Design Firms Rely On Cushion In Place Before COVID-19
For engineering and architecture firms working in the states covered by ENR New York and New England, strong revenue reported in this year’s Top Design Firms rankings provide optimism even as COVID-19 clouds the industry’s economic future. Companies ranked on either or both regions’ lists saw billions in 2019 combined revenue. The 95 firms on this year’s New York-New Jersey list reported revenue totaling $5.66 billion. New England’s 59 ranked firms reported revenue of $2.40 billion in 2019 across Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.
The combined $1.30 billion posted by the top 10 firms in this year’s New England survey fell by 7.69% from $1.41 billion the year before. On the other hand, the 10 highest-ranking companies on the New York survey saw combined 2019 revenue jump 8% to $2.71 billion from $2.51 billion in 2018. The three top firms on the current New York list are repeats from last year: AECOM, which logged $611.84 million; WSP USA, reporting $488.40 million; and Parsons, whose revenue was $241.80 million.
There was more change in New England’s highest-ranking firms. AECOM reclaimed the top spot with $222.26 million. But Burns & McDonnell fell five slots from its top position last year, with revenue of $121.66 million. Stantec, ENR New England’s 2020 Design Firm of the Year (see p. NYNE34), was No. 2 with $194.21 million in revenue. ENR New York’s 2020 Design Firm of the Year, Jaros, Baum & Bolles (see p. NYN24), ranked 25th with $67.43 million in revenue.
Executives who shared market insight with ENR related to one or both regions are employed by the following firms: VHB, No. 3 on New England’s ranking and No. 29 on the New York list; ARUP, which placed 16th in the New York region and 29th in New England; CRB, No. 40 on New England’s list; and YU & Associates, an environmental, geotechnical and civil engineering firm that came in 69th on the New York rankings.
Interviewees’ responses have been edited for space and clarity.
How is COVID-19 impacting your firm?
Tom Jackmin, New England region manager, VHB: In New England, we are closely watching the ongoing discussion of a transportation-focused stimulus bill [in Washington, D.C.] and working with our clients to identify shovel-ready projects. Creative clients are capitalizing on low interest rates and reduced volume of asset usage to accelerate construction of otherwise stalled projects to bolster the local economy and reduce project backlog. We are seeing construction on transportation projects continue in most locations [where they’re considered] essential activities. We do expect inefficiencies and potential delays resulting from labor and logistics issues relative to the orders.
Peter Yu, founder, YU & Associates: More than half of our ongoing projects have been shut, postponed or canceled. Proposal volume has come down by over 16%, comparing the monthly average in 2019 with March 2020. As we had employees returning from China in mid-January and early February, we were particularly … cognizant about the coronavirus. We put in place a self-quarantine policy for staff returning from overseas travel or exhibiting symptoms of sickness starting in January; issued our in-house COVID-19 plan and guidance in early March; began our work remotely from home practice in mid-March after setting up logistics and technology infrastructure; and, anticipating a slowdown on billable project work, developed potential in-house projects that would be beneficial to the firm’s long-term practice.
Brian Swett, director of cities and sustainable real estate and Boston office leader, Arup: In both the New York and New England regions, the immediate impact was in rapidly shifting to a work from home environment while continuing to deliver our design and engineering services on our project schedules without missing a beat. In Massachusetts, the cities of Boston, Somerville and Cambridge shut down all construction projects for an undetermined amount of time … but the governor declared that construction was an essential business and continued major state-funded capital projects. New York state halted all nonessential construction, but it allowed infrastructure projects to continue. Many other construction sites were shuttered, although most recently, a number of projects that initially shut down have started to reopen.
What are major trends?
Yu: In the New York region, they include bundled projects [that] are larger in scale and more alternative delivery projects such as design-build and P3 projects. Risk is being pushed down from the agencies to the smallest firms involved in larger critical infrastructure projects. One example is increased professional liability insurance limits, from $2 million a year ago to $5 million now as standard, with certain projects requiring up to $25 million and above. And as we come out of this COVID-19 pandemic, engineers are being tasked with identifying innovative ideas to meet challenges our industry faces.
