ENR 2014 Top 500 Design Firms Overview: A Recovery in Need of Speed
The design profession has been hit hard over the past six years. By some estimates, as many as 40% of architects were unemployed during the height of the recession, in 2009. Engineers fared better but not by much. Everybody did more with less. Now, after several fits and starts over the past few years, the market finally is in recovery mode. It's no bull market, but strength is building. Still, many "lean and mean" project delivery methods born of the recession remain in place.
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This slow recovery can be seen in the data from ENR's Top 500 Design Firms list. Taken as a group, the Top 500 firms had design revenue of $92.69 billion in 2013, up 2.7% from $90.24 billion in 2012. This marks the third consecutive year the Top 500 experienced revenue growth since the recession began.
Market growth was modest on the domestic side. The Top 500 did see a 3.7% gain, to $64.13 billion, in revenue from projects in the U.S. in 2013, from $61.86 billion in 2012. This figure still has not reached the record $68.14 billion in domestic design revenue generated in 2008. The international market was even softer: Revenue from projects outside the U.S. rose only 0.6%, to $28.55 billion, in 2013.
Domestically, public-sector markets did not fare well. Revenue from water-supply projects fell 5.6% in 2013 from 2012, and revenue from sewer and waste projects fell 5.1%. Hazardous-waste project revenue also was down in 2013, dropping 1.8%. Transportation was a bright spot in the U.S. market, rising 7.5%, to $14.31 billion, fueled by a series of megaprojects.
AECOM once again topped ENR's Top 500 Design Firms list, where it has reigned for the past five years. In a major development, Michael S. Burke was named CEO on March 6 and continues as president. Burke succeeds John M. Dionisio, who becomes executive chairman of the firm.
Jacobs moved up to No. 2 on the list, powered by a series of major acquisitions over the past three years. In 2011, Jacobs acquired Aker Solutions' process-and-construction business, which consists of approximately 4,500 employees in the metals and mining markets. It also acquired KlingStubbins, a 500-person architect-engineer based in Philadelphia.
Industry consolidation continued apace in 2013. CB&I acquired Baton Rouge, La.-based Shaw Group in February 2013. Shaw ranked at No. 13 on last year's Top 500. Conestoga-Rovers & Associates, Niagara Falls, N.Y., which ranked at No. 33 on last year's Top 500, declined to participate in this year's survey as it was in the process of being acquired by Australia's GHD. And Jacobs acquired Houston-based Eagleton Engineering LLC, which ranked at No. 198 last year.
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"We continue to see large-scale industry consolidation through mergers and acquisitions and are watching that trend carefully," says Greg Graves, CEO of Burns & McDonnell. "We have done a couple of small acquisitions in recent years but still believe the best path for [us] is through organic growth."
Many firms are making acquisitions to "buy into markets," says Chris Vincze, CEO of TRC Cos. He cites as examples the U.K.'s WSP acquiring Alberta, Canada-based Focus Group Holdings, a 1,700-person engineering firm, on March 12, and Australia's Cardno Ltd. acquiring Houston-based PPI Group, a 760-person firm, on March 17. "Both the acquired firms were in the oil-and-gas sector," he notes. Vincze says TRC also is on the acquisition trail. "We are growing both internally and through acquisition. We have acquired eight companies in the past three years."
Overall, the market is recovering, but many firms are hoping for a more robust recovery. However, most firms are not expecting a sudden surge in activity. "I see a slight acceleration in the market, but we shouldn't expect a snap-back recovery," says George Pierson, CEO of Parsons Brinckerhoff.
Pierson says a more robust recovery may not be good for the industry, citing the potential for spikes in materials prices and possible labor shortages. "Plus, if the recovery is too quick, we risk another sudden downturn," he says.
The Drive Toward Alternate Delivery
For some firms, the transportation market is thriving. "Transportation is solid for us, to a great extent because we are in the large-project market," says Robert Slimp, CEO of HNTB Corp. He cites projects such as the Bay Area Rapid Transit Warm Springs extension project in California, the Crenshaw-LAX Transit Corridor Project in Los Angeles and the $2-billion state Route 99 Tunnel Project in Seattle.
Slimp says many major projects now have multiple funding streams, such as tolling or public-private partnerships. "P3s are growing, and the states now authorizing them should be commended."
However, many public transportation agencies continue to experience budget uncertainties. To make up for funding shortfalls, more states are resorting to alternate project delivery. "We see alternative funding sources continuing to be the norm at all levels of government," says L. Joe Boyer, CEO, Atkins North America. He says he expects a recovery in the housing market that will generate more tax revenue, which will allow an increase in funding for municipal infrastructure projects.
