Economic challenges and market opportunities

January 2009 » Feature Articles
Executives from five civil engineering firms offer their perspectives on 2009 and how they are responding to current challenges.
Bob Drake

Civil engineering executives offer perspectives on the year ahead for small, medium, and large firms.

In an address in early December 2008, President-elect Barack Obama outlined an economic recovery plan that "will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s." The amount of that hoped-for investment was not revealed, but according to the American Road & Transportation Builders Association (ARTBA), every $1 billion invested in quick-start highway and bridge projects would add about 1 percentage point to the 2009 forecast.

And based on the following forecasts (not taking into account an economic stimulus), such help will be good news to the AEC industry:

  • the Associated Builders and Contractors expects the value of commercial and industrial construction to fall 10 to 20 percent in 2009;
  • the National Association of Home Builders forecasts a 25-percent decline in total housing starts in 2009; and
  • ARTBA expects a flat market for highway and bridge construction in 2009, with recent increases in federal highway spending offset by declines in state and local expenditures.


But, as politicians and economists wrestle with multi-billion-dollar bailouts and stimulus packages, leaders of civil engineering firms—small, medium, and large—must continue to look for opportunities to keep clients coming in the door. With that effort come a number of questions: What markets will experience growth? What staff expertise will be required to take advantage of growing markets? How can a firm control costs without sacrificing that expertise? What geographic areas will offer the most opportunities? What marketing efforts are required to maintain or grow the business in a slow economy?

In late October 2008, five firm executives accepted an invitation by CE News to offer their perspectives on 2009 and how they are responding to current challenges. Following are their answers to a series of questions, presented in order of firm size (number of employees), from small to large.


Nave Newell, Inc.
Headquarters: King of Prussia, Pa.
Number of branch offices: 1
Number of employees: 40


Participant
Gregory C. Newell, P.E., owner/principal

What is the greatest challenge your firm faces as we head into 2009?
The prolonged downturn in the real estate market makes finding work the key issue for 2009. Rarely do we have the housing, commercial, and retail markets in a downturn at the same time, so new projects are few and far between.

As we approach the beginning of 2009, how does the value of your firm’s contracted work compare with the value at the beginning of 2008?
Like our staffing levels, there will probably be a 20-percent reduction.

What markets show the greatest growth potential in 2009?
We would expect to see continued emphasis on upgrades to transportation infrastructure. Bridges, in particular, need to be replaced. Land development may not see life until 2010.

If your firm operates regionally or nationwide, which geographical region(s), if any, show the most promise for growth in 2009?
The Philadelphia region didn’t see the large spike upward or downward in real estate prices, so there is a chance things will pick up sooner there than other areas that are still trying to find the bottom of the market.

How is the proportion of public-sector to private-sector work changing in 2009 compared with 2008? If it is changing, what’s driving that change?
Public-sector spending will have to occur at a national level. The shrinking tax revenue will probably reduce the number of projects for state and local governments.

How do you expect your firm’s staffing needs in 2009 to compare with your needs at the beginning of 2008, both in terms of numbers and expertise?
Our staffing levels will remain reduced by 20 percent. We’ve still maintained the key personnel who provide the technical expertise needed to steer projects through the arduous land development process.

How have you prepared your staff and firm for the changing market as we head into 2009?
We’ve stressed the importance of being very responsive to our customers’ needs and proactively identifying ways to save time and money on projects. Debt financing is hard to find, so reducing costs is very important.

How has the downturn in the U.S. economy affected client interest in green or sustainable projects? What is the prospect for green projects in 2009?
I think there will still be strong interest in green buildings, but the costs for the specific items will be carefully examined.

What role do you expect public-private partnerships to play in infrastructure projects in the United States during the next five years?
A lot will depend upon the ability of private companies to find the financing necessary to build the projects.


Draper Aden Associates
Headquarters: Blacksburg, Va.
Number of branch offices: 3
Number of employees: 210


Participant
William A. Aden, P.E., president and CEO

What is the greatest challenge your firm faces as we head into 2009?
The greatest challenge we face in 2009 is balancing our production capability with the amount of work that is available. At the present time (October 2008), it is practically impossible to anticipate what our work load is going to be in 2009. We have had a great year in 2008, but because all of our projects depend on financing and funding of some type, the availability of such is critical to the acquisition of future projects.

