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Post-Recession Strategy for Firms Is the New Turning Point
Architects, engineers and construction firms choose paths to survive—and even thrive
02/17/2010
By Debra K. Rubin With Pam Radtke Russell
[Page 1 of 4]
While the federal stimulus program has helped many construction industry firms avoid the most
immediate, far-reaching and detrimental impacts of the recession, it hardly has been a panacea for all
or a substitute for tough strategic decisions. As markets shift, shrink or even disappear, some
companies are scrambling to adjust, while others, having seen signs of tough times ahead, execute
game plans adopted before the downturn hit.
Some industry observers believe this recession is
more difficult than past slumps because so many
firms have built up capacity over years of boom.
Trying to maintain that size has led companies
into bidding wars, risky price cutting and
corporate pain. “If 2009 could be described as the
year of scratch-and-claw, then 2010 will be the
year of hand-to-hand combat,” says Gregory
DiFrank, president of River Consulting LLC,
Columbus, Ohio. But others say the market is
resilient and will generate opportunity for firms
that reach deep into their talent pools to find and
create new paths ahead.
S our c e: EFC G
*Based on responses from 75 engineerconstructors with revenue from $3 million to $7
billion, 85% U.S.-based. Survey conducted in
January.
“Once survival is no longer an issue, thinking
about how to take advantage of future growth
markets is critical,” says Hugh L. Rice, principal
of FMI, the Denver construction management
consultant and investment banker. “The market
will recover, but it will be at different rates and at
different times for different sectors. Firms need to
think strategically about what forces will create a
demand for construction and position
appropriately.”
Market challenges now compel firms to tap, for
themselves, the same creative juices flowing to
clients. “Waiting for the market to come back
without significant strategies to adapt could result
in slow, painful death,” says John Cryer, principal
of Houston architect-engineer
PageSoutherlandPage. Adds Paul Yarossi,
president of HNTB, “resisting the temptation to
hunker down is essential.”
Illus tration: R afael R ic oy
Scott Kolbrenner, managing director of
management firm Houlihan Lokey, Los Angeles,
and co-head of its infrastructure services and materials group, advises firms to “pay down debt, raise
equity if necessary, focus on operations and cash flows but keep planning for the intermediate future,
maintain morale in qualitative ways with employees and consider long-term value enhancements, not
short-term Band-Aids.”
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Paul Steelman, Steelman Partners, Las Vegas, sees the new reality. “Many architects are rushing to
take the word ‘iconic’ off their Web pages,” he says. The firm is diversifying its geography and
markets but must self-fund the effort amid its own credit crunch, he says.
For many firms, the federal stimulus has made a difference. Sylvia Medina, president of North Wind
Inc., an Idaho Falls engineer, says U.S. Energy Dept. stimulus work contributed to a revenue boost
last year and will do so again in 2010. One contract worth $14 million pre-stimulus has grown to $60
million and created 60 new jobs. But the stimulus did little to boost markets for POWER Engineers,
Hailey, Idaho, says President Jack Hand. “Our generation business has been hit the hardest,” he
says, adding that any improvement in 2010 will come from its work in the geothermal market.
Others also see little benefit from the stimulus, which “is like adding a little fresh, hot coffee to a
half-full cold cup,” says Craig Martin, CEO of Jacobs Engineering Group Inc. “It doesn’t make it hot or
fill it up.” The Pasadena, Calif., engineering giant will cling tight to its clients and to cost control, while
taking advantage of market conditions to grow the firm’s share in industrial and infrastructure,
particularly overseas. Acquisitions will continue as a key strategy.
Martin cautions that firms must be especially prudent now in judging the risk levels they are willing to
take on. “We expect to see casualties from this approach over the next 12 to 24 months,” he says.
With weak capital markets fueling fewer megaprojects, particularly in the U.S., Black & Veatch “is
expanding into the services area, and we are having success,” says Rodger Smith, president of the
Kansas City-based engineering...
[Page 1 of 4]
Post-Recession Strategy for Firms Is the New Turning Point
Architects, engineers and construction firms choose paths to survive—and even thrive
02/17/2010
By Debra K. Rubin With Pam Radtke Russell
...and construction firm’s management consulting division. But he concedes technical professionals
must better understand clients’ business needs and be “more proactive in interacting directly.”
Parsons Brinckerhoff CEO George Pierson notes that his firm’s “people are open to change the way
they work, and we are going to great pains to involve our folks in the process.”
