There are dates that stick in the collective memory: 1776, 1861, 1929 and now 2020, which could well be a year that future generations in the construction industry look back on as a major turning point. The social, economic and cultural ramifications of COVID-19 won’t be fully understood for years to come, but the challenge of the pandemic has caused rapid change across the design sector.
Even so, the revenue shortfall many observers had predicted for design firms has not happened to the extent feared, according to results of the 2021 Top 500 Design Firms ranking. The aggregate revenue for listed firms actually rose to a record $104.77 billion in 2020—an increase of 1.48%.
However, the raw numbers don’t tell the whole story. The 2021 list features the return of Fluor Corp., which was unable to release financials for last year’s ranking due to a federal probe of project charges; and Worley, which failed to file in 2020. Their inclusion added more than $6 billion to the total. The median revenue for firms actually fell, to $64.95 million on this year’s ranking from $67.94 million for the 2020 list—a drop of 4.4%. Backlogs took the biggest hit. Almost three times as many firms are reporting a lower backlog compared to a year ago, with 127 noting a decline this year versus just 45 on the 2020 ranking.
A notable absence this year is KBR Inc., which opted not to file a top design firms survey for its 2020 results, due to its “current business profile as a high-end solutions-oriented organization,” the company told ENR. KBR was ranked third on last year’s Top 500 list.
A New Way to Work
At the beginning of the pandemic, firms were forced to make what was for many a radical change in the way they worked. “Like most practices, we took our operations virtual over a weekend,” says Jenna Knudsen, CO Architects’ managing principal. “We went from 95% of our staff working in one office space to 120 people working from 120 different locations.” At first, the challenge was technological. While some of CO’s operations were digital, others such as accounting were paper-based, and had to make a rapid transition.
“This has been one of the fastest technology transfers in my career,” says Jerry Holder, Garver’s senior vice president and director of transportation. “Many firms had no intention of making such a transition [but] they adapted at a surprisingly fast rate.”
However, it quickly became apparent that the real challenge of the pandemic was less about the technology and more about the people. Firms needed to find a way to do business while helping employees deal with the stress and isolation of a pandemic. “It was the collaborative, human connection side of it that’s very difficult,” says Nick Leahy, co-CEO of Perkins Eastman. Kumar Buvanendaran, president and CEO of Prime AE Group, adds that “COVID-19 has probably had more permanent psychological changes in our operations than tangible.” He says COVID-19 forced a “cultural reset” at the firm. “We are reminded of what matters most—the safety, health and happiness of our employees,” the executive points out.
Firms worked to ameliorate the effects of the pandemic on employees’ physical and mental health via outreach. “Normalizing the conversation and reducing the stigma around mental health is crucial,” says Steve Demetriou, Jacobs’ chair and CEO. During the pandemic, the firm launched its Mental Health Matters resilience program, which features live webinars on relaxation, coping mechanisms and physical health.
“Cyber insurance has increased 400%. Many clients are asking for greater limits and specific coverages.”
—Steve Lane , CEO of SSR
The program is an offshoot of Jacobs’ Mental Health Matters effort, which created 1,900 trained mental health “champions” throughout the global organization. “We equipped our Positive Mental Health Champions with materials to assist employees with COVID-19-related mental health concerns,” Demetriou says.
Direct benefits provided another avenue for firms to assist their employees. “We set up Care.com benefits that help our employees more easily access childcare in response to ever-changing impacts on schools and day cares,” says Kathleen Abbott, Arcadis’ environment business line president. The firm also developed a health and safety app to allow employees to report and evaluate symptoms of COVID-19.
Congruex has offered employees paid time off to get the COVID-19 vaccine. “Due to the nature of our work, we find it extremely important to protect ourselves, our customers and our communities against the continued spread of the coronavirus,” stresses Rob Reynolds, Congruex’s chief information officer.
Work from home has created challenges beyond the logistics of supplying, engaging and coordinating a remote workforce. The high profile hacking of Zaha Hadid Architects, soon after the start of the pandemic in April 2020, highlighted the need for a robust cybersecurity infrastructure. Firms are also exposed through their third party vendors, as in the recent hacking of Arup’s third party payroll provider, Symatrix.
