Most engineering firms are experiencing a little breathing room as the economy continues its upward trend. Billings for private, nonresidential construction broke into growth territory last spring, according to the U.S. Census Bureau and MAPI Foundation. Public construction spending rose 3 percent in 2015, with another 3 percent growth expected in 2016, and 1 percent in 2017. The oil and gas sector, however, continues to suffer, especially in the Deep South and the Dakotas. What’s more, looming unknowns such as the upcoming presidential election and a contentious regulatory environment temper the industry’s enthusiasm.
Members of the 2016-2017 ACEC Executive Committee weighed in on the industry’s top challenges from concerns about the economy, to the effect of retiring baby boomers to the need for increased cybersecurity. “The industry has progressed steadily, just as the economy, from the dark days of the recession,” says Chairman Peter M. Strub, principal and senior vice president at TranSystems Corp. in Greenville, South Carolina. “We are maintaining progress in times of uncertainty, but have challenges ahead.”
Industry data shows that engineering firms are looking to significantly increase staff but are struggling with a shallow pool of talent. Results from the first-quarter 2016 ACEC Engineering Business Index (EBI) show that more than eight in 10 engineering firm leaders (81 percent) plan to increase their staffing this year, with nearly 30 percent of respondents projecting a staff increase of 6 to 10 percent. Adding to the dilemma, mid-level engineers with seven to 15 years of experience “just don’t exist anymore,” says Vice Chair John R. Nelson, CFO of Wright Pierce in Topsham, Maine. “We need to come up with a way around that by growing and grooming younger talent.”
Complicating matters further, some universities are turning away prospective engineering majors due to small class capacity. ACEC/Maine, for instance, launched an engineering workforce summit in September 2015 with the University of Maine. “The intent is to educate legislators and trustees of the university of the need to invest more in U. Maine’s engineering facilities and staff,” Nelson says.
Abbie Goodman, who is executive director of ACEC/Massachusetts in Boston and NAECE president, suggests that firms need to cultivate interest in engineering at the middle school level. “We need to be doing more to get kids to choose STEM related careers, but particularly to focus on infrastructure and the natural and built environments—not thinking they’re going to invent the next iPhone or great video game,” she says. Member Firms should have access to brochures and media presentations that resonate with tweens and teens, she adds. They should also encourage young engineers to visit schools to show these students how they can make a difference.
Cultivating leaders for ownership transition also poses a challenge. Many midsize engineering firms have principals nearing retirement age, yet who own a large majority of the firm’s stock. There simply aren’t enough younger professionals ready, willing or able to buy out senior owners and avoid a lengthy selldown. But many leaders say an internal transition plan is important to ensure a firm’s perpetuity. “Our philosophy is, who better to understand your culture and what you’re doing than the people who are sitting here—and you hired them,” says Vice Chair Thomas E. Mosure, president and board chairman at MS Consultants in Columbus, Ohio.
Firms face similar challenges with handing over long-standing client relationships to the next generation. “Many baby boomers are set to retire in three-to-five years, and those relationships are going to be gone,” says Strub. “We need to be nurturing those new relationships and doing it in concert with current leaders and younger engineers.” Younger engineers will be challenged to step outside their comfort zones to become relationship builders, says Vice Chair Lee Cammack, president and CEO of J-U-B Engineers, Kaysville, Utah.
“Some folks who may have been more content to be in the back room will have to be out front a little bit more,” Cammack says. He points to author Daniel Pink’s book, To Sell is Human, which finds that ambiverts—people who are in the “modulated middle” between introvert and extrovert—make the best salespeople. “A lot of our engineers are ambiverts, and they can be very effective at that if given the right opportunities,” he says.
There’s also a need for more diversity in hiring and around the executive table, Goodman says. She recently attended a leadership presentation where four women DOT state secretaries spoke about the next generation of engineers. “They still have people who are used to doing things the way they’ve always been done,” she says. “A diverse workforce can bring fresh perspective to problems.”
Eroding QBS Laws
Qualifications-Based Selection (QBS) has largely been preserved at the federal level, but many states with the requirement have ignored it or made numerous attempts to do away with it, industry leaders say.
“I think that is one of the pillars of good engineering—not having to bid and reduce price and reduce quality,” says Vice Chair Philip L. Houser, principal at Alfred Benesch & Co. in Chicago, Illinois. “It doesn’t save money. It can cost more in the long run, and it saves lives. The engineering industry must lead the effort to explain why it’s important.”
In Massachusetts, firms have seen a big push over the last year to bypass its QBS law. A few state universities started the practice. “Now, our largest state agency, which maintains all the state buildings, is competitively procuring design services through house doctor contract holders,” says Vice Chair Joel P. Goodmonson, executive vice president of Architectural Engineers in Boston.
