ENR's Top 500 Designers
in the U.S. It also contains the previous year\u2019s rankings, revenue and percentage of
revenue by market. The list is accompanied by a story that extensively discusses business
developments affecting designers and consultants, markets and industry issues. There is also
a statistical summary of the Top 500 \u201cat a glance\u201d by markets and regions.
For most firms, this prosperity is continuing and there aren\u2019t major signs of a let-down any time soon. If anything, there may be a continuing ramp-up in work. \u201cIt\u2019s not exactly news that most of the markets are expanding,\u201d says Lee McIntyre, pres- ident and COO of CH2M Hill Cos. \u201cIt\u2019s a target-rich environment,\u201d adds Steve Wirtel, partner with Carollo Engineers. \u201cThe problem is to find enough people to do the work.\u201d
With the tight market for people, design fees are rising. \u201cAfter 30 years in this industry, I\u2019ve finally seen the laws of supply and demand actually
working,\u201d says Bob Giorgio, presi- dent of CDI Business Solutions Group. He says engineering firms in the industry are becoming more savvy in their pricing and that clients, while not generous, are recognizing that squeezing fees isn\u2019t necessarily in their best interest. \u201cAfter all, you aren\u2019t seeing any more of those reverse auctions that everyone was in a panic about a couple years ago,\u201d he says.
One thing the active market has done is rekindle enthusiasm for mergers and acquisitions. Among the major acquisitions during the past year was ENSR International by AECOM in September 2005 and Blasland Bouck & Lee Inc. by Arcadis, also in September. And many firms remain in the market for acquisitions. However, some are tak- ing a very cautious approach. \u201cWe are very careful in who we acquire,\u201d says McIntyre. \u201cWe want to make sure the firm we acquire matches our corporate culture.\u201d He says that CH2M Hill is not looking to acquire services or for geographic reach as much as simply looking to add talent.
HDR is one firm that is acquiring small firms to fill in specific needs, but is relying on internal growth to build size. \u201cSize is important for firms such as ours,\u201d says Dennis Hirschbrunner, director of marketing. For example, he notes that in the wake of Hurricane Katrina, the feder- al government sought out firms to mobilize large numbers of engineers to address recovery needs quickly. \u201cIf you can\u2019t mobilize those numbers, they are not going to call you,\u201d he says.
One interesting move this past year was the merger of SchenkelShultz and CSO Architects. \u201cWe worked together on the Midfield Terminal at Indianapolis International Airport,\u201d says Tom Chandler, CEO of SchenkelShultz. Finding common interests and cultures, the firms decided to merge. But it was not a
typical acquisition. \u201cWhile we are now one company, we both maintained our equity positions in our firms. It\u2019s more like a partnership than a merg- er,\u201d he says.
The final enactment of the federal Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users has led to more sighs of relief among designers than celebra- tion. \u201cIn the past, when a highway bill passed, the industry would feel that happy days are here again,\u201d says Ben Watts, CEO of Carter & Burgess. \u201cBut with this new SAFETEA-LU Act, we generally just feel like it\u2019s time to get back to work.\u201d Bruce Johinke, director of global markets at Parsons Brinckerhoff, agrees. \u201cI don\u2019t think [SAFETEA-LU] will open the flood- gates,\u201d he says. \u201cIt\u2019s more business as usual. But if it hadn\u2019t passed, we would all be feeling it right now.\u201d
The passage of SAFTEA-LU now is allowing state departments of transportation to define their pro- grams. \u201cNow they know what they are getting, but also what they can\u2019t afford,\u201d says Johinke. This is why more DOTs are now looking to alter- nate sources of funding for major needed projects, he says. This is making public-private partnerships a more attractive alternative for these agencies.
There are many design firms that are wary of highway concessions as a means of financing highways, par- ticularly as much of the financing comes from abroad. \u201cThe internation- al investment community is used to investing in infrastructure,\u201d says Johinke. \u201cBut the U.S. is slow to look at concessions in public infrastruc- ture.\u201d That\u2019s why such players as Spanish contractors Ferrovial and Dragados and investment banks like Australia\u2019s Macquarie Bank have been active in highway concessions here in the U.S.
cessions has done is change the nature of the client. \u201cYou are now working for contractors or the lead elements of the privatization group, rather than dealing directly with the DOTs,\u201d says Terry Neimeyer, CEO of KCI Technologies. He wonders how the economics of concessions will work out. \u201cIt\u2019s an easy way for a state to make money on a fixed asset,\u201d he says. \u201cBut will states save money in the the long run?\u201d
Not all private financing is on a grand scale. \u201cWe are seeing more transit-oriented development,\u201d says Mike McArdle, director of the rail practice at VHB/ Vanasse Hangen Brustlin Inc. In these cases, develop- ers site their investments along exist- ing or planned public transit lines and invest in transportation upgrades. For example, Spaulding & Slye Colliers and Guilford Transportation Indus- tries are developing a 45-acre North- Point tract in Cambridge, Mass., across the river from Boston, and are investing $35 million to build a new train station along the rail line pass- ing through the development. VHB is working on the design. \u201cMore public agencies are looking to developers to help finance related public infra- structure,\u201d McArdle says.