Swett: In Boston, we have seen some clients who were very early in building development projects push pause and others moving forward more quickly in anticipation of being ready for possible stimulus money. In New York, we are seeing a continued volume of RFPs but a change in scale and a shift in focus.
Paul Skinner, Northeast design regional leader and senior associate, CRB: We see increased acceptance of design-build project execution compared to prior years.
Which sectors have offered the biggest opportunities?
Mike Carragher, CEO, VHB: While COVID-19 has differing impacts across our markets, services and regions, we … [are] working proactively with clients to identify opportunities that may stem from this pandemic. Traffic volumes are low, but some clients are using this as an opportunity to advance maintenance and “state of good repair” projects that are otherwise difficult to accomplish when roads, airports and transit facilities are functioning at full capacity. Public and private [clients] are taking this time to clear maintenance backlog.
Yu: We’ve successfully participated in both conventional design-bid-build projects as well as alternative delivery projects across market sectors: transportation, critical infrastructure, education and health care. As a smaller firm, we can be more nimble to react to change and maintain a streamlined process.
Swett: Higher education has continued to provide numerous opportunities, and we are actively growing our health care business. Capital expenditures in both sectors continue to be strong. Another area with tremendous opportunity near term is offshore wind. Along the East Coast, we are seeing large offshore development sites awarded and projects beginning to move forward, largely driven by regulatory mandates. In the New York region, essential projects have continued, and technology clients with data center portfolios need to add capacity to help address the new focus to online working. There is an uptick in higher education projects … specifically with schools that have endowments.
Which sectors have cooled down?
Yu: In the New York region, the private sector in residential and commercial development as well as the hotel and entertainment business may suffer as social distancing will be with us for quite some time.
Swett: Luxury residential has continued to cool after many years of adding tremendous supply.
Steve McElligott, transportation market leader, VHB: Hospitality, restaurants, entertainment and retail have been deemed nonessential and therefore hit especially hard.
What key innovations helped you boost productivity or other metrics?
McElligott: VHB began work on the [New York State Dept. of Transportation] Roadway Inventory Data Mart project. We are also working on a pilot project for institutional clients that will provide a robust set of map navigation and geographic tools to better understand and manage campuses and facilities. Strategically integrating this web-based mapping application with related services will provide [these] clients with a means to better manage assets and infrastructure on all their properties.
Skinner: We have migrated our design models to the cloud, which was a huge benefit when we had to convert the design team to remote work. Innovative virtual design and construction processes have improved productivity and communication across the company. This past year, the company migrated our entire VDC modeling platform to the cloud to allow collaborative access from the office, from our project sites and, most importantly during these times, from home.
To assist meeting aggressive project schedules, we have been able to make faster and smarter decisions using advanced techniques such as virtual/augmented reality, 4D construction sequence modeling and 5D model cost estimating.
Yu: Last year, we implemented cloud storage to enhance project communication and allow real-time transmission of technical data between the field and the office. We also implemented Newforma software to facilitate project management and client communication. The use of Bluebeam, Revit, BIM and 3D modeling programs has provided us with the ability to seamlessly transfer documents … and maintain quality standards.
Swett: We are utilizing parametric modeling for structural and energy modeling on increasingly more projects. The ability to assess architect or owner driven design directions in real time adds significant efficiency to the design process and allows for a transparent, informed approach to optimizing design and materials choices. We use data-science skills and probabilistic techniques to anticipate business continuity risks or to develop energy modeling for high-performing buildings.
Where do you see the industry headed in the next year?
Yu: We foresee that the critical infrastructure market will return quickly with an influx of stimulus money for projects in the New York region. Lower ridership across modes of transportation affords the industry an opportunity to be innovative and to move forward with difficult projects now that were too disruptive before. This means faster project completion times and reduced costs.
McElligott: Historical performance, combined with depth of regional impact, indicate that recovery for aviation will be uneven and community specific.
Swett: We may be experiencing a change to our entire economic system and in our industry unlike anything we have seen in generations. There will still be tremendous needs for engineers to design a more resilient and sustainable built environment and infrastructure systems … but how we do that work is set to change significantly. Our advanced analytics allow us to model how air flows or to configure social distancing in spaces.