Pitfalls and opportunities

January 2011 » Exclusive » 2011 EXECUTIVE OUTLOOK
Civil engineering executives take a look at the past, present, and future of the industry.
Stephanie Hildebrandt

President Obama signed the American Recovery and Reinvestment Act (ARRA) into law on Feb. 17, 2009, to create jobs and improve the nation’s infrastructure, including bridges, roads, ports, and most controversially, high-speed rail. The U.S. Department of Transportation (DOT) marked the ARRA’s one-year anniversary by awarding 51 TIGER (Transportation Investment Generating Economic Recovery) Discretionary Grants totaling $1.5 billion to projects that significantly impact the nation, a region, or metropolitan area. And on Jan. 28, 2010, Obama and Vice President Biden announced they would award $8 billion in ARRA funds to states across the country to develop the first nationwide program of high-speed intercity passenger rail service. As of November 2010, $41.5 billion in obligated ARRA funds were spent on more than 15,000 projects, according to the DOT’s Grants Information System.

November also was an important month for the industry thanks to the 2010 elections. For example, voters approved nearly $500 million in funding, according to the Center for Transportation Excellence. Plus, an important transportation figure, Minnesota Rep. Jim Oberstar, was not re-elected.

So what does all of this mean for the future of the civil engineering industry? In late November 2010, the editors of CE News asked seven firm executives to offer their perspectives on how recent events have affected the civil engineering industry, how they dealt with challenges in 2010, and what they expect in 2011. Below, you’ll find their responses presented in order of firm size (smallest to largest).


Nave Newell Inc.
Headquarters:
King of Prussia, Pa.
Number of offices: 1
Number of employees: 24

Participant
Gregory C. Newell, P.E., president


What are the greatest challenges facing your firm as we head into 2011?

The current business climate and uncertainty of lending will still be an issue for Nave Newell and other civil engineering firms in 2011. It will continue to be a challenge for our clients to find funding for soft costs, acquisition, and construction. Another challenge will be helping clients do more with less. Minimizing the scope of work and reducing government review time will be key to help stretch their available resources.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

Our projections for contracted work are about the same as they were leading into 2010. The difference is that a year ago many of our projects were long-term jobs that were wrapping up. As we head into 2011, we have seen a recent uptick in proposal activity and contract awards and we will be kicking off a few new projects to start the new year.

What markets show the greatest growth potential in 2011?

Redevelopment of existing buildings and properties appears to be an area of growing interest. Adaptive re-use in strong suburban and urban markets for retailers and office building developers should create a win-win situation. Municipal officials like the improvements to their tax base and lenders feel more confident in the “A” markets.

The new, complex stormwater/water quality regulations have created a need for experts that have creative solutions to help projects move forward. This is especially true with redevelopment projects. Nave Newell has positioned itself to assist clients with innovative stormwater designs to meet these stringent requirements.

Additionally, we have just been awarded our first new residential project in a few years with indications that more will follow. We have also seen increased activity in the institutional markets including schools and medical facilities.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

We expect our staffing needs to be similar to 2010 both in terms of numbers and expertise. As the economy slowly continues to improve and new development starts to pick up, we will have an increased workload. We will make opportunities for everyone to get the hours they need and move work around before looking to hire new employees.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

Clearly, the election showed that the highest priority to the public is job creation. Hopefully the politicians will use this opportunity to jumpstart development, find dedicated funding sources for infrastructure projects, and create initiatives to assist small businesses. It will be imperative for them to evaluate inflexible and costly environmental regulations stifling our industry. We trust that our representatives will support changes that are environmentally sound and economically practical for our clients.


Draper Aden Associates
Headquarters:
Blacksburg, Va.
Number of offices: 4
Number of employees: 169

Participant
Jeffrey N. Lighthiser, P.E., president and CEO


What are the greatest challenges facing your firm as we head into 2011?