While there have been “unpleasant staffing
adjustments,” as one firm euphemistically termed layoffs, more firms have turned to work-sharing
arrangements and staff retraining to avoid them.
Iver Skavdal, CEO of Eureka, Calif.-based engineer Winzler & Kelly, says the firm averted the fate of
some of its peers—“laying off staff in droves”—with a pre-recession strategic plan that includes a
customized training program “for our seller-doers.” But he notes challenges in “migrating” staff from
down markets to rising ones and finding experienced managers to take high-level marketing roles.
Jim O’Neill III, president of Quanta Services Inc., Houston, says the energy infrastructure specialist
made it through a challenging 2009 by creating new markets for itself. A strong balance sheet allowed
it to acquire Price Gregory Services Inc., a leading gas transmission pipeline firm. Quanta also rolled
out a patented “microtrench” technology that will allow it to install fiber-optic cables in dense urban
markets. The process was taken from concept to reality in less than a year, O’Neill says. “We actually
believe we will be able to capture market in areas that we weren’t in previously,” he adds.
WD Partners, a Dublin, Ohio, architect-engineer,
sees specialization as its recession antidote, with a
focus on providing branding and design services to
retail and restaurant customers. “This is the
“Owners may push
more risk back on
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equivalent of R&D in manufacturing. It gives us a
glimpse of our clients’ future strategies, which in turn
allows us to plan to be ready to execute when
they’re ready,” says Sam Khalilieh, senior vice
president of engineering services. But, he says,
changing client needs will require the firm to grow
new specialties among its professional staff.
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the industry.”
— CRAIG MARTIN
CEO, JACOBS ENG.
Some firms see promise in positioning themselves to help their clients meet new business priorities,
such as supporting the green movement. “In the new normal, we think sustainability will emerge as the
driving issue as the world struggles with economic growth while constrained by natural resources,”
says Patrick McCann, CEO of Weston Solutions Inc., West Chester, Pa.
Omaha-based engineer Leo A Daly is one of many
firms that are expanding an international presence,
with some signs that overseas markets will recover
faster. Daly is eyeing emerging markets—such as
senior living, science and technology, and water
reuse—to help compensate for its shrunken
commercial sector and only a small stimulus benefit.
“We are looking at 2011 before we see
normalization and a return to double-digit growth,”
says Charles D. Dalluge, executive vice president.
Without significant
strategy, “slow
death.”
—JOHN CRYER III
PRINCIPAL, PAGE
SOUTHERLAND PAGE
Stimulus-boosted public markets may be some firms’ only alternative, despite different procurement
approaches and more competition. “One of the dangers for building contractors is to assume that
because they can pour concrete, a bridge or water treatment plant can’t be that hard,” says FMI’s
Rice.
Debra Lupton, CEO of TLC Engineering for Architecture, Orlando, ramped up company attendance at
key federal sector conferences, such as FEDCON and the Society of Military Engineers, to gain
insight into the marketplace...
Post-Recession Strategy for Firms Is the New Turning Point
Architects, engineers and construction firms choose paths to survive—and even thrive
02/17/2010
By Debra K. Rubin With Pam Radtke Russell
...and network for integrated projectdelivery work. “We’re having to shed our sub-consultant mentality
and proactively seek our own opportunities,” she says. The firm also has resolved “operational
challenges” with building information modeling, implemented now as a key marketing tool, Lupton adds.
Mergers and acquisitions are regaining traction,
as prices stabilize and firms search out strategies for quick market penetration and diversity. Deal
brokers are predicting heightened activity in 2010. “Even if you are outstanding at one thing and you
believe the outlook for that one sector is terrific, at least have one back-up area of expertise,” says
Paul Zofnass, president of EFCG, a New York City financial and M&A advisory firm.
Growing as a global player is an RTKL priority, boosted by its acquisition by Holland-based Arcadis a
few years ago. “With the growing globalization of business, strategic partnerships and joint ventures
may be the wave of the future,” says RTKL CEO Lance K. Josal. “We’ve been retooling our workforce
to be more global and more agile. This has taken time, but it has paid dividends.” He says the firm’s
health-care and technology-design prowess, a staple of U.S. work, “has proven the great differentiator
in the Middle East.”
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Engineer SSOE, Toledo, has turned its global focus
on India and China. Its Shanghai office is now the
company’s second largest, says CEO Tony Damon.