“The SolarWind and Microsoft Exchange hacks have really disrupted federal and commercial markets,” says Demetriou of Jacobs. Costs are rising as firms need to upgrade legacy systems and add cyber “sensors” to their networks, not to mention offensive cyber “threat hunt” teams. According to Demetriou, “Our teams proactively and iteratively search through networks to detect and isolate threats. An active cyber defense is vital.”
Other cyber security-related costs are rising as well. “Cyber insurance has increased 400%. Many clients are asking for greater limits and specific coverages,” says Steve Lane, CEO of SSR. But clients are unwilling to pay for those increased costs, he adds. That cost is eaten by the firm. Companies that work with the U.S. Defense Dept. are being required to achieve Cybersecurity Maturity Model Certification, which aims to reduce their vulnerabilities. Building out infrastructure to satisfy that certification is yet another expense. “The regulations and requirements are incredibly rigorous and strict and have impacted many vendors and partners we conduct business with,” says Prime AE’s Buvanendaran.
Generally firms have adapted well to the reality of remote work. Creative use of video has helped firms check in on their employees and maintain company culture. “Some of our offices have done virtual murder mysteries,” says Louis Armstrong, president and CEO of Kleinfelder. Virtual bingo and comedy shows have been on the menu over lunch at Pape Dawson.
Many more firms have discovered surprising benefits to remote work. “With our digital tools, we are now building cross-office teams remotely,” says Dana L. Harbaugh, NAC Architecture president and CEO. It allows the firm “to offer our clients the experience needed for their unique projects.” This has helped NAC level workloads across offices, he adds.
Work from home has provided a reduction in some costs, particularly business travel. And lower levels of business travel look like they are here to stay. “One of the lessons from COVID has been the realization that a part of our ‘typical’ business travel can be eliminated using virtual communication tools,” says B. Narayanan, president and CEO of Carollo Engineers. Reduced travel has also helped firms cut their carbon emissions. “Our reduced emissions have enabled us to meet our goal of becoming a carbon-neutral firm in 2021,” says CallisonRTKL president and CEO Kim Heartwell.
Deciding if, when and how to bring people back into the office is top of mind for many executives. CO’s Knudsen says “20% of our staff have never worked in a physical office together and the other 80% will have worked remotely for 18 months.” The firm will make that transition slowly and methodically, she says.
Some employees would prefer to stay remote. “Surveys of our staff indicate more than one-third wish to continue working from home after we permanently return to the offices, at least part time,” says Cuningham CEO Tim Dufault. The company is moving to full time hoteling in all workstations. “There is a necessity to make the desk solution as flexible as possible and able to accommodate any team member at any given time,” he adds.
“The real estate that provides the essential experiences that we can't replicate virtually or have delivered to our homes will be the most in demand.”
—Diane Hoskins, co-CEO of Gensler
Most design firms say they will bring employees back into the office when it’s feasible to do so, but many will be offering some sort of remote work option. A poll conducted for the American Institute of Architects’ February 2021 Architectural Billings Index showed that only 56.5% of firms expect employees to work from the office every day, down from 74.4% pre-pandemic. Flexibility seems to be the key. “[It] will be a hybrid,” says Armstrong of Kleinfelder. “But I think that hybrid will look different in many of our locations.” He cites the differences between urban and suburban environments as a factor. “You have to take into consideration [employee] living situations,” says Leahy of Perkins Eastman. For example, many New York City students have been home, studying remotely.
Firms are taking a hard look at what that new office space will look like. “We are exploring how it can be configured to support more collaborative/teamwork areas vs. a focus on the individual desks,” says Dufault. Leahy agrees: “We need many more meeting spaces, bigger spaces [and] better video conferencing facilities.”
Downsizing space also seems to be a prominent option for firms. Almost 30% of companies that responded to AIA’s survey said they would need less office space compared with before the pandemic, according to its chief economist, Kermit Baker. “Some fairly significantly less,” he adds.
“We have multiple offices that are nearing the end of leases and have taken a very different approach to assessing their space needs for the future,” says Mike Medici, president and managing partner at SmithGroup. In the meantime, many firms are continuing to pay for unproductive space. “The additional cost of cleaning/disinfecting these spaces is not recoverable,” says Cuningham's Dufault. Landlords have been understandably reluctant to allow a change in lease durations, he adds.