The greatest challenge facing us in 2011 is winning enough work at a reasonable fee to keep our staff busy and reward them for their excellent work. The realization that current market conditions are what we need to adapt to for the foreseeable future means that we must be extremely creative to win work, and extremely efficient to accomplish that work at a reasonable profit.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

At the end of October, our 2010 backlog is up by 18.4 percent compared with our Oct. 31, 2009, backlog. The largest increases have occurred in our Solid Waste Division (34 percent) and Geotechnical Division (33 percent).

What markets show the greatest growth potential in 2011?

Based on need, I would say the market with the greatest growth potential overall is water and wastewater. Unfortunately, the lack of funding from the public side may greatly inhibit this growth. Our land development engineers that support work on federal bases are gaining momentum.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

We experienced a 7-percent decrease in staffing levels during 2010. Current projections for 2011 indicate a slight increase (3 to 5 percent) in staff. Anticipated engineering needs are in the fields of water, wastewater, and solid waste.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

America’s infrastructure is in poor condition and deteriorates further each day. Without an improved federal funding program, local governments will never be able to make the necessary upgrades. I am very concerned that the lack of political cooperation we see in Washington will not allow for any progress on this issue.


Fay, Spofford & Thorndike LLC
Headquarters:
Burlington, Mass.
Number of offices: 7
Number of employees: 220

Participant
Dean L. Groves, P.E., M.ASCE, president and CEO


What are the greatest challenges facing your firm as we head into 2011?

Funding for needed infrastructure improvements throughout the United States is essential, and the government needs to recognize its appropriate role in providing this funding. Without funding for transportation, water supply, wastewater, and other essential services, we will all be facing staffing reductions.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

We have had a very successful year notwithstanding the economic challenges in the United States. Our contracted work, however, is approximately 10 percent less than the beginning of the year at this time.

What markets show the greatest growth potential in 2011?

Without doubt, our transportation practice remains strong, continuing from its solid performance in 2010, with projections to be even stronger in 2011. Our work with the federal government is also expected to be strong in 2011. Water/wastewater/stormwater engineering services will likely be challenged in 2011.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

As I consider our contracted backlog of projects and the prospects for future work, I definitely envision additional hiring of professional staff and technicians to support additional workloads. Expertise in civil, structural, building services (M/E/P), and energy efficiency and sustainability is likely. I would think our staff level would increase by at least 10 percent in 2011.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

As indicated in my response to the first question, both federal and state government must take the lead to provide funding for infrastructure improvements. The political environment must figure out a way to provide the resources needed to reinvest in our systems and technologies so that we can compete with global markets. Political wrangling for the next two years must be avoided.


Lockwood, Andrews & Newnam Inc.
Headquarters:
Houston
Number of offices: 15
Number of employees: 340

Participant
Dennis W. Petersen, P.E., president


What are the greatest challenges facing your firm as we head into 2011?

The same challenge facing the entire industry: uncertainty. Lockwood, Andrews & Newnam (LAN) clients are primarily within the public sector. With sales and property taxes down, clients are fighting budget deficits and delaying projects.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

LAN has been very fortunate. Our contracted work is currently within 5 percent of last year’s numbers and we expect to exceed that by the end of our fiscal year in February. We are diversified across water, transportation, transit, and energy, which has helped lessen the impact of major market variations.

What markets show the greatest growth potential in 2011?

From LAN’s standpoint, transit, energy, and all-things water. Fortunately, many water-related, airport, and transportation activities are based on user fees and enterprise funds and not general revenue funds. This brings some stability to those markets.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

Quality people are always of great interest to LAN. We have multiple searches in progress for project managers and technical specialists in multiple geographies. Overall, we expect a slight increase in staff next year.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

The American Recovery & Reinvestment Act (ARRA) had a minimal impact on LAN. What will affect us all are potential changes to the tax laws and health care costs. The looming issue for our industry is the 2006 law that imposed a mandatory 3-percent withholding on local, state, and federal government work. The impact of this law could be severe, especially for small businesses. The 3-percent withholding is scheduled to begin in 2012 unless it is amended or rescinded by Congress.