For other types of infrastructure, privatization is less of a concern. There have been a few attempts to privatize water and waste systems on a local level by international groups that have not been successful. \u201cWe still have some pretty large privatized water systems here in the U.S.,\u201d says Ed Wetzel, executive vice president of the water and waste resources sector for R.W. Beck Inc. But he notes that even some of the more successful European privatizing enti- ties may be rethinking things. For example, Germany\u2019s RWE AG March 24 announced its intent to spin off its American Water subsidiary through an initial public offering of stock.
enue for the Top 500 rose to $59.25 billion in 2005, up 11.8% from $52.99 billion in 2004. The domestic growth was even larger, with the Top 500 registering a 12.6% growth rate, to $47.40 billion in design revenue from projects in the U.S., over 2004\u2019s fig- ure of $42.10 billion. The Top 500 also saw an 8.9% growth in revenue from projects outside the U.S., to
The U.S. economy is strong and so is the construction mar- ket. No one knows this more than designers who are at the leading edge of the boom. But just as the recent recession brought new issues and concerns to the design profession, so has prosperity. A lack of
people to do the work, the drive for greater efficiencies in light of techno- logical developments and the per- sonnel squeeze, and new and subtle threats in the future have many think- ing hard about where the design pro- fession is headed.
From a pure numbers standpoint, the ENR Top 500 Design Firms had a huge year in 2005. Total design rev-
lessons haven\u2019t been learned about safeguarding infrastructure from recent disasters. \u201cWe need to design our infrastructure to be disaster resilient,\u201d says Chris Poland, CEO of Degenkolb Engineers. He points out that the scale of some recent disas- ters like Hurricane Katrina or 9/11 show that infrastructure should be hardened so that when there is a major problem, the system can con- tinue functioning while the damage is being repaired.
\u201cWe are not very good at planning for low-probability events. They hap- pen, we throw money at the problem, then we forget about it until the next time,\u201d Poland says. For example, despite Hurricane Katrina, New Orleans recently announced relaxed requirements for elevating resi- dences in the flood zone, to 3 ft (see story, p. 14). \u201cThe model codes with disaster provisions are all there in the International Building Code. We just need local authorities with the will to adopt them,\u201d Poland says.
For firms involved in designing buildings, the market remains bullish although some see softness in a few sectors. \u201cWe think the condo market reached its peak about the middle of last year,\u201d says Carl Roehling, CEO of SmithGroup. \u201cI think it\u2019s nearing the saturation point.\u201d
For some firms, demographics is the key. The K-12 school market con- tinues to be vital in California. \u201cThe state is continuing to grow in popula- tion from people moving here,\u201d says Jerry Eick, managing principal at HMC Architects. \u201cAnd now, the state has passed a regulation to reduce class size, which is putting pressure on school districts to expand their facilities.\u201d
Further, California\u2019s seismic code continues to fuel a hot healthcare market. \u201cAll hospitals are struggling to comply with the seismic require- ments, even though the legislature extended the compliance date to accommodate them,\u201d says Eick.
Now, there is a bill in the legislature to further extend seismic compliance for hospitals that decide to build replacement hospitals rather than upgrade existing facilities. However, Eick worries that the development of private hospitals may be curtailed in the state by strangling regulations and bureaucracy.
The airport market remains strong, if tenuous. Many designers in that market are concerned that the recent bankruptcies and threatened bankruptcies among the major air- lines may threaten the market. \u201cBut the number of passengers has increased rapidly since the 9/11 drop- off, so the need is there,\u201d says Chan- dler of SchenkelShultz. He says that airlines\u2019 financial woes may actually spur new construction. \u201cAirport authorities see these airlines in trou- ble and want to make sure they can attract as broad a variety of carriers as possible, so they are doing up- grades and adding facilities,\u201d he says.
Transportation isn\u2019t the only mar- ket that is seeing more privatization. \u201cWe are finishing a design-build job at Oak Ridge that was done on a public-private partnership, which a private developer financed,\u201d says Jim Moynihan, CEO of Heery Internation- al. He also notes that the Veterans Administration has been inquiring about private financing of hospitals. \u201cWe are comfortable in that area,\u201d he says, noting that Heery\u2019s parent com- pany is the U.K.\u2019s Balfour Beatty, which is one of the leading builders under that country\u2019s Private Financ- ing Initiative.
For many firms, design-build is prov- ing a double-edged sword. \u201cWe are doing more design-build projects,\u201d says Moynihan. Heery has been moving more toward the old master builder concept for several years.As part of that move, the firm announced on April 3 that it had acquired Char-
ter Builders, a Dallas-based special- ist in construction management at- risk. \u201cThere still is a place for the pure designer, but chances are they will simply be part of a larger team,\u201d he says. Heery is contemplating further expansion and is in the due diligence stage on two more potential acquisi- tions.
Some design firms still are finding owners falling into old habits. \u201cDesign-build is a very effective deliv- ery process, but it is beginning to fol- low the same old design-bid-build pattern,\u201d says Ray Messer, president of Walter P. Moore and Associates. \u201cThey are beginning to bid out design-build work instead of negotiat- ing based on qualifications.\u201d This means teams are forced to remove contingency money in their bids, putting pressure on all parties and hoping for no unexpected changes in the project, he says. \u201cThis is going to ruin design-build for a lot of people,\u201d he says.
Several firms are concerned about increasingly risk-averse clients. \u201cWith the litigation boom, owners are allow- ing their attorneys to dictate contract provisions pushing the standard of care to a standard of perfection,\u201d says Messer. This means that design firms are being forced to fall back on the most conservative designs and practices, rather than what may be the best for the project. \u201cThis practice stifles any creative design solutions and hurts the client,\u201d he says.
The solution to innovation in an increasingly litigious environment often depends upon an owner willing to step in to be the first, say several design executives. R.W. Beck\u2019s Wet- zel notes that there are a few public owners willing to go with the best solution rather than the most conser- vative, making innovation more palat- able to future clients.
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