Much of our work revolves around higher education, civil engineering, environmental engineering, and utility engineering markets. We do not know the status of future higher education funding in Virginia, nor do we know the status of financing acquisition for the utilities sector. On the other hand, an infusion of capital through infrastructure incentives could completely change the outlook.

As we approach the beginning of 2009, how does the value of your firm’s contracted work compare with the value at the beginning of 2008?
Our backlog is up 6 percent in 2008 [compared with] the same time period in 2007.

What markets show the greatest growth potential in 2009?
The markets we serve at Draper Aden are very diversified, which we consider to be a strength in a down economy. Of course, not all of the sectors in which we work are going to be strong. We need to anticipate this and be able to move our staff around, either technically or geographically, in order for them to be utilized.

Although difficult to predict at this point in time, I suspect that the markets that will have federal funding will see the strongest growth. This will most probably be seen in the infrastructure and military markets. Transportation infrastructure, such as roads, bridges, rail, and airports, is in great need of attention. Other areas where we may see additional federal funding include water and sewer rehabilitation and upgrades. The continued focus of military base realignment and closure (BRAC) will also create a sought-after market.

If your firm operates regionally or nationwide, which geographical region(s), if any, show the most promise for growth in 2009?
We are taking the position of not expanding geographically at the present time. We see growth in our Virginia markets and intend to stay there in the immediate future.

How is the proportion of public-sector to private-sector work changing in 2009 compared with 2008? If it is changing, what’s driving that change?
During 2008, we experienced a greater proportion of public-sector work. We are not anticipating there to be a great deal of private-sector work available in 2009, due to the problems with financing.

How do you expect your firm’s staffing needs in 2009 to compare with your needs at the beginning of 2008, both in terms of numbers and expertise?
We are just beginning to move into our budgeting process for 2009. At this time (October 2008), our various sectors expect to be cautious about new hires in 2009. We anticipate that we are going to have to move some personnel around to keep them busy, and until the economic situation clarifies, we are probably going to create opportunities for more overtime work rather than hiring new staff.

How have you prepared your staff and firm for the changing market as we head into 2009?
Draper Aden is an open-book management firm. We meet monthly with all of our offices and review firm and office financial results along with other important issues. We diligently try to keep everyone informed about our economic situation and workload within the firm. We find that honestly sharing information with the staff on a monthly basis prevents rumors from becoming rampant and undermining the morale of our staff.

How has the downturn in the U.S. economy affected client interest in green or sustainable projects? What is the prospect for green projects in 2009?
While tightening budges will cause owners to scrutinize all expenditures, it appears that the sustainable movement has already become an expected feature of most projects. The push for green design and construction may slow; however, in five years I predict that sustainable design will be the standard, not the differentiator.

What role do you expect public-private partnerships to play in infrastructure projects in the United States during the next five years?
Expanding, expanding, expanding. In Virginia, we have a formal process to create public-private partnerships which is guided by the 2002 Public-Private Educational Facilities and Infrastructure Act (PPEA). In the recent past, most of these PPEA projects were jails, schools, parking decks, and the like. Recently, however, we have seen more and more interest in utility projects being delivered in this way because of the speed of construction and possible favorable financing.
Projects constructed through public-private partnerships will continue to grow during the next five years, and may become the accepted method of project delivery. As funding continues to dry up, alternate methods of achieving the end product will be the norm.


RBF Consulting
Headquarters: Irvine, Calif.
Number of branch offices: 15
Number of employees: 784


Participant
Bob Kallenbaugh, P.E., CEO

What is the greatest challenge your firm faces as we head into 2009?
As we approach 2009, our firm, as every firm in the country, faces economic challenges that involve maintaining a constant work load for our staff. As we face these challenges, we also face change as we have never faced it before. We have been successful in facing this challenge, adapting to change and moving forward in the face of economic adversity.

As we approach the beginning of 2009, how does the value of your firm’s contracted work compare with the value at the beginning of 2008?
Our backlog has been reduced by about 10 percent as we approach 2009, when compared to this time last year.

What markets show the greatest growth potential in 2009?
All infrastructure has growth potential for 2009. Our ASCE Report Card has shown that our roads, bridges, water and wastewater, stormwater, and energy infrastructure are key to our future. We see this as a benefit to our nation in that our engineering professionals can focus on the needs in infrastructure across the country. The greatest growth on a percentage basis will be in the energy market, with our greatest revenue growth in the water market.