It’s clear that it doesn’t comply with the spirit of the law, let alone the letter of the law, he adds. Firms are forced to either staff jobs with junior engineers or forgo more innovative approaches to energy conservation and green technology.
Lack of funding shouldn’t spur a lack of innovation, says Senior Vice Chair Gregg W. Spagnolo, partner at North Arrow, Inc. in Washington, D.C. “I see a pretty significant threat in what I’m calling contentedness,” he says. “Firms have to figure out how to create new ways of solving old problems” with their own funds.
Clients are not research institutions looking to invest in innovation, Spagnolo says. “They’re willing to pay for that innovation once you do it,” he adds. “It’s a Catch-22, but firms that don’t innovate go down the death spiral—the commodity curve.”
Technology, Information Security and Cyberthreats
As technology rapidly evolves, the engineering industry will be challenged to safeguard its own data and systems, as well as its clients’ data. For starters, recent high-profile breaches at the federal level are prompting government agencies to incorporate security requirements in engineering contracts.
Many firms now share project files through remote file access and file-sharing systems, such as Box.com and Project-Wise, Strub says. And that is impacting other areas of business. “We’re starting to see some very interesting insurance requirements in our contracts regarding protecting the client,” he says. Contracts state that if malware originates in the engineering firm’s systems and is transferred to and infects the clients’ systems, the engineering firm is liable. “Can we get the insurance? And what’s it going to cost our firms?” he adds.
Some contracts simply require firms to protect the clients’ information as if it were their own, Houser says. “But how well do we guard our own? That’s worrisome from a liability and cost perspective,” he says.
Technology advances that make engineering work easier are also prompting companies to look at the scope and costs of their IT operations. Three years ago, Goodmonson’s firm began using 3D laser technology that scans the inside of a room before it is drywalled, so clients have a record of what’s behind each wall. Today, it’s a requirement on every project. “We think this will speed things up and be a huge benefit in documenting existing conditions,” he says. It has also created mountains of data that the firm must process and safely store.
Technology has become a double-edged sword for many firms that are working faster and getting jobs done more quickly—their fees decrease because engineering services are traditionally based on man-hours. “We need to be compensated for the value that we bring, not necessarily the hours that we generate,” says Chairman Elect Sergio “Satch” Pecori, president and CEO at Hanson Professional Services in Springfield, Illinois.
Growing Assumption of Risk
As part of the industry game change to innovative project delivery, design-build and public-private partnerships, engineering firms are being pressured to assume a greater risk. These new bidding structures raise challenges over how much exposure to take on and how to measure and analyze potential ramifications.
“Many contractors you deal with even in the simplest form of design-build are not willing to remunerate you for your risk to put in a bid,” Mosure says. A bid for a $2 million piece of a $10 million contract could cost a firm $200,000 in proposal prep, with no money upfront and no guarantees of getting the job, he adds. “When you get into P3s, if you miss a schedule, you’re liable for construction contractors’ and developers’ delays and damages,” he says.
Cammack suggests that a growing litigious society also creates greater risk for firms. “People are operating under such tight margins that they don’t have the resources to try to solve problems. So they chose to fight through litigation,” he says. “That’s led to indemnification and defense clauses that are worse than they have been in the past.”
The costs associated with indemnification and duty-to-defend requirements have created legislative battles among contract stakeholders in California says Vice Chair Mary Erchul, project manager at Ghirardelli Associates in Irvine, California. “Somebody has to pay, and we’re not really good as an industry in saying ‘not us,’” she says. “We’re at the end of the food chain as engineers, and all of us are paying for a lot of duty-to-defend obligations when we have no negligence or liability.”
Economic, Regulatory Issues
Erchul also sees no end to new and more complex regulatory issues. “Every day we’re becoming more and more about paperwork, regulations and what we can’t do versus what we can do. It stops projects, innovation and us from moving forward to make sure people have the things they need to live,” she says.
Acknowledging the affect the economy has on the industry, Pecori was guardedly optimistic that current U.S. economic trends will continue. “We feel good about the economy, but we remain cautious about where it’s going, and the challenges that lie ahead.”
ACEC’s goal is to unite the industry by sharing ideas and best practices on a national level with the goal of helping resolve these challenges, Spagnolo says. “It’s amazing how all these competitors can come together and collaborate, and be really productive,” he adds.”
Reflecting on the industry challenges that lie ahead, ACEC President and CEO David A. Raymond says the views of ACEC Executive Committee members are illustrative of the Council views at large, and that serious efforts are underway at both the national and state level.
“While the issues that can stymie growth or success for our industry are challenging, the opportunities that we have are tremendous, and the Council provides a strong advocacy and education tool for making progress,” he says.