Professional services firms are seeing their opportunities expand as the market grows. They also are seeing that their clients are no longer requesting, but demanding, a broader array of services as fewer owners have the capacity to manage construction programs from the earliest stages of planning to the operation of the completed facilities, nor do they have the inclination to staff up to perform these functions.
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The growing market for professional services firms can be seen in the results of the ENR Top 100 Construction Management-for-Fee and Program Management Firms list. Revenue for the CM-PM group jumped 13.8%, to $22.66 billion, in 2015, up from $19.91 billion in 2014. Domestic revenue from CM-PM work rose 12.1%, to $16.62 billion. CM-PM revenue from projects and programs abroad fared even better, rising 18.9%, to $6.04 billion, in 2015.
The U.S. market for professional services is ramping up. “The market in the U.S. is doing very well,” says David Richter, CEO of Hill International. He says about 25% of Hill’s revenue now comes from domestic work, “but we see it growing to nearly 40% in the coming years.” Richter says Hill is targeting the U.S. market for potential acquisitions, particularly to strengthen the firm’s offices in the Northeast, mid-Atlantic and West Coast.
The growing reluctance of owners to employ their own staff for construction supervision makes the U.S. market attractive. “Agencies, whether public or private, don’t want to bring expertise in-house, adding to their payrolls and benefits burdens, when they can simply outsource,” Richter says. He says the firm’s backlog could reach $900 million by the end of the year.
Hill isn’t the only firm seeing growth. “In the current market, we are not seeing anyone moving away from third-party professional service firms. In fact, we have seen just the opposite, as our project and development services business has grown by over 27%, year on year,” says Todd Burns, president of JLL Project and Development Services.
Further, JLL is not sitting still. In the first eight days of June, JLL acquired five firms: Procofin Oy, a Helsinki-based project development and architectural firm; Integral UK Ltd., a London-based facilities management firm; Merritt & Harris Inc., a Chicago-based construction management firm; BRG, also from Chicago, which specializes in workplace technology; and Travis Commercial, a San Antonio-based real estate and construction management firm.
Outsourcing on the Rise
The inability or unwillingness to staff up for projects is particularly true among public agencies, which have been reducing staffing. However, as capital improvement programs are legislated to proceed, these agencies cannot adapt quickly enough to meet added project goals using their existing staff. “We see that the agencies rely on consultant management services to deliver the capital programs and provide the needed versatility to increase or decrease staffing efforts. We do not see this trend changing since the emphasis in public agencies is to reduce staffing levels,” says Chandra Prasad, CEO of Omega & Associates.
Further, many public agencies now are under regulatory or judicial pressure to put together construction programs they are not prepared to handle on their own. “For example, consent decrees with aggressive deadlines in the Northeast are creating a large number of projects in a given area that can benefit by leveraging an overall [program management] approach to drive consistent delivery and results,” says Roberto León, senior vice president of CSA Group. He says some agencies also are revisiting their own processes to improve and streamline workflows using support from CM firms to execute projects quickly.
León goes on to note that most local agencies have very limited technical expertise for project delivery within their operational staffing to manage the increased workload beyond the normal repair-and-replace work. “The use of professional management services to supply the management support can help bridge the gap while still allowing the owners control through a streamlined interface,” he says.
Disasters or emergency events that force owners to evaluate requirements, coordinate with federal funding sources and insurance, and move quickly to address critical services and long-term prevention or resiliency against future threats often require third-party help, León observes.
The private sector also is growing for professional services firms. Many owners relied on contractors to provide cheap preconstruction services during the market downturn but are finding those services aren’t so cheap anymore. “Owners are more likely now to engage professional preconstruction and management services as the low-priced contractor services are less available due to today’s skill shortage,” says Mark Fergus, managing director of Cumming.
Another growing area for professional services firms is claims resolution. “Many owners are being caught off guard by the projects that were bid during the downturn, which are now seeing major jumps in claims and change orders,” says Daniel Pomfrett, regional director of Cumming.
Owners’ often complex management needs have forced many professional services firms to expand their own offerings. Providing constructibility analyses and scheduling services is no longer enough. Increasingly, CM and PM firms are being called on to do program planning and advise on financing options, as well as provide life-cycle analyses and facility management services.
CM firms are coming under more pressure to develop proposals that show what services they can provide and how they will provide them. This demand often works against professional services firms. “Clients are constantly asking professional services firms for innovations, but the firms don’t want to tip their hand during the proposal process,” says Bruce D’Agostino, CEO of the Construction Management Association of America (CMAA), McLean, Va.
The unwillingness to promise or the inability to deliver plans to meet all a client’s demands can hurt a firm. “I once asked a major public agency why they kept awarding contracts to the same group of firms. He told me his agency wanted firms that could also provide commissioning, and these firms consistently offered that service,” D’Agostino says.
The international market is becoming more interested in CM services. “CMAA is becoming more global as countries around the world have been asking us for help in educating their firms on professional services,” says D’Agostino. He says CMAA is translating educational materials into Spanish and Portuguese.
Hill International is seeing increased interest abroad in professional services. Richter notes that the plunge in oil prices has hurt the market in the Middle East, but that should not last. In the meantime, Hill has its eyes on the Asian market, particularly India, Indonesia, Russia and the Commonwealth of Independent States. “The CIS region has a lot of oil, but they also have a very underdeveloped infrastructure, which makes it a great place for our services,” says Richter.
A significant development this past year was the Nov. 4 announcement by Baltimore-based educational accreditation group ABET (formerly, the Accreditation Board for Engineering and Technology Inc.) that it had approved the first program-specific criteria for undergraduate programs in construction management. CMAA had worked for several years to develop the criteria for CM-specific university programs.
The ABET accreditation is especially important because it provides future employers, such as professional services firms, a uniform set of standards to judge the suitability of a graduate’s education. “Up until now, CM programs were part of schools’ general engineering programs, so the emphasis of different schools’ programs could vary widely,” says D’Agostino. With an ABET-accredited program, firms will know exactly what new grads have been trained in, he says.
D’Agostino says the next step is to establish criteria for graduate CM program degrees. CMAA and other groups are working on developing areas of study to qualify for a graduate degree. “We are more focused on business management skills for a graduate CM program,” says D’Agostino. He says clients are expecting CM professionals to have communication and leadership skills, as well as the more specific construction-related technical and professional skills.
For professional services firms, that market looks good for the short term. “The future looks bright, but we need to attract young people into the profession to share in that bright future,” D’Agostino says.