Run the Ball

Alan Greenspan denied it. George Bush denied it: America was not in a recession in 2001. Those in the construction industry surely suspected otherwise, and recently revised figures from the U.S. Dept. of Commerce confirm that suspicion.

Instead of the solid 3.3% gain originally reported by the federal agency, overall nonresidential construction spending is now estimated to have increased by a scant 0.4% between 2000 and 2001.

Bringing in a football analogy, this recession could be likened to the formidable "Steel Curtain" defense of the 1970s Pittsburgh Steelers. And just as "Mean" Joe Green and Jack Lambert quashed offensive sorties, the recession clearly "sacked" the once-booming telecom and dot-com markets that had pushed many engineering firms to get "pass happy," to borrow yet another football phrase. Indeed, if today's economic situation is likened to a football game, the halftime score right now might read something like this: Recession 17, New Construction 3.

But—according to Consulting-Specifying Engineer's annual survey of engineering "Giants"—rather than cry over the touchdown play that backfired, these grid-iron generals are altering their game plans to a more conservative, but ground-gaining attack. And the good news is that there's still time on the clock.

In studying this year's Giants responses, realism might be the best word to describe our readers' opinions of the market and what's to come. The outlook for next year is certainly less optimistic than last year's survey, which predated Sept. 11, but it's not completely negative either. For new construction, 37% of respondents anticipate an upturn, while 29% say it will drop; another 25% believe business will remain about the same. The retrofit market, however, looks a little brighter with nearly 50% of the Giants respondents projecting that activity will increase, with only 19% predicting a decline. Some 29%, however, anticipate it will be the same.

By comparison, Daryl Delano, chief economist for Reed Business Information, forecasts modest upturns for 2003 in all sectors: 5.2% for commercial projects; 11.3% for industrial work; and 10.9% institutional work (see "The First Half Economic Situation: The Numbers Don't Lie," p. 31, for more details). Should they hold true, these numbers are certainly good news compared with activity to date. With the exception of the health-care and educational sectors, nonresidential building in the first five months of 2002 was significantly behind the same period in 2001, as Butler, Pa.-based Burt Hill Kosar Rittelman's director of marketing, Thomas White can attest. "We have put more of an emphasis on higher education and health-care and reduced our efforts in the commercial marketplace."

Therein lies the crux of what's happening in most firms. Clearly, the most interesting story that developed from the analysis of this year's survey results isn't told by economic surveys and statistics. Rather, it is how these firms have revamped their business strategies to develop new markets. The plan today jibes with the big picture. For example, increases in federal government spending for certain sectors has meant an increased interest in government work.

"We have expanded our specialized expertise in both the government and private sectors," says James A. Wilson, AIA, president of Ewing Cole Cherry Brott, Philadelphia, who was recently awarded projects for the Smithsonian and the National Institute of Health. The firm has also increased its focus in other market sectors, expanding into museums and cultural facilities.

Optimation Technology, Rush, N.Y., is also taking advantage of federal grant money being funneled to local municipalities. According to Optimation's president, William Pollock, P.E., his firm is moving more heavily into water and wastewater, particularly into water security and cyber security for water plants.

Elsewhere on the government front, the eventual passage of the well-funded Energy Policy Act has fueled an interest in energy-related design work. For example, amid the myriad of companies reporting profits well below projected earnings, Chicago-based Exelon easily beat Wall Street second quarter reports. In fact, the energy utility's net was up 54%.

While these other sectors are providing a steady source of work, one area experiencing major growth is the pharmaceutical and biomedical market. Many firms are turning toward these facilities as a new source of revenue, including Sear-Brown, Rochester, N.Y. In fact, the firm says it will be investing millions of dollars in this industry over the next three years alone, according to Andy Pomeroy, vice president of business development.

"This is targeted to be one of Sear-Brown's primary markets in our overall business," he says of the fast-growing market, which may be booming, in part, as a result of a shift in the nation's demographics.

Detroit-based SmithGroup's Randal Swiech, P.E., thinks so. "The trend toward increased design services in the health-care and related markets is expected to continue over the next 20 years as the needs of an aging population increases," says the senior vice president.