Langan Engineering & Environmental Services
Headquarters:
Elmwood Park, N.J.
Number of offices: 18
Number of employees: 570

Participant
David T. Gockel, P.E., P.P, LEED AP, president and CEO


What are the greatest challenges facing your firm as we head into 2011?

Our greatest challenge is also our greatest opportunity. During the past two years we have taken seemingly contrarian steps to position our firm for growth. While other firms have contracted, we have expanded by opening offices in key locations: Washington, D.C.; Pittsburgh and Bethlehem, Pa.; Irvine, Calif.; and Abu Dhabi. Before expanding into these regions, we did the appropriate due diligence and put the right professionals in place to leverage our investments, which are already paying off.

Additionally, our most historic move was the acquisition of Treadwell & Rollo, completed on Nov. 1, 2010. Joining forces with this premier geotechnical and environmental firm allowed Langan to increase its presence in California, adding offices in San Francisco, Oakland, San Jose, and Sacramento. We are thrilled to now offer land development engineering in the Bay Area. Therefore, from a macro perspective, our main challenge will be capitalizing on the many opportunities presented by this new partnership, as we have officially become a firm with a nationwide footprint capable of supporting projects anywhere in the country and around the world.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

Slight uptick — about 5 percent growth.

What markets show the greatest growth potential in 2011?

The environmental market has been robust, and we expect 2011 to be strong as well. Langan is a leader in the new Licensed Site Remediation Professional Program in New Jersey, and the volume of referral work coming our way is enormous.

The development market has taken a hit during the last two years and will likely see further challenges in the coming year. Fortunately, our integrated services and diverse client base enabled Langan to grow business in other markets such as federal, infrastructure, energy, and numerous environmental sectors. In fact, our environmental practice has thrived by supporting corporate clients with ongoing compliance programs and conducting environmental due diligence and remediation around the country.

With respect to energy, we see the greatest potential supporting the exploration of natural gas in the Marcellus Shale. Our office in Pittsburgh was established so that we could offer all Langan services to the companies harvesting shale gas in Pennsylvania. We now have five offices in Pennsylvania, which means we are very familiar with state regulations and permitting processes. Furthermore, our disciplines — site/civil, geotechnical, environmental, and traffic — apply to the needs of the E&P market.

Furthermore, on the energy front, we are supporting several major renewable power projects including waste-to-fuel plants in Florida and Connecticut, solar farms in the New Jersey Meadowlands, and offshore wind turbines near Atlantic City. We recognized that our services were applicable to these growing markets, and it is exciting to grow relationships with companies involved with pioneering “green” projects.

Opening an office in Arlington, Va., gave Langan better access to federal work in the district and internationally, specifically supporting embassy projects on three continents. Meanwhile, Treadwell & Rollo possesses great expertise in earthquake engineering, and the Department of Veterans Affairs has come to trust our new partners for the seismic retrofitting of multiple facilities.

We also expect to become involved in more infrastructure projects in 2011. We were proud to provide geotechnical and environmental services as a sub-consultant to Kiewit for the Army Corps of Engineers for flood prevention measures and massive pump station projects in New Orleans. We are currently serving as the geotechnical engineer for the Port of Miami Tunnel that will run beneath Biscayne Bay. We expect more opportunities on such large projects, which are typically design-build, a project delivery method that Langan supports.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

Prior to the acquisition of Treadwell & Rollo, all of Langan’s growth and expansion was organic. The addition of 70 people in the California Bay Area represents the single most significant increase in staff size in Langan’s 40-year history. In 2011, we will be further integrating both firms to leverage expertise, synthesize cultures, and collaborate on projects. For example, our environmental practice is poised to grow further, especially in the areas of innovative techniques such as in situ remediation and ongoing environmental compliance consulting.