Design firms are also applying a new line of thinking to their designs for their clients. “The idea that being in an office is not important because of your desk, but because of your ability to work and socialize with others, face-to-face,” says Victor Vizgaitis, principal and chair of architecture for Sasaki. “There is a relationship between experience and place,” adds Diane Hoskins, co-CEO of Gensler. “In the post-pandemic market, the real estate that provides the essential experiences that we can’t replicate virtually or have delivered to our homes will be the most in demand.”
Diversity, equity and inclusion (DEI) have always been a challenge for the design sector, but 2020 was different. “Following the brutal killing of George Floyd, this past year was a time for learning, reflection and leading the change,” says Hoskins.
The Struggle for Diversity
There is plenty of work to do. According to the U.S. Bureau of Labor Statistics, Black workers make up 12.1% of all U.S. workers but only 6% of the architectural, engineering and related services group. Among professional and technical services fields tracked by the bureau, only scientific research and veterinary services have a smaller percentage of Black workers.
Women are also underrepresented, making up 46.8% of the U.S. workforce, but only 27% of the architectural, engineering and related services group. Only landscaping and waste management have lower proportions of women in professional and technical services.
Many clients are concerned. “Clients [are] asking for specifics on our firm’s approach, philosophy and the action plans we have put in place to address justice, equity, diversity and inclusion (JEDI) issues,” says Enrique Suarez, corporate marketing leader, HED.
Firms are responding. “We have created and filled a new role of diversity, equity and inclusion manager,” says Woodard & Curran CEO Alyson Watson. The firm has also activated employee resource groups and established a three-year plan to address topics including recruiting and mentorship. “We aren’t where we need to be yet, but we are truly committed to making the changes we need to make to get there,” adds Watson. Woodard & Curran also collaborated with RS&H and VHB to form the Design Professionals Coalition Diversity and Inclusion Working Group, under the aegis of the American Council of Engineering Companies. The group published a report highlighting best practices around DEI initiatives.
Industry executives are aware that progress needs to be measurable. “The implementation of our Strategies to Fight Racism [program] and the creation of global race and diversity committees in every region ensure that our commitment is more than just words,” says Hoskins. Those bodies set measurable milestones and craft a diversity report.
“Clients are asking for specifics on our firm’s approach, philosophy and the action plans we have put in place to address justice, equity, diversity and inclusion issues.”
—Enrique Suarez, corporate marketing leader of HED
Firms are also putting their money where their mouth is. “We developed the Emerging Black Architects Scholarship to create new pathways into the profession and reduce barriers for students in need of funding to continue their education,” says Sharron van der Meulen, partner at ZGF Architects. The company is also hosting two students at its Washington, D.C., and Los Angeles offices as part of the National Organization of Minority Architects Foundation scholarship effort. SmithGroup’s Equity, Diversity and Inclusion scholarship program is now in its fourth year.
Another area of focus has been establishing relationships with historically Black colleges and universities. “Record numbers of companies have approached [the National Society of Black Engineers (NSBE)] to partner,” says Karl Reid, senior vice provost and chief inclusion officer at Boston's Northeastern University. “Engineering firms had really not explored it previously,” he adds. Reid, formerly executive director of the NSBE, has seen an uptick in engagement with other underrepresented groups as well, including institutions serving Latino and tribal student communities.
Reid stresses the importance of engaging with candidates from minority groups and representative institutions early in the pipeline. “The companies that are really strategic form relationships early on. They’re not going to cherry-pick at the end of the pipeline and say, ‘OK, where are your seniors?’ ” He cites corporations such as Honeywell in its support of NSBE’s K-12 program, called NSBE Jr., as a way to “widen the pipe” for engineers of color.
Firms are also thinking about the way they interview. “We are developing an equitable interview process in which interviewers are better prepared to find the best fit while exploring a diverse pool of candidates,” says Dino DeFeo, managing partner at AKF Group. The firm aims to ameliorate unconscious bias by designating a group of interviewers to review candidates.
The switch to virtual meetings has facilitated another kind of equity. “[They] are enabling greater access and inclusivity for community stakeholders to provide input– no matter where the stakeholders live, their access to transportation, their income level, ethnicity or ability to speak English,” says Diana Mendes, corporate president of infrastructure and mobility equity at HNTB. The firm has developed the Public Involvement Management Application in conjunction with the Iowa Dept. of Transportation to foster transparent communication about transportation infrastructure projects. Virtual public meetings “allow the public to research the project material at their own pace and when it is convenient to them,” says Garver's Holder. “As opposed to the one evening at the local high school between 6 to 9 p.m.—and if you had to take your kid to soccer practice, well, you just missed your chance,” he adds.
