Question-and-Answer Session
Operator
(Operator instructions) And our first question today comes from the line of John Rogers, D.A. Davidson.
John Rogers – D.A. Davidson
Hi, good morning. Bill, you talked about some of your end markets and I was just wondering for a little more clarity on what you're seeing in terms of pricing, especially in the private sector. Where these markets are slowing, are you seeing real price compression?
Bill Utt
John, when you say price compression, you're referring to the costs that we offer our customers?
John Rogers – D.A. Davidson
Yes, the margins that you're building into your project.
Bill Utt
Yes, we are seeing a response particularly on the hydrocarbon side where they are looking to depress the supply chain and it's engineering, it's the procurement, it's the commodities, it's the construction costs and we are seeing that – I would say universally with our hydrocarbon customers and also the other customers we have in our services businesses. And as you know, when you look at an EPC project, the scope of supply for engineering is maybe 8% to 10% at tops, and our margins are of again a much smaller component. We have seen in the supply chain the cost of our commodities for steel, copper, aluminum, nickel. They have all fallen very similarly to what we have seen in the oil price and so those are already achieved.
John Rogers – D.A. Davidson
But those just pass through for the most part –
Bill Utt
Those pass through. The equipment costs that we have, they have not come down to the degree that the other costs have come down as well. We think their backlogs are still pretty good through '09. But over time we think they will start moving their costs down and perhaps get to levels maybe more quickly than not that will allow projects to move forward. We certainly were able to execute projects in the '04, '05 period when oil was $35 a barrel and believe that over time if oil sustains itself at that level, the cost structure would also fall.
But on the equipment side, we are seeing delivery times come in, become shorter delivery times. We see big validities go out longer. And so we're beginning to see the signs that lead us to believe that their costs will come down as well. Certainly on the construction side, the reduction in activity has brought the labor situation into a better supply and demand balance. As we look up in Canada, the union hauls just are posting for workers and so we expect construction labor costs to also moderate and are seeing some evidence of that in the per diems, the overtimes and other ancillary costs that are being – that we're seeing our projects undertake going forward. So, yes, we are seeing a lot of cost pressure, we are trying to help our customers in achieving the lowest delivered cost of their projects.
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