Run the Ball

Alan Greenspan denied it. George Bush denied it: America was not in a recession in 2001. Those in the construction industry surely suspected otherwise, and recently revised figures from the U.S. Dept. of Commerce confirm that suspicion. Instead of the solid 3.3% gain originally reported by the federal agency, overall nonresidential construction spending is now estimated to have increased by a s...

08/01/2002


Alan Greenspan denied it. George Bush denied it: America was not in a recession in 2001. Those in the construction industry surely suspected otherwise, and recently revised figures from the U.S. Dept. of Commerce confirm that suspicion.

Instead of the solid 3.3% gain originally reported by the federal agency, overall nonresidential construction spending is now estimated to have increased by a scant 0.4% between 2000 and 2001.

Bringing in a football analogy, this recession could be likened to the formidable "Steel Curtain" defense of the 1970s Pittsburgh Steelers. And just as "Mean" Joe Green and Jack Lambert quashed offensive sorties, the recession clearly "sacked" the once-booming telecom and dot-com markets that had pushed many engineering firms to get "pass happy," to borrow yet another football phrase. Indeed, if today's economic situation is likened to a football game, the halftime score right now might read something like this: Recession 17, New Construction 3.

But—according to Consulting-Specifying Engineer's annual survey of engineering "Giants"—rather than cry over the touchdown play that backfired, these grid-iron generals are altering their game plans to a more conservative, but ground-gaining attack. And the good news is that there's still time on the clock.

The engineering street

In studying this year's Giants responses, realism might be the best word to describe our readers' opinions of the market and what's to come. The outlook for next year is certainly less optimistic than last year's survey, which predated Sept. 11, but it's not completely negative either. For new construction, 37% of respondents anticipate an upturn, while 29% say it will drop; another 25% believe business will remain about the same. The retrofit market, however, looks a little brighter with nearly 50% of the Giants respondents projecting that activity will increase, with only 19% predicting a decline. Some 29%, however, anticipate it will be the same.

By comparison, Daryl Delano, chief economist for Reed Business Information, forecasts modest upturns for 2003 in all sectors: 5.2% for commercial projects; 11.3% for industrial work; and 10.9% institutional work (see "The First Half Economic Situation: The Numbers Don't Lie," p. 31, for more details). Should they hold true, these numbers are certainly good news compared with activity to date. With the exception of the health-care and educational sectors, nonresidential building in the first five months of 2002 was significantly behind the same period in 2001, as Butler, Pa.-based Burt Hill Kosar Rittelman's director of marketing, Thomas White can attest. "We have put more of an emphasis on higher education and health-care and reduced our efforts in the commercial marketplace."

Therein lies the crux of what's happening in most firms. Clearly, the most interesting story that developed from the analysis of this year's survey results isn't told by economic surveys and statistics. Rather, it is how these firms have revamped their business strategies to develop new markets. The plan today jibes with the big picture. For example, increases in federal government spending for certain sectors has meant an increased interest in government work.

"We have expanded our specialized expertise in both the government and private sectors," says James A. Wilson, AIA, president of Ewing Cole Cherry Brott, Philadelphia, who was recently awarded projects for the Smithsonian and the National Institute of Health. The firm has also increased its focus in other market sectors, expanding into museums and cultural facilities.

Optimation Technology, Rush, N.Y., is also taking advantage of federal grant money being funneled to local municipalities. According to Optimation's president, William Pollock, P.E., his firm is moving more heavily into water and wastewater, particularly into water security and cyber security for water plants.

Elsewhere on the government front, the eventual passage of the well-funded Energy Policy Act has fueled an interest in energy-related design work. For example, amid the myriad of companies reporting profits well below projected earnings, Chicago-based Exelon easily beat Wall Street second quarter reports. In fact, the energy utility's net was up 54%.

Pharmaceutical flurry

While these other sectors are providing a steady source of work, one area experiencing major growth is the pharmaceutical and biomedical market. Many firms are turning toward these facilities as a new source of revenue, including Sear-Brown, Rochester, N.Y. In fact, the firm says it will be investing millions of dollars in this industry over the next three years alone, according to Andy Pomeroy, vice president of business development.

"This is targeted to be one of Sear-Brown's primary markets in our overall business," he says of the fast-growing market, which may be booming, in part, as a result of a shift in the nation's demographics.

Detroit-based SmithGroup's Randal Swiech, P.E., thinks so. "The trend toward increased design services in the health-care and related markets is expected to continue over the next 20 years as the needs of an aging population increases," says the senior vice president.