As for the outlook overall on staffing, one lesson learned by all A/E firms during the last two years is to be very cautious with hiring, so we will be very selective on the recruitment front.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

Fortunately, our diverse portfolio of clients and projects helped Langan survive and thrive during the recession. Like many A/E firms, we hope to see policies emerge in Washington, D.C., that enable companies to gain access to capital so that expansion plans currently on hold can finally move forward. We also support programs that advance funding for infrastructure design and construction. Programs that build new rail systems and airports employ A/E firms and also stimulate ancillary development, especially in urban locations. Langan is well situated to support complex urban projects so policies that spur urban development would be advantageous to us, but in the larger context everyone benefits when Washington, D.C., recognizes the importance of our cities.


David Evans and Associates Inc.
Headquarters:
Portland, Ore.
Number of offices: 17
Number of employees: 650

Participant
Al Barkouli, P.E., president and CEO


What are the greatest challenges facing your firm as we head into 2011?

The economy and what it means to our clients. Funding for projects has caused project delays and in some cases project cancellations. Competition for the remaining projects is fierce. As a mid-sized firm, our challenge will be to remain focused on the needs of our clients, assisting with finding funding as necessary, and executing projects flawlessly.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

We are fortunate in that the value of our contracted work heading into 2011 is about the same as it was in 2010.

What markets show the greatest growth potential in 2011?

We continue to grow in transportation and are seeing increased market share in the water and energy markets.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

We expect to grow by 5 to 10 percent in 2011. The expertise we seek is project management, business development, and entry-level professionals in transportation, energy, and water markets.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

The major impact will be the focus or lack thereof on rebuilding U.S. infrastructure. Other factors that will affect our business include passage of energy policy reform, rising health care costs, and anticipated increases in regulations for project development.


Terracon Consultants Inc.
Headquarters:
Olathe, Kan.
Number of offices: 118
Number of employees: 2,631

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


What are the greatest challenges facing your firm as we head into 2011?

For Terracon, the commercial client sector has historically accounted for more than half of our revenues. The central challenge throughout the recession has been to diversify our client base to a balance of private and public clients. This has really turned into an opportunity as we are making excellent progress.

Looking forward, we see continued weakness in the private sector and increasing pressure on budgets in the public sector. We don’t see any really strong growth areas. For us, we are growing by continuing to push hard our balanced diversification approach.

As we approach the beginning of 2011, how does the value of your firm’s contracted work compare with the value at the beginning of 2010?

The commercial sector is now less than one third of our business. Though the overall commercial market remains weak, we are seeing market share gain opportunities with certain national clients. We are growing considerably in the transportation (infrastructure), energy, and federal sectors, as well as state and local government work in general. We are also achieving strong growth in environmental services.

What markets show the greatest growth potential in 2011?

As noted above, we don’t necessarily see any really hot markets. It’s a gradual thaw in the private sector and increasing concerns with the public-sector budgets. Though not a market as such, we do see growth via an acceleration of consolidation in the AEC industry. We have a strong acquisition program and anticipate closing on five transactions this year and continuing this in 2011.

How do you expect your firm’s staffing needs in 2011 to compare with your needs at the beginning of 2010, both in terms of numbers and expertise?

Since mid-2010, we are again achieving increasing internal growth. We expect this to continue to build in 2011. With this growth comes staffing needs at all levels. We never had a hiring freeze throughout the recession. In 2011, we continue to look to recruit strong candidates to fill changing experience needs as we diversify and to staff for growing revenues.

How will the political environment in Washington, D.C., impact the civil engineering business during the next two years?

As it relates to the civil engineering business, we are very concerned about the situation in Washington, D.C. We are specifically concerned with the political climate following the November elections. We expect spending cuts for deficit reduction to hold up legislation such as the transportation reauthorization bill. In general, deficit reduction may take political precedence over job creation.


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