The Talent Gap Widens
Acquiring, developing and retaining talent has long been a challenge for the industry, but the pandemic is increasing the difficulty for many firms. “Many young professionals exited the profession [during the pandemic], and as markets begin to take off, everyone will be looking for talent in a smaller pool,” says Dufault of Cuningham. He expects the shortage to be felt most keenly at mid-level positions.
Entry level candidates will likewise be hard to come by. “Universities are not producing enough graduates in key disciplines to accommodate industry needs,” says Steve Davidson, executive vice president of American Structurepoint. That shortage may have been exacerbated by the pandemic. “There was a not insignificant percentage of students that took a semester or a year off,” says Patrick Sheehan, president and CEO of GZA. “It’ll be interesting to see what impact that has on engineering graduation rates over the next couple of years.”
With supply down and demand on the rise, labor costs are increasing. “Everyone is giving their existing staff a raise because they don't want to lose them,” says Gannett Fleming chairman and CEO Robert M. Scaer. “We haven’t seen increases like this since before the Great Recession,” says Bryan P. Powell, COO of Westwood, adding that labor costs are rising at a much greater rate than fees the marketplace will bear. With a possible boost in work from the looming federal infrastructure bill, “competition for talent will be fierce,” says Kevin Fitzpatrick, president and CEO of Alfred Benesch & Co.
Still, while many firms focused on retaining talent during the pandemic, some have been able to expand. “We hired a significant number of new employees in 2020—increasing staff by more than 25% overall,” says Matthew Oberts, senior vice president of SSOE. It was not alone. “We hired more new staff in 2020 than in the two prior years combined,” says B. Narayanan of Carollo Engineers. The firm went into the pandemic with a goal of simply avoiding layoffs, but found an opportunity to strengthen its ranks. “Not surprisingly, there has been some excellent talent available in the market during this period,” Narayanan adds.
CO Architects has also increased staff by 20% in the last year. “A benefit to the remote work environment is the ability to expand our pool of candidates outside of Southern California,” says Knudson. “Since location is not a factor right now, we hired people in every U.S. time zone.” With no need to relocate, new hires have been able to start earlier, she adds. Garver has found similar benefits to remote work. “It has allowed us to put staff in locations where we can find the talent as opposed to limiting our searches to a certain office location,” says Holder. “In some areas of the country it is very difficult to find certain talents,” he adds.
“Where it may not have been feasible to bring an up-and-coming team member to a client meeting in the past, considering time and travel costs, it is now much easier to include them in a virtual meeting.”
—Bill Ashworth, COO of VHB
While remote work has facilitated recruitment efforts, it has created complications when it comes to mentoring employees. “In the studio, if you’re mentoring somebody you can guide them very quickly. It’s happening in front of their eyes,” says Leahy of Perkins Eastman. That same process can’t happen outside of the studio, he believes. Although technology such as sketching apps have come a long way, “online drawing together in a convincing way is still lacking,” says Sasaki’s Vizgaitis.
Other firms are seeing developmental opportunities in remote work. “Where it may not have been feasible to bring an up-and-coming team member to a client meeting in the past, considering time and travel costs, it is now much easier to include them in a virtual meeting,” says Bill Ashworth, COO at VHB. Richard Clarke, senior design principal at EYP, agrees: “They are getting more exposure with project teams and more direct interaction with clients. It’s been a really positive impact.”
Work from home has also changed the onboarding process. Gannett Fleming’s process was location specific, says CEO Scaer. It has since redesigned and standardized its program across all offices. SSOE management started a “meet and eat” program over FaceTime. “We get to know new team members in a casual setting,” says SSOE’s Oberts. The firm also provides lunch.
Use of online platforms Zoom and Teams has also caused firms to rethink who does their training. “We can now connect any expert with any of our employees, without concern for geographic barriers,” explains Jim Haynes, chief administrative officer of POWER Engineers. It has also facilitated cross-training. “Our engineers work on projects throughout the state and across civil disciplines, sharing best practices to improve project design,” says Pape Dawson CEO Sam Dawson. Cross-training helps the firm be flexible in the face of market shifts, he adds.