Initial research supports that supposition. According to a report commissioned by Sear-Brown, the worldwide bio-pharmaceutical facility industry is projected to grow 60%, from $350 billion to $561 billion, over the next five years, with the U.S. accounting for approximately 46% of this industry. And Sear-Brown's words might be well worth heeding, as the 19th ranked Giant realized a phenomenal growth in total revenue, from a reported $81.6 million in 2001 to $115.37 million this year. (For more on pharmaceutical facilities, and how they are dealing with energy issues, see "Choosing Cogen" on p. 38.)

These firms, of course, are not the only ones cashing in on this trend. In fact, other sharp firms are digging even deeper. "Over the last year, we've begun to expand our focus in two market areas: pharmaceuticals and high containment [for infectious disease research]," says Melissa Waltman, marketing manager for Princeton, N.J.-based CUH2A. "The demand for high-containment laboratories has grown dramatically," she explains.

Similar responses came from many other firms, all pointing to an increased focus on pharmaceutical, medical and other scientific and research-related facilities. In fact, some firms have broken out new groups within their companies to deal with this sector. Albany, N.Y.-based Einhorn Yaffee Prescott, for example, has expanded its successful Laboratory Design Group into a national science and technology practice. "This has allowed us to extend our market into new geographic regions, clients and building types," says Kelly Donahue, EYP's public relations manager.

For EYP, this diversification trend began in 1997 when they started focusing on telecom work. Company officials soon realized that mission-critical work was quite different from its other types of business. As a result, a wholly separate company—EYP Mission Critical Facilities, Inc., New York—was created. Both of these companies qualified as 2002 Giants, with EYP finishing 45th with a M/E design revenue of $17.68 million. Its mission-critical counterpart finished 24th with $37.6 million in M/E design revenue.

Similarly, Metairie, La.-based W.H. Linder changed its market focus by forming two alliances: one which allowed the company to compete for larger projects, and another that gave them expanded in-house process control system architecture and programming skills. Additionally, the firm hired a number of new employees familiar with the power business.

The green angle

While there's no question that many firms are focusing their efforts on pharmaceutical and biotech facilities, as well as other revenue-generating opportunities, money is not every firm's entire goal. A frequently mentioned strategy for the long term involves the incorporation of sustainable design and further emphasis on energy efficiency. Tilden Lobnitz Cooper, Orlando, Fla., for example, is another Giant on the rise (No. 25 at $25.2 million—up $6.5 million), but with aspirations elsewhere: "TLC has become a member of the U.S. Green Building Council and was the first engineering firm in Florida to achieve LEED certification," says Stacy Stockbine, marketing coordinator.

In fact, the firm is so committed to sustainable design that they make a point of educating their clients about it, having presented more than a dozen educational programs on the topic ( CSE will present more Giants feedback on sustainable design in our special Green issue in October).

But sustainable design is just one marketing trend our Giants noted. Others include greater efforts toward commissioning and other engineering services, maintenance management and, of course, security. "Those who weather the economic storm must seek expanded services or face harsh and financially painful consequences," says Timothy O'Connor, P.E., president and CEO of Robson Woese, Amherst, N.Y.

The 2002 Giants certainly offer numerous examples of firms that have sought to diversify their services beyond bread-and-butter design work. The following offers a random sample of their responses:

  • Syska-Hennessy Group, New York, is expanding its integrated service offerings to give clients life-cycle solutions, "not just individual services."

  • Gresham, Smith and Partners, Nashville, are using joint ventures with international firms to compete for health-care and corporate/commercial projects.

  • C.H. Guernsey, Oklahoma City, has diversified from traditional telecommunication engineering services into more web-based applications.

  • HarleyEllis, Southfield, Mich., has established a designer-led DB group in response to the design-build trend. "This has been well received," says Judy Little, marketing manager.

  • H.F. Lenz, Johnstown, Pa., is increasing its 3D-modeling capabilities.

  • O'Brien & Gere, East Syracuse, N.Y., is developing expertise and experience in the planning and design of membrane technology, and the advancing GIS/ArcView tool for multiple programs.

Far seeing

All of these marketing directions—biotech research; designing facilities to serve the needs of an aging population; a focus on energy efficiency and green design; and an increasing move toward commissioning and services—suggest that these firms are taking a long-term perspective. They are not just looking at the next play or even the next game. They're looking ahead to future seasons.

