General

How a $55M Alaska highway win reflects Granite’s new strategy

Dive Brief:

  • Granite Construction won a $55 million highway contract for work in Alaska, the Watsonville, California-based contractor announced this week. Federal funds will pay for the project through the Alaska Department of Transportation. 
  • The Knik-Goose Bay Road Reconstruction Phase 1 project near Wasilla — about 45 miles northeast of Anchorage — will expand 4 miles of the roadway from two lanes to four. The Alaska Department of Transportation said on its project website the corridor currently experiences congestion and high collision rates due to a number of driveways connected directly to the highway.  
  • Granite expects the project to begin in August and conclude by Q3 2024. Work will comprise drainage improvements, intersection improvements, grading, paving, pathways, illumination and signalization. Granite will include the win in its second quarter 2022 financial results.

Dive Insight:

While $55 million is no small sum, even during a period of historic inflation, it’s much less than the $500 million and larger contracts Granite pursued in the past. The project also checks several boxes for the new corporate strategy Granite has outlined on its recent earnings calls. 

The company has been recovering from a Security and Exchange Commission investigation into accounting irregularities in its heavy civil group that forced it to restate a year and a half of its financials.  

On several of its quarterly conference calls since then, CEO Kyle Larkin has told investors and Wall Street analysts that the firm wanted to get away from its old risk portfolio of “mega projects” that can last years.

Those projects, especially when pursued under design-build contracts, can often see cost escalations that are hard to predict due to their drawn-out timelines, and conditions changing between the design and build-out phases.  

But smaller, quick hits like the Knik-Goose Bay Road project are easier to forecast due to their relative simplicity and shorter time horizons. For example, most of the hard work on the project was already done, long before Granite was awarded this contract in June.

Planning has been in the works for the Knik-Goose Bay job since 2011, with development of final design documents starting in 2016, according to an ADOT timeline. By the time Granite starts turning dirt later this summer, the project will effectively be in its end stages. 

To be sure, the smaller-is-better approach hasn’t been evident in Granite’s numbers to date. In the first quarter, the firm saw revenues decline by 20% as it continued to work through its old, higher-risk jobs. 

An aggregate win, too

Another aspect of the Alaska job that fits Granite’s smaller, more nimble approach is the use of its own aggregate facilities to provide material for the roadway.

The firm said it will supply 5,000 tons of riprap from its Lucas Quarry in Palmer, Alaska; 75,000 tons of hot-mix asphalt from its Palmer Hot Plant; and 650,000 tons of borrow from its Wolf Aggregate facility in Wasilla. 

During the onset of the pandemic, when many projects were delayed, Granite saw increased revenue from its material and aggregate division, which continued to sell needed supplies to jobs that were already in progress.

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