With manufacturing still booming in China, SSOE
has found a new niche for its expertise and also
says it is “well positioned” in alternative-energy
markets, he adds. “SSOE’s focus on energy
efficiency helps cut costs for our clients and has
created a niche for us even in markets that are not
experiencing robust growth,” says Damon.
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“Once survival is no longer an issue,
thinking about how to take
advantage of growth markets is
critical,” says FMI’s Hugh Rice.
Adds MACTEC President Ann Massey, “The expansion and reach of international and global players in
the engineering and construction market is worth watching, especially as the global recession eases.”
Finding the right deal through acquisition or joint venture can benefit all parties if done correctly, but
making it work isn’t always easy. “Collaboration on a regional or global level delivers more to the client
than going it alone, and each firm benefits when the arrangement is right,” says Christine Brack,
Chicago-based principal of management consultant Zweig White. However, adds FMI’s Rice, “Both
sides must bring something to the table.”
Even as recession strategies are being implemented, industry firms are seeing signs of improvement
in even hard-hit markets. Architect FXFowle, New York City, is actually seeing some upswing in its
commercial prospects related to master-planning and exterior building upgrades, says senior partner
Guy Geier.
Likewise, TRC Solutions, Lowell, Mass., sees a pickup in its “exit strategy” practice, which manages
the environmental liabilities of real estate that is being readied for transfer, particularly when foreign
buyers are involved, says Senior Vice Presdient Cynthia Retallick. “This revival is just starting, and we
anticipate slow but steady growth throughout 2010,” boosted somewhat by increased foreclosure and
bankruptcy activity, she points out.
For Timmons Group, Richmond, Va., the recession’s impact on private development has decimated
50% of its market share, says principal Tim Davey. But the firm is using stimulus funding to help clients
develop innovative...
Post-Recession Strategy for Firms Is the New Turning Point
Architects, engineers and construction firms choose paths to survive—and even thrive
02/17/2010
By Debra K. Rubin With Pam Radtke Russell
...project financing schemes, particularly for projects related to military base realignment. It also now
pushes strength in public-sector asset management to private-sector clients.
“There are specific projects being created by
tapping into creative sources of finance in areas as diverse as a bridge or a fertilizer plant,” says
FMI’s Rice. “The challenge will be met not by multibillion-dollar projects but by creative engineers,
contractors, public officials and financiers figuring out how to create a project. This could be a big
opportunity.”
Rice and others note that even in public-sector procurement, relationships will be key. By “working on
relationships over the years,” says Glenn R. Bell, CEO of Simpson, Gumpertz & Heger Inc., the firm
has boosted revenue in alternative-energy markets, to 15% currently from almost zero. But, he
concedes, decision-making in a changing landscape isn’t easy. “If you act too impulsively, you can go
down blind alleys and waste time and money,” he says. “If you are too slow, you will miss
opportunities.”
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Firms voiced strong opinions on whether size matters, with strong differences on whether small,
medium or large firms were best able to withstand today’s market adversity.
Small firms see themselves as more nimble and able to adjust quickly to new opportunities. “We may
have missed some of the meteoric rise many firms experienced before tough times set in,” says Tim
Groover, president and chief operating officer of engineer-architect WileyWilson Inc., Lynchburg, Va.
“But we are convinced this approach softened the effects of the economic slowdown.”
But large firms see strength in their mass and diversity. Smith Group CEO Carl Roehling likens a large
firm to a “complex organism” that can adapt more effectively to outside conditions, as opposed to a
small firm’s “single cell.”
But medium-sized firms, which often are considered the most vulnerable, see their prospects
differently. Winzler & Kelly’s Skavdal says medium-sized companies such as his combine the best
attributes of all firms. “We have the resources and capabilities to function like a large firm, but we are
small enough to change directions quickly. It’s like being able to turn a speedboat with the engine of
the Titantic.”
Others believe company size isn’t the issue. “It’s not a matter of size but a matter of will,” says Eric L.
Flicker, senior vice president of Pennoni Associates. “Management needs to accept the need for
change and then make it happen.”
Industry executives also say the recovering sector needs players of all sizes and capabilities. “There’s
room for everybody. Agility is the word for 2010,” says TLC’s Lupton. “The key is to refine your focus
and service offerings and build sustaining relationships with important players in new markets,
recognizing that they may be different than those of the past.”
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