Top 10 M/E Engineering Giants

Rank

Company

Type of Firm

M/E Revenue

Total Revenue

Total 2000 Revenue

(in million dollars)

1

Black & Veatch Corporation, Kansas City, Mo.

dc

756.44

2,225.00

*

2

Air Conditioning Company, Inc., Glendale, Calif.

dc

366.00

366.00

319.00

3

The Austin Company, Cleveland

dc

266.20

484.00

498.00

4

URS Corporation, New York

dc

255.09

2,319.00

2,210.00

5

Burns & McDonnell, Kansas City, Mo.

ae

221.85

493.00

341.00

6

Lockwood Greene, Spartanburg, S.C.

ae

188.28

1,046.00

992.00

7

Parsons Brinckerhoff, Inc., New York

ae

175.24

1,348.00

1,161.00

8

Carter & Burgess, Inc., Forth Worth, Texas

ae

87.61

380.90

314.46

9

Vanderweil Engineers, Boston

ce

71.26

71.98

72.00

10

Syska Hennessy Group, New York

ae

66.08

112.00

88.70


M/E Engineering Giants Rankings (11-39)

Rank

Company

Type of Firm

M/E Revenue

Total Revenue

Total 2000 Revenue

(in million dollars)

11

Atkins Benham, Inc., Oklahoma City

ae

55.05

134.27

105.70

12

Power Engineers, Inc., Hailey, Idaho

ce

52.16

91.50

99.10

13

Carlson, Framingham, Mass.

ae

51.55

468.60

471.30

14

Kling Lindquist, Philadelphia

ae

50.05

87.80

71.80

15

Cosentini Associates, New York

ae

49.05

54.50

47.19

16

Ellerbe Becket, Minneapolis

ae

46.98

162.00

182.00

17

Affiliated Engineers, Madison, Wis.

ce

46.43

46.90

37.30

18

Flack + Kurtz, Inc., New York

ce

46.00

46.00

43.40

19

Sear-Brown, Rochester, N.Y.

ae

44.99

115.37

81.60

20

Stanley Consultants, Inc., Muscatine, Iowa

dc

43.40

78.90

71.10

21

SmithGroup, Inc., Detroit

ae

42.35

136.60

141.00

22

STV Group, Inc., Douglassville, Pa.

ae

41.25

187.50

149.68

23

SSOE, Inc., Toledo, Ohio

ae

39.74

62.10

64.90

24

EYP Mission Critical Facilities, Inc., New York

ae

37.60

47.00

*

25

Raymond Professional Group, Inc., Chicago

ae

34.89

67.10

66.70

26

Environmental Systems Design, Inc., Chicago

ce

33.63

33.63

31.00

27

Bard, Rao + Athanas, Inc., Boston

ce

32.00

32.00

28.50

28

Smith, Seckman Reid, Inc., Nashville

ce

29.98

34.46

34.10

29

Malcolm Pirnie, Inc., White Plains, N.Y.

ce

28.60

215.50

203.60

29

The RJA Group, Inc., Framingham, Mass.

ce

28.60

28.60

25.00

31

Hayes, Seay, Mattern & Mattern, Inc., Roanoke, Va.

ae

28.14

53.10

38.68

32

Leo A. Daly, Omaha, Neb.

ae

27.30

105.00

105.00

33

A. Epstein and Sons Intl, Inc., Chicago

ce

26.87

99.50

106.60

34

DLB Associates, Inc., Wanamassa, N.J.

ce

25.66

27.01

25.78

35

Tilden Lobnitz Cooper, Orlando, Fla.

ce

25.20

28.00

21.22

36

Gresham, Smith and Partners, Nashville

ae

24.69

85.13

*

37

CRB Consulting Engineers, Kansas City, Mo.

ce

23.08

44.38

40.05

38

Heery International, Inc., Atlanta

ae

22.00

200.00

225.00

39

CUH2A, Inc., Princeton, N.J.

ae

21.57

52.60

44.60


M/E Engineering Giants Rankings (40-73)

Rank

Company

Type of Firm

M/E Revenue

Total Revenue

Total 2000 Revenue

(in million dollars)

40

Merrick & Company, Denver

ae

19.66

54.60

79.80

41

Barge, Waggoner, Sumner & Cannon, Inc., Nashville, Tenn.

ae

19.40

48.50

47.10

42

Teng & Associates, Inc., Chicago

ae

18.87

78.62

133.67

43

KJWW Engineering Consultants, Rock Island, Ill.

