your product or service in agency budgets can be effective in some industries, but understanding the ‘trigger events’ that drive future bidding opportunities in your industry and searching for those can be an even more effective approach.
What are trigger events? Trigger events are the types of projects that result in future bids and RFPs for the products or services you specialize in. For example, if you sell pool cleaning equipment, your trigger event would be agency spending plans related to a new aquatic center for a city or school district. Or, if you sell energy monitoring equipment, your trigger event would be agencies that are budgeting for energy conservation initiatives in the coming years.
Get creative and think about the trigger events that can drive future business for your firm:
• Search agency budgets and spending plans for terms related to trigger events in your industry.
• Contact those agencies to identify project managers, planners or key consultants who manage and specify requirements for the project – they are your sales and marketing targets.
• Showcase the value of your solution versus competitors to earn coveted “spec’ed in” status on the final project requirements.
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