Pulse of the civil engineering industry

March 2010 » Resources » SURVEY
Pessimism continues heading into 2010, but some sectors show growth potential.
Bob Drake

Shortly after President Obama signed the American Recovery and Reinvestment Act (ARRA) in February 2009, CE News surveyed its readers to gauge their attitudes on prospects for the AEC industry in general and for their firms in particular. At that time, more than half (54 percent) of the civil engineers taking the survey expressed dissatisfaction with the way things were going at their companies or organizations. Now, one year later — and billions of dollars of recovery spending later — a similar proportion (56 percent) of respondents to another brief CE News online survey say they are dissatisfied.

Has the ARRA made any difference for civil engineers? In a recent report, the American Association of State Highway and Transportation Officials (AASHTO) touted a list of projects that were completed during the last year because of ARRA (stimulus) funding. However, since many, if not most, of these projects were “shovel ready” — already designed — civil engineering firms have not likely been impacted as positively as contractors, although some firms received construction management contracts resulting from initial ARRA funding. Nevertheless, funding for public and infrastructure projects and for private projects remain the two most important issues to the civil engineering industry, according to survey respondents (see Table 1).

“The impact of the stimulus is clearly being overshadowed by the sweeping downturn in overall construction demand,” said Ken Simonson, chief economist for the Associated General Contractors of America, commenting on recent construction spending statistics.

Simonson noted U.S. Census Bureau figures showing that private non-residential spending dropped 18 percent in December 2009 compared with December 2008. He added that only power construction increased from year-ago levels, by 14 percent.

In contrast, publicly funded construction increased by 1.0 percent between December 2008 and December 2009, Simonson said. He added that stimulus spending helped boost highway and street construction by 3.7 percent, making it the largest public category.

According to IHS Global Insight, an economic and financial information research firm, total construction spending will continue its decline, decreasing 5.6 percent in 2010 before growing 7.6 percent in 2011 and achieving double-digit growth in 2012.

Civil engineers responding to the CE News survey also anticipate continued declines this year. In 2009, 66 percent of respondents expected the AEC industry to shrink or remain the same during the year. This year, 84 percent of respondents anticipate that the AEC industry will not grow during the next year (see Figure 1).

Figure 1: Do you anticipate that the AEC industry will grow, shrink, or remain the same in the next year? Figure 2: How do you anticipate your firm’s total revenue for engineering services in the next year will compare with the prior year?

Nevertheless, 23 percent of survey respondents optimistically forecast that their firms’ total revenue for engineering services will increase in the next year compared with last year (see Figure 2). A year ago, only 8 percent of respondents anticipated increased revenue. Significantly fewer respondents expect decreased revenue this year.

Promising markets If civil engineering firms are able to increase revenue in 2010, it will likely be on the back of traditional infrastructure markets — transportation and water — with help from the quickly emerging alternative energy sector, survey respondents forecast (see Table 2). At press time, Congress was working on a second stimulus-type spending bill — the Jobs for Main Street Act of 2010 — that could provide as much as $37 billion for transportation projects, including $27.5 billion for highway infrastructure projects and $8.4 billion for public transportation, according to the AASHTO. However, Senate passage of the bill was in doubt.

According to the American Road and Transportation Builders Association (ARTBA), record federal investment in surface transportation, increased spending through the ARRA, and continued easing in material prices will increase the highway construction market by 8 percent in 2010. However, uncertainty over the reauthorization of a multi-year federal surface transportation bill and future growth of the overall U.S. economy, along with the end of stimulus funds, will determine if there is a “soft landing” in 2011 or a more significant downturn, said ARTBA Vice President of Policy and Economist Alison Premo Black.

The $41.2 billion in 2009 federal highway obligations, as well as the additional $26.7 billion available through the ARRA, will provide the foundations for growth in 2010, the association predicted.

Another indicator of work to come, she said, is the high level of obligations for ARRA funding — more than 77 percent of stimulus funds have been obligated, but only $4 billion, or 16 percent of the total funding available, has been paid to contractors. “When you add it all up, there is a lot of work to be completed in the coming year,” Black said.

ARTBA also forecast that the ARRA will help increase the value of airport runway work in 2010 by 3.4 percent compared with 2009. And, the value of rail and transit construction work should increase 3.1 percent this year, compared with last year.

Potentially adding to work for civil engineers in the rail sector is the recent distribution of $8 billion in ARRA funds to begin development of 13 new, large-scale high-speed rail corridors across the country. The major corridors are part of a total of 31 states receiving investments, including smaller projects and planning work that is expected to help lay the groundwork for future high-speed intercity rail service.

In addition, on Feb. 1, President Obama proposed $1.82 billion in funding in his fiscal year (FY) 2011 budget for 27 major transit construction projects. The budget recommends investing $834.6 million in 19 new transit construction projects — 10 of which are new funding recommendations in FY 2011, and nine of which have been recommended for funding in previous years. The plan also provides $924.6 million for the continued funding of eight projects already under construction in New York, Dallas, Denver, Salt Lake City, Seattle, and Northern Virginia.

More than half of survey respondents said that alternative energy markets, including wind and geothermal, have great growth potential for civil engineering services. In 2009, with assistance from the ARRA, the U.S. wind industry installed a record 10,000 megawatts (MW) of new generating capacity, according to the American Wind Energy Association (AWEA). With these new projects, wind power now ties natural gas as the leading source of new electricity generation in the United States, AWEA said.

But executives in the renewable energy sector warn that such gains may be short lived without a national renewable energy standard (RES). “The RES is the best way to provide the certainty that companies need to expand wind manufacturing nationwide,” said AWEA CEO Denise Bode.

Karl Gawell, executive director of the Geothermal Energy Association, added, “This year Congress enacted stimulus legislation with a historic group of incentives supporting geothermal and other renewable technologies. … The keys to sustain this growth will be adopting longer-term measures to support an increase in both new projects and the manufacturing and supply infrastructure.”

Challenging times But the promise of emerging markets only offers hope to those civil engineering professionals who can endure the current challenges. By a wide margin, respondents to CE News’ survey ranked maintaining a backlog as the greatest challenge facing their firms this year (see Figure 3). In fact, more respondents this year than in 2009 ranked maintaining a backlog and maintaining clients as the greatest challenges. This is made more difficult when 86 percent of respondents’ firms have experienced projects going “on hold” during the last six months (see Figure 4). This is only a slightly lower percentage than in 2009 (90 percent).

Figure 3: What is the greatest challenge your firm faces in the coming year?
Figure 4: Have you experienced any of the following at your firm during the last six months?

The lack of work is particularly telling in the growing number of firms that experienced layoffs or downsizing events during the last six months — 58 percent of respondents’ firms this year compared with 43 percent in 2009. It is not surprising, therefore, that only 8 percent of respondents this year said that maintaining staff was a challenge, compared with 16 percent of respondents a year ago. Likewise, only 61 percent of respondents this year regard recruiting and retaining talented civil engineers as an important issue to the industry, compared with 77 percent of respondents in 2009 (see Table 1).

And, in the face of less work and shrinking staff, maintaining staff salaries has become a greater challenge, according to 9 percent of respondents this year, almost double the number in 2009 (see Figure 3).

It is clear that last year’s optimism for recovery in 2010 was premature. Nevertheless, expectations for increasing firm revenue and indications of continued federal support for transportation and renewable energy markets offer hope today that, for the civil engineering industry, the recession has bottomed out and a recovery — however slow — is within sight.


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