If your firm operates regionally or nationwide, which geographical region(s), if any, show the most promise for growth in 2009?
Our firm operates in states across the nation. We anticipate opportunities for growth in 2009 in different regions within different facets of civil engineering, planning, and surveying. Promise exists across New Mexico, Texas, and California as higher growth areas. Our Southern California region shows promise for us because of our roots and long history of serving that region. There is national promise in sustainable design, downtown revitalization, and infrastructure that we will also be pursuing.

If your firm operates internationally, which geographical regions(s), if any, show the most promise for growth in 2009?
Our international work has been primarily focused in Mexico in the resort corridors. We see that region continuing to attract U.S. investors and sustaining growth in 2009.

How is the proportion of public-sector to private-sector work changing in 2009 compared with 2008? If it is changing, what’s driving that change?
During 2008, our revenues switched from a majority of revenue previously in the private sector to the current day, where a majority of our work is in the public sector. Our 2009 estimate is that 60 percent of our work will be in the public sector.

How do you expect your firm’s staffing needs in 2009 to compare with your needs at the beginning of 2008, both in terms of numbers and expertise?
We believe the numbers will be relatively comparable, but that new and emerging scientists and experts will be sought.

How have you prepared your staff and firm for the changing market as we head into 2009?
The RBF leadership team has been preparing our team and our firm for the changing market for approximately two years. We have revisited our strategies and our corporate vision. We are looking toward a future in which change is embedded in our culture and promoting agility within our company to meet the challenges of change to serve our clients. We have new clients and markets through an increased marketing program.

How has the downturn in the U.S. economy affected client interest in green or sustainable projects? What is the prospect for green projects in 2009?
We honestly believe that the downturn has been one of the best things that could have happened in the realm of sustainable development. It has allowed us some time for research and development, given us an opportunity to gain LEED Accreditation for nearly 30 of our professionals, and has given our engineering profession an opportunity to get up to speed on sustainable development to better serve every industry and the people of our nation.

What role do you expect public-private partnerships to play in infrastructure projects in the United States during the next five years?
Public-private partnerships will be an increasing, vital, and successful area in not only infrastructure, but many other types of projects as we approach the year 2020. Our country’s leaders need to be more creative with how we finance infrastructure projects. Many truly important national projects will require money being put into the private system. These dollars will improve our electrical grid, untangle rail bottlenecks, and improve goods movement. I look forward to the federal role in infrastructure as that of equity investor, not underwriter.


Golder Associates Inc.
Headquarters: Atlanta
Number of branch offices: 43
Number of employees: 1,260


Participant
Mark A. Swallow, P.Eng., P.E., president and principal

What is the greatest challenge your firm faces as we head into 2009?
Not letting the ongoing economic crisis distract us from our long-term vision.

As we approach the beginning of 2009, how does the value of your firm’s contracted work compare with the value at the beginning of 2008?
We anticipate entering 2009 with a contracted backlog that is 10 percent to 15 percent higher than we started with in 2008.

What markets show the greatest growth potential in 2009?

  • Energy services—providing ground engineering and environmental services for traditional power producers, as well as renewable/clean energy projects; and
  • Solid waste management—landfill design, contracting/construction, landfill gas management, and landfill gas-to-energy projects.


If your firm operates regionally or nationwide, which geographical region(s), if any, show the most promise for growth in 2009?
Alaska, California, and Texas.

If your firm operates internationally, which geographical regions(s), if any, show the most promise for growth in 2009?
Our global operations in Asia and Africa have grown significantly in 2008 and continued strong growth is anticipated in 2009.

How is the proportion of public-sector to private-sector work changing in 2009 compared with 2008? If it is changing, what’s driving that change?
We anticipate a modest increase in the proportion of public-sector work in 2009, driven by increased infrastructure spending and because private entities will be endeavoring to control costs, while many governmental entities will be endeavoring to inject additional capital into the market.

How do you expect your firm’s staffing needs in 2009 to compare with your needs at the beginning of 2008, both in terms of numbers and expertise?
The projected growth in the number of new staff in 2009 will be only slightly lower than was originally projected for 2008, but some 30-percent lower than the actual growth in 2008. We are always looking for good people in all of our core service areas, but in 2009 there will be some increased focus on recruiting staff with expertise in the energy services market.