Planning for an Unknown Future
For many firms the biggest challenge for this year is uncertainty. “Will the world reopen in 2021?” asks Sasaki’s Vizgaitis. “Will clients respond to that by re-engaging planners, designers, builders? Or will they continue to hold off?” Matt McElvogue, director of building enclosure services at Terracon, agrees. “For possibly the first time in modern history, we are not trying to study trends but are trying to predict the consequences of dramatic shifts in dependent industries,” he contends.
Some leaders are not sanguine. “2021 is sizing up to be a year when many projects are on hold and there are limited new project opportunities with the green light to go ahead,” says Erik Ring, director of engineering at LPA Design. “Those opportunities will be subject to increased competition. Adds Buvanendaran of Prime AE: “As an industry, 2021 will be a rebuilding year. We are all navigating cautiously but have significant work to do to get back on fiscal track.”
Other firms are worried about rising costs. “The global supply chain remains vulnerable to disruption, which was illustrated during the pandemic and most recently by the Suez Canal accident,” says Iver Skavdal, executive general manager, USA, at GHD. Those disruptions have pushed up material costs, he adds.
Sasaki’s Vizgaitis is also seeing rising costs: “Bottlenecks in manufacturing and accessibility of materials and labor seems to be driving up costs, despite a market expectation that early lack of construction work would push them in the other direction.” This may slow down the market again, he warns.
Dawson adds: “We anticipate a greater emphasis on value engineering to balance budgets as clients are facing escalated contractor and material costs.”
Replacing backlog is another problem. “Clients realize that 2021/22 budgets will not be as healthy as the recent past,” says David Wantman, CEO of WGI Inc. Previously robust backlogs have shrunk and sales could be problematic from the second quarter through year-end. “Fluctuating revenue streams at the state and local level left many programs in flux in the last year,” says Malcolm Dougherty, national practice executive at Michael Baker International. The passage of a robust infrastructure bill would help alleviate some of those concerns. He also hopes for federal guidance on alternatives to the gas tax. “[It’s] becoming less reliable with more fuel-efficient vehicles and less travel overall,” Dougherty says.
Still, there are opportunities to be had. The rise of telehealth and need to develop new solutions for hospitals are key drivers. HGA partnered with the Boldt Co. to develop the STAAT Mod, a modular critical care solution for hospitals. “It’s a repeatable solution and can be adapted and assembled in many different arrangements,” depending on the needs of the institution, says Scott Lindvall, the firm’s COO. A unit is currently in place in Northside Hospital Gwinnett in Lawrenceville, Ga.
Firms also anticipate trends emerging in the wake of the single-family housing boom. “We are seeing substantial market growth from our clients in education,” says Christopher M. Huckabee, CEO of design firm Huckabee. Housing starts are at “historic levels,” he says. Corporate relocation has also factored in. “Surban” neighborhoods also continue to grow in popularity.
Clients also want to invest in energy transition and sustainability. “Solar and storage is a big play now,” says Ray Kowalik, CEO of Burns & McDonnell. He also sees widespread interest in renewable alternatives to fossil fuels. “Another game-changer for our practice is the waste-to-energy market,” says American Structurepoint’s Davidson. It is working to develop many such waste-to-energy sites, he says. Kowalik sees subsidies from state and national governments as helping to drive investment in developing low-carbon feedstocks for renewable fuels.
The shift to electric vehicles is also generating opportunities. “Traditional OEMs are looking to modify existing facilities," says SSOE’s Oberts. He also sees greenfield facilities for new EV manufacturers “and the demand to produce lithium-ion batteries to power them.” More electrification will mean more stress on current generation and transmission infrastructure, notes Kowalik, who sees continued and growing investment in energy storage batteries and in upgrades to electricity delivery systems.
Ultimately, many see the post-pandemic new normal, whatever form it takes, as an opportunity. “The AEC industry must recognize the connection between sustainability and the long-term value of the built environment,” says Andy Cohen, co-CEO of Gensler. Environmental, social and governance considerations are business imperatives, he says. “Buildings and developments that do not support health and wellness will lose value because people will refuse to occupy them.”