But Martin says the firm has found success acquiring firms outside the industry, such as the defense industry. “Federal conflict-of-interest regulations prohibit defense contractors like Lockheed from testing their own products, so that leaves it to firms like ours to do it,” he says.

These same regulations resulted in an acquisition by the Louis Berger Group. When Arcadis acquired Malcolm Pirnie, it found Pirnie’s sediments group was testing federal projects done by other Arcadis units, Kamber says. The unit was sold to Berger.

Not all acquisitions were by the megafirms. For example, Cannon Design last year acquired Chicago-based architect OWP/P. Miller notes Cannon grew its existing staff marginally in 2009 but added 220 people with the OWP/P acquisition. “It strengthens our presence in the Midwest and Arizona markets,” he says.

Changes in project delivery is motivating some deals. “We are seeing a noticeable convergence between construction and engineering from both sides,” says Della Rocca. He says contractors are buying design firms, while design firms are taking on contracting capacity in order to participate as single entities in the growing design-build market.

“There is a trend toward both vertical and horizontal integration in the industry,” says Kessler. She says architects increasingly are affiliating or forming alliances with other architectural firms to compete with these megafirms. “Our firm continues to partner with other architects to better compete against the AECOMs of the world,” says Kessler.

This industry consolidation has left many midsize firms concerned. “You have a growing move by the federal government to have set-asides for small firms and the main contracts going to the really big guys—that leaves little room for midsize firms,” says Bobby Toups, CEO of ATC & Associates.

But consolidation may also provide opportunities for midsize firms, other execs say. The growth of some megafirms puts some smaller markets off their radar screens. “We are moving into the food-processing market,” says Jack Hand, CEO of Power Engineering. “The big guys pretty much abandoned markets like this because projects were not big enough.”

Out of Work

But companies still had to shrink staff, resulting in a huge volume of layoffs in 2009. “There are some architectural firms working solely in the commercial markets that have cut staff by 50% to 60%,” says Cannon’s Miller. The unemployment rate for architects in Chicago is nearly 40%, says one practitioner.

“We did reduce staff. You don’t want to do it, but sometimes it is all you can do,” says Harrison. But he notes many firms have been forced to close entire offices. “Even that is a problem because closing offices can be expensive—no one is going to let you out of the lease in this market,” Harrison says.

Burns & McDonnell has an employee stock ownership plan that helped it avoid the need for large-scale layoffs because employees pulled together to cut costs, says Graves. “Now, we have cut our pass-throughs and are doing more of the core functions in-house,” he says. Golder Associates decided to accept 40% lower margins, cut...