How have you prepared your staff and firm for the changing market as we head into 2009?
We have increased external communication with clients to better evaluate their changing needs and how we can assist them. This includes informal meetings and telephone discussions, as well as formal client satisfaction surveys. We are devoting additional senior resources to business and client development.

We have also increased internal communications to keep our staff informed, motivated, and productive. This includes memoranda as well as internal townhall-type meetings with open interaction between staff and management.

How has the downturn in the U.S. economy affected client interest in green or sustainable projects? What is the prospect for green projects in 2009?
To date, there has not been much perceivable change in the level of interest in sustainable solutions. Many clients are demanding it, and it is the right thing to do. Opportunities involving sustainability metrics and clean/renewable energy are anticipated to remain strong in 2009.

What role do you expect public-private partnerships to play in infrastructure projects in the United States during the next five years?
Public finding for infrastructure projects will increase, but the magnitude of the replacement and improvement projects that are required will exceed the capacity of that source of capital. Consequently, there will be a concurrent increase in public-private partnerships over the next several years.


Terracon Consultants, Inc.
Headquarters: Olathe, Kan.
Number of branch offices: 101
Number of employees: 2,813


Participant
David R. Gaboury, P.E., president and CEO

What is the greatest challenge your firm faces as we head into 2009?
Clearly, the national economic recession and its impact on the demand for our services is the primary issue we face going into 2009. We are particularly concerned with the slowdown in the retail/commercial sector, which is significant for us. By contrast, we have been able to gain significantly in the energy sector. We see this continuing in 2009, though the collapse in oil and gas prices will have an impact.

As we approach the beginning of 2009, how does the value of your firm’s contracted work compare with the value at the beginning of 2008?
Our backlog of contracted work is softer than a year ago. We are seeing the slowdown and cancellation of projects. That being the case, there has not been a dramatic slowdown and, as indicated, opportunity exists in certain sectors.

What markets show the greatest growth potential in 2009?
We are taking advantage of a number of opportunities. We are using our national network of local offices to gain market share with clients looking for national providers. As indicated earlier, the energy sector, including power, transmission, and renewable, has been very strong, though some slowdown is expected in 2009. Overall, transportation (particularly highways) has seen a slowdown; however, we are having good success at teaming with large contractors and transportation design firms to complete major design-build highway projects.

If your firm operates regionally or nationwide, which geographical region(s), if any, show the most promise for growth in 2009?
We operate in 34 states. The states which appear to be least impacted by the economic slowdown are Texas, Oklahoma, and Utah.

If your firm operates internationally, which geographical regions(s), if any, show the most promise for growth in 2009?
We do not have an international presence. However, we are servicing U.S. multi-national clients in Mexico and seeing good growth in that area.

How is the proportion of public-sector to private-sector work changing in 2009 compared with 2008? If it is changing, what’s driving that change?
Historically, we have been primarily private-sector focused. We don’t anticipate major changes in the proportion of private-sector to public-sector work. However, we are seeing more opportunities in the public sector, which will allow us a more balanced position.

How do you expect your firm’s staffing needs in 2009 to compare with your needs at the beginning of 2008, both in terms of numbers and expertise?
Overall, we do not see lots of internal growth and related staff growth in 2009. However, we are always looking to strengthen our staff and will continue to actively recruit key management and technical positions in 2009.

How have you prepared your staff and firm for the changing market as we head into 2009?
We continue to broadly communicate and implement a companywide strategy of what is best termed an aggressive offense and a prudent defense. The offense includes strong investments in client development, particularly for selected targeted sectors as noted earlier. Defense is also required, including salary and expense cost control.

How has the downturn in the U.S. economy affected client interest in green or sustainable projects? What is the prospect for green projects in 2009?
To date (October 2008), we have not seen the downturn in the U.S. economy have a major impact on clients’ interest in sustainable projects.

What role do you expect public-private partnerships to play in infrastructure projects in the United States during the next five years?
We do expect alternative project delivery (with public-private partnerships being one method) to play a significant and increasingly important role in infrastructure projects. This is a valuable trend resulting in more productive execution of projects and is a significant market opportunity, particularly for large firms such as Terracon.


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