Initial research supports that supposition. According to a report commissioned by Sear-Brown, the worldwide bio-pharmaceutical facility industry is projected to grow 60%, from $350 billion to $561 billion, over the next five years, with the U.S. accounting for approximately 46% of this industry. And Sear-Brown's words might be well worth heeding, as the 19th ranked Giant realized a phenomenal growth in total revenue, from a reported $81.6 million in 2001 to $115.37 million this year. (For more on pharmaceutical facilities, and how they are dealing with energy issues, see "Choosing Cogen" on p. 38.)

These firms, of course, are not the only ones cashing in on this trend. In fact, other sharp firms are digging even deeper. "Over the last year, we've begun to expand our focus in two market areas: pharmaceuticals and high containment [for infectious disease research]," says Melissa Waltman, marketing manager for Princeton, N.J.-based CUH2A. "The demand for high-containment laboratories has grown dramatically," she explains.

Similar responses came from many other firms, all pointing to an increased focus on pharmaceutical, medical and other scientific and research-related facilities. In fact, some firms have broken out new groups within their companies to deal with this sector. Albany, N.Y.-based Einhorn Yaffee Prescott, for example, has expanded its successful Laboratory Design Group into a national science and technology practice. "This has allowed us to extend our market into new geographic regions, clients and building types," says Kelly Donahue, EYP's public relations manager.

For EYP, this diversification trend began in 1997 when they started focusing on telecom work. Company officials soon realized that mission-critical work was quite different from its other types of business. As a result, a wholly separate company—EYP Mission Critical Facilities, Inc., New York—was created. Both of these companies qualified as 2002 Giants, with EYP finishing 45th with a M/E design revenue of $17.68 million. Its mission-critical counterpart finished 24th with $37.6 million in M/E design revenue.

Similarly, Metairie, La.-based W.H. Linder changed its market focus by forming two alliances: one which allowed the company to compete for larger projects, and another that gave them expanded in-house process control system architecture and programming skills. Additionally, the firm hired a number of new employees familiar with the power business.

While there's no question that many firms are focusing their efforts on pharmaceutical and biotech facilities, as well as other revenue-generating opportunities, money is not every firm's entire goal. A frequently mentioned strategy for the long term involves the incorporation of sustainable design and further emphasis on energy efficiency. Tilden Lobnitz Cooper, Orlando, Fla., for example, is another Giant on the rise (No. 25 at $25.2 million—up $6.5 million), but with aspirations elsewhere: "TLC has become a member of the U.S. Green Building Council and was the first engineering firm in Florida to achieve LEED certification," says Stacy Stockbine, marketing coordinator.

In fact, the firm is so committed to sustainable design that they make a point of educating their clients about it, having presented more than a dozen educational programs on the topic (CSE will present more Giants feedback on sustainable design in our special Green issue in October).

But sustainable design is just one marketing trend our Giants noted. Others include greater efforts toward commissioning and other engineering services, maintenance management and, of course, security. "Those who weather the economic storm must seek expanded services or face harsh and financially painful consequences," says Timothy O'Connor, P.E., president and CEO of Robson Woese, Amherst, N.Y.

The 2002 Giants certainly offer numerous examples of firms that have sought to diversify their services beyond bread-and-butter design work. The following offers a random sample of their responses:

• Syska-Hennessy Group, New York, is expanding its integrated service offerings to give clients life-cycle solutions, "not just individual services."
• Gresham, Smith and Partners, Nashville, are using joint ventures with international firms to compete for health-care and corporate/commercial projects.
• C.H. Guernsey, Oklahoma City, has diversified from traditional telecommunication engineering services into more web-based applications.
• HarleyEllis, Southfield, Mich., has established a designer-led DB group in response to the design-build trend. "This has been well received," says Judy Little, marketing manager.
• H.F. Lenz, Johnstown, Pa., is increasing its 3D-modeling capabilities.
• O'Brien & Gere, East Syracuse, N.Y., is developing expertise and experience in the planning and design of membrane technology, and the advancing GIS/ArcView tool for multiple programs.

All of these marketing directions—biotech research; designing facilities to