Delivery Process Changes

Project delivery has been a hot topic for design firms for many years, but they are seeing alternate project delivery ramping up—which has caused many design firms to refocus their processes. "We are finding our role as architects to be shifting away from a linear design-bid-build process and more toward integrating the general contractors and subcontractors to the front of the process," says Sylvia Botero, senior vice president of RBB Architects. She says this collaboration can result in a faster and more cost-efficient delivery.

However, many design firms find it can be difficult to compete in the design-build market. It is often up to the design partner on the design-build team to do most of the preparation for the presentation to the client. "The need for economy and speed to market continues to drive the owner's increasing use of design-build or construction management-at-risk with integrated fast-track delivery," says Robert Burke, principal at PageSoutherlandPage. He says this arrangement has burdened the design profession with more costs to pursue projects, while it also loads the front-end costs on the design firm.

Much has been made of integrated project delivery, in which all parties share a project's risk and rewards under a unified contract. However, IPDs do not seem to be growing as rapidly as everyone expected. "It seems now that some problems have popped up in IPD projects, people are beginning to understand that they do not always work," says Roehling. He says IPDs are valuable, but they are not right for every project.

Where Have All Those Firms Gone?

There continues to be a consolidation among major design firms. Eleven design firms that made the 2011 Top 500 were acquired this past year, while 12 from the 2010 Top 500 were acquired the year before.

Many large design firms believe consolidation will continue apace. "The level of consolidation in the industry was fairly strong in 2011, and this strength has continued in the first half of 2012," says Della Rocca of AECOM, one of the biggest consolidators in the industry. However, he cautions that AECOM also is growing internally, apart from acquisitions. "We are especially interested in organic growth," he says.

Oskvig of Black & Veatch says the firm is interested in acquiring talent, but not just to get bigger. "There will be acquisitions for scope and skill, rather than scale. In this industry, an acquisition to simply make a bigger version of your company very seldom creates value," he says.

Many firms are concerned about the influx of international company buying U.S. designers. Firms from Australia, such as Cardno and GHD, and from Canada, such as Stantec and exp, are making their presence felt in the domestic market. Vincze says that Cardno acquired two firms that TRC was interested in. "Some of these international firms have an advantage in bidding on U.S. firms because their currencies now are stronger relative to the dollar," he says.

Consolidation has caused concern among midsize firms. "There is an increasing bifurcation in the profession between the large corporate firms and boutique firms," says Roehling of SmithGroupJJR. "There is increasing pressure on firms toward design-build-finance-operate programs, so a lot of design firms are beginning to position themselves to work on these types of delivery systems," he says.

Consolidation has left many midsize firms wondering how they will be affected. "Consolidation in our industry the last few years has been mind-boggling," says John Kissinger, CEO of GRAEF. He says his firm is studying what its place will be in the future. "We feel our size gives us a certain nimbleness, but clearly all of this consolidation has changed the industry dynamics."

Help Wanted (Some Travel Required)

The biggest boost in design revenue for the Top 500 was in the international market. Design firms from across the spectrum are eyeing international work and expanding abroad. For example, Wunderlich-Malec Engineering Inc., a midsize industrial and power engineer working primarily in the U.S. market, has opened an office in Saudi Arabia, aligned with an agent in Asia and is looking to expand into South America, according to Neal Wunderlich, president. "This past year we have seen significant international opportunity," he says.

Wunderlich-Malec is just one example of designers looking abroad. "We embarked on an expansion outside of North America two years ago, focusing on India and the Gulf Cooperation Council countries," says Oskvig. He says the firm already has a major presence in Southeast Asia's booming energy markets. "We want to double the size of our firm by 2020, and most of that growth will come from international work."

SmithGroupJJR changed it name last year not because of a merger, but to help better penetrate the international market. "JJR has been our landscaping/master-planning subsidiary for 40 years," says Roehling. While there is a large and growing international market for master planning, the firm had trouble marketing its two separate brands as many international clients did not understand they were dealing with one company with two different names. "We did not want to lose the JJR brand, so we simply added it to our name," Roehling says.

Parsons Brinckerhoff has been in the international market for decades and now is assisting its new parent, Balfour Beatty, in expanding internationally. "Balfour Beatty has a huge presence in the U.K. and U.S., but it is looking at other international markets," says Pierson. "Our global platform helps us by marketing not just our own talents, but our ability to bring in Balfour Beatty's own skill sets."

Many design firms have been active in China and continue to flourish. "We have been in China for over 20 years and have about 50 people on the ground there," says McConnell of NBBJ. One major NBBJ project in China is the 80,000-seat Hangzhou Stadium, which is part of the city of Hangzhou's Sports Park. "We used [building information modeling] to determine the attributes of every one of the 80,000 seats to ensure full, unobstructed views for each seat," he says.

Some design firms are amazed at the scale of some of the projects in China. "We are working on the master plan and conceptual design of what could end up the largest health-care project in the world: the Beijing International Medical Center," says HDR's Little. He says that the project, when competed, will consist of ten 1,000-bed hospitals.

However, Roehling cautions that fees on Chinese projects are not as high as many U.S. firms are used to. "The fees for a 1.5-million-sq-ft project might be less than you would get for a 400,000-sq-ft facility elsewhere," he says.

Brazil is one of the most tempting targets for international designers because it will be hosting the 2014 World Cup and 2016 Olympics and it has made major public investments in infrastructure and housing. However, many designers are wary. "Brazil holds great promise, but it is not an easy market to break into for non-Brazilian companies," says Pierson.