ce

18.20

20.68

18.50

44

M-E Engineers, Inc., Wheat Ridge, Colo.

ce

17.96

18.33

15.50

45

Einhorn Yaffee Prescott, Albany, N.Y.

ae

17.68

50.50

101.81

46

C.H. Guernsey & Company, Oklahoma City

ae

17.59

25.79

22.33

47

Henderson Engineers, Inc., Lenexa, Ks.

ce

17.46

18.00

16.20

48

Ambitech Engineering Corporation, Downers Grove, Ill.

ce

17.27

26.57

18.24

49

Wink Incorporated, New Orleans

ae

16.59

27.20

25.00

50

Robert Derector Associates, New York

ce

16.58

17.00

18.00

51

HarleyEllis, Southfield, Mich.

ae

16.47

71.60

59.90

52

Brinjac Engineering, Inc., Harrisburg, Pa.

ce

15.40

16.92

15.20

53

Shooshanian Engineering, Inc., Boston

ce

15.21

15.21

15.40

54

Ewing Cole Cherry Brott, Philadelphia

ae

15.19

43.40

30.50

55

Burt Hill Kosar Rittelmann Associates, Butler, Pa.

ae

15.12

43.20

36.50

56

Wick Fisher White Engineers, Philadelphia

ce

14.85

14.85

*

57

Newcomb & Boyd, Atlanta

ce

14.76

14.76

13.18

58

Michaud Cooley Erickson, Minneapolis

ce

14.25

14.25

13.00

59

Albert Kahn Associates, Inc., Detroit

ae

14.21

40.60

47.00

60

Joseph R. Loring & Associates, Inc., New York

ce

14.10

14.10

12.60

61

H.F. Lenz Company, Johnstown, Pa.

ce

14.00

17.50

15.32

62

Erdman, Anthony and Associates, Inc., Rochester, N.Y.

ce

13.81

36.34

30.30

63

The Durrant Group, Inc., Phoenix

ae

13.44

38.40

30.32

64

Interface Engineering, Inc., Milwaukie, Ore.

ce

13.20

13.20

13.80

65

Paulus, Sokolowski and Sartor LLC, Warren, N.J.

ae

13.14

39.10

35.10

66

RobsonWoese, Inc., Amherst, N.Y.

ce

12.80

12.80

8.10

67

M/E Engineering, P.C., Rush, N.Y.

ce

12.55

12.55

12.29

68

Fanning/Howey Associates, Inc., Celina, Ohio

ae

12.42

51.76

46.80

69

W.H. Linder & Associates, Inc., Metairie, La.

ce

12.09

18.60

14.00

70

The O'Brien & Gere Companies, East Syracuse, N.Y.

ce

11.89

108.13

62.40

71

Peter Basso Associates, Inc., Troy, Mich.

ce

11.20

11.20

9.05

72

Heapy Engineering, LLC, Dayton, Ohio

ce

11.14

13.10

12.22

73

Albert Garaudy and Associates, Inc., Metairie, La.

ce

11.04

19.37

*


M/E Engineering Giants Rankings (74-100)

Rank

Company

Type of Firm

M/E Revenue

Total Revenue

Total 2000 Revenue

*Not Available

(in million dollars)

74

KTA, Herndon, Va.

ce

11.00

11.00

15.00

75

Bala Consulting Engineers, Inc., Wynnewood, Pa.

ce

10.89

12.10

14.35

76

Hellmuth, Obata & Kassabaum, St. Louis

ae

10.50

300.00

342.00

77

GHT Limited, Arlington, Va.

ce

10.40

10.40

*

78

Ross & Baruzzini, Webster Grove, Mo.

ae

10.29

18.70

*

79

The RMH Group, Inc., Lakewood, Colo.

ce

9.42

9.42

10.19

80

Burgess & Niple, Limited, Columbus, Ohio

ae

9.04

75.33

63.09

81

Clark Nexsen, Norfolk, Va.

ae

8.94

21.80

14.41

82

Gage-Babcock & Associates, Inc., Chantilly, Va.

ce

8.80

8.80

8.50

83

Lizardos Engineering Associates, P.C., Mineola, N.Y.

ce

8.37

8.37

6.60

84

P2RS Group, Inc., Albuquerque, N.M.

ce

8.29

9.75

10.50

85

James Posey Associates, Inc., Baltimore

ae

8.20

8.20

7.90

86

Korda/Nemeth Engineering, Inc., Columbus, Ohio

ce

8.16

10.20

12.10

87

DiClemente Siegel Design, Inc., Southfield, Mich.

ae

8.08

10.10

8.50

88

Bridgers & Paxton Consulting Engineers, Albuquerque, N.M.

ce

7.87

7.87

7.50

89

P2S Engineering, Long Beach, Calif.

ce

7.75

8.07

7.95

90

RTKL Associates, Baltimore

ae

7.64

134.00

135.00

91

Swanson Rink, Inc., Denver

ce

7.55

7.55

10.50

92

Farris Engineering, Inc., Omaha, Neb.

ce

7.50

7.50

6.00

93

WD Partners, Inc., Columbus, Ohio

ae

7.25

26.83

15.70

94

Optimation Technology, Inc., Rush, N.Y.

ce

7.13

7.13

10.30

95

Jordan & Skala Engineers, Inc., Norcross, Ga.

ce

7.00

7.00

6.76

96

Goetting & Associates, San Antonio, Texas

ce

6.90

6.90

7.70

97

Arnold & O'Sheridan, Madison, Wis.

ae

6.81

12.61

11.60

98

William Tao & Associates, Inc., St. Louis

ce

6.62

7.12

5.30

99

GRW Engineers, Inc., Lexington, Ky.

ae

6.54

24.21

*

100

Kamm Consulting Inc., Boca Raton, Fla.

ce

6.50

6.50

*


Number of M/E Engineers Employed: A Breakout of Some of the Top Firms

HVAC

Electrical

Fire/Life Safety

Lighting

Plumbing

Controls

The Austin Co.

62

44

0

0

0

0

URS

17

265

138

38

242

37

Burns and McDonnell

0

177

0

0

0

0

Lockwood Greene

360

297

54

0

18

270

Parsons Brinckeroff

76

497

26

22

30

15

Carter + Burgess

83

50

10

0

12

0

Vanderweil Engineers

81

52

15

0

22

0

Syska Hennessey Group

130

105

15

5

40

30

Atkins Benham

75

87

7

0

12

10

Power Engineers

5

75

4

5

5

40



The First-Half Economic Situation: The Numbers Don't Lie

The numbers for the first half of 2002 are in and they're not good. At an estimated $110.8 billion, the value of all nonresidential building construction spending for the first five months of 2002 was 7.5% less than what it was for the same period in 2001. While spending on commercial buildings was down, for industrial buildings, it plunged.

The only "bright" spot was the institutional market. In the big picture, however, that success was minor, as all sub-sectors fared worse than suggested by preliminary reports issued by the U.S. Commerce Dept.

The commercial sector saw total spending decline by 16% through May of this year compared to the same period in 2001. While retail construction spending through this period was off only slightly—2.3%—hotel/motel and office buildings were down 21.9% and 28% respectively. Total spending for new and retrofit commercial construction completed during 2000 is now estimated by the Commerce Dept. to have shown a decline of 4.2%—not the originally estimated 1.6% increase.

Spending for manufacturing plants and warehouses has also plunged. Through the first five months of this year, construction in this market sector was 42.3% less than the total for January-May of 2001. Further, the seasonally adjusted annualized rate of spending this past May was still running 41.6% below the May 2001 level, indicating no real recovery in this segment whatsoever.

Revised figures from the U.S. Commerce Dept. knocked 1999-2000 growth in this market from a solid double-digit gain to a 2.6% loss. The subsequent 2001 revision released earlier this month pushed the estimated loss for last year from the originally published 3% to a steeper 8.7%. In marked contrast to the losses recorded in both the commercial and industrial sectors, the institutional market experienced a 2001 growth rate estimated to have been 7.2%, much weaker than the 10% gain of preliminary government estimates.

The annualized gain in health facilities construction has been a solid 6% through May 2002, following revised growth of 3.2% between 2000 and 2001. Further good news is that educational construction spending gains accelerated during the first half of this year. And after growing by a revised 11.8% during 2001, the value of work completed on public and private educational buildings through May of this year was running 16.8% ahead of the January-May 2001 pace.

However, other institutional work—correctional facilities, government administrative buildings, courthouses and public housing—has begun to reflect the impact of deepening fiscal problems at all levels of government. During the January-May period of this year, total spending in these categories was up a modest 3.4% from the level for the same period in 2001. And this increase was much smaller than the double-digit annualized gains recorded during January-February of 2002. Furthermore, last year's spending increase was revised to less than half its previously-published gain: from growth of 15.7% to a revised 7.4%.

By Daryl Delano, Chief Economist, Reed Economics



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