However, some firms see a slight easing in competition and fee pressure. "Markets are strong, and this is alleviating some of the extremely intense competition we experienced from 2010 through 2014," says Phil Harrison, CEO of Perkins + Will. "As the U.S. economy continues to improve, we see clients becoming less bottom-line-focused and more concerned about value," says Dwayne Miller, CEO of jba consulting engineers.
There are few markets as contentious and frustrating to design firms as transportation. The continual lack of a long-term federal funding bill has many firms in the market annoyed. "Infrastructure used to be a bi-partisan or non-partisan issue. Not anymore," complains Wager of Parsons Transportation Group. "We need to find a common ground to find desperately needed funding for infrastructure."
The uncertainty over long-term federal funding is having a real impact on state transportation programs. "Arkansas, Georgia, Tennessee and Wyoming have delayed projects totaling an estimated $779.7 million since the start of 2015," says Robert Slimp, CEO of HNTB Corp. He says an additional nine states also have expressed concern over the feasibility of future projects, valued at an estimated $1.8 billion total, if Congress does not act.
However, states and local agencies have been stepping in to provide some relief from a lack of a long-term federal funding bill. "Infrastructure funding, particularly for transportation projects, has been strong. Between January and March of this year, municipalities have issued $103 billion in bonds, the strongest since 2010," says Bishop of AECOM. However, he worries that this activity could decline as the U.S. Federal Reserve begins to raise interest rates.
Slimp notes that eight states have increased local fuel taxes, Florida and Delaware have increased their reliance on tolls, and Ohio has floated toll-revenue bonds. He says 20 states are considering increased transportation funding in 2015.
Greg Kelly, CEO for the U.S. and Central and South America for WSP|Parsons Brinckerhoff, says 13 states are considering legislation to increase their gas tax or sales tax on gasoline, and three states have pending legislation to convert the flat-rate excise tax on fuel entirely to a variable-rate tax.
In aviation, the drop in oil prices has helped struggling airlines back to financial health. The airlines now are beginning to examine their infrastructure and invest on expanding their facilities. "You are seeing some airports beginning to max out their capacity, causing airlines to seek alternate sites to expand," says Wager of Parsons Transportation Group.
Another growing market for transportation designers is systems integration. "Look at New York City: You can't lengthen the subway platforms, so you have to maximize the efficiency of the current system," says Wager. He says Parsons is doing a lot of work designing more effective uses of existing transportation assets in numerous cities.
Public-private partnerships are beginning to make progress in the transportation market. "For most of our 90-year history, Volkert grew within the traditional design-bid-build model. In recent years, new alternative delivery and P3 funding models have enabled us to work in our strongest disciplines on teams undertaking multibillion-dollar projects across the country," says Perry Hand, CEO of Volkert.
"The world has gotten a lot smaller in the past 10 years, with so many foreign firms acquiring U.S. designers," says Wager. He says that, as public-private partnerships increase here in the U.S., the presence of international firms and financing groups will continue to grow. "We have the largest transportation market in the world, and the Europeans have extensive expertise in P3s. So, they will come here," he says.
Wager says the increasing strength of the dollar against foreign currencies will not have a significant impact on the P3 market. "Just look at the amount of cash many of these companies have available. You can't just sit on a pile of cash. You have to deploy it."
AECOM already has a large group to find or provide funding for P3 projects. "The major use of AECOM Capital in arranging financing has been on commercial and institutional work," says Bishop. But now, the firm is looking to finance infrastructure projects, he says . "AECOM Capital was instrumental in arranging funding for a major West Coast project that we will be announcing in the next couple of months."
The international infrastructure market is a mixed bag. The drop in oil prices has caused many nations in the Middle East to rethink their infrastructure spending. On the other hand, Asian nations such as Indonesia and Malaysia are seeing a spike in their economies due to lower oil prices, which is helping expend their growing middle classes. "People are beginning to demand to travel around these countries by something other than ferries," says Wager.
The water and wastewater markets also are experiencing something of a funding crunch. However, some firms say state economies are beginning to recover from the recession and spend again. "The good news is that states are moving forward to fund infrastructure," says Vincze. "Water and wastewater should not be a partisan issue. You are seeing increasing emphasis on local funding for infrastructure, regardless of whether it is a red state or a blue state."
"There's a very strong sense that some of our core sectors, such as the U.S. municipal water business, are unlocking, with lower unemployment, higher GDP growth and an increased tax base for our utility clients [that] have been waiting to restart investment in aging infrastructure," says Alan J. Krause, CEOof MWH Global. "The state and local agency market is strongest for us," says Dan Batrack, CEO of Tetra Tech. He says Tetra Tech has seen a marked improvement in spending on water and wastewater throughout most of the Southeast and Southwest.
The drought in the West, particularly in California, has galvanized the water market. California overwhelmingly passed a $7.5-billion bond issue in November to fund water conservation and water-related projects in the state. "About $1.5 billion of that bond money will be expedited to study flood control and capture programs," says Batrack. He notes that water is a regional issue that requires a holistic approach. "We have the size and expertise to provide a broad analysis of the problems and solutions," he notes.
But Batrack cautions that most of this spending will not be on specific projects yet. "Next year, you may start seeing projects start to move to market. But if you are a small firm working for a local water and wastewater agency, you probably won't see much project work in the near term," he says.
Another solution to California's water woes may be desalination plants. "The Carlsbad desalination project is projected for 50-million [gallons per day] and is slated to be the biggest in the Western Hemisphere," Batrack says. There are two other desalination plants underway in the state and about 17 proposals on the boards. "There is a lot of environmental opposition to some of these proposals, so we will be spending a lot of time in the planning and permitting stages," he says. But Batrack believes at least a few of the proposed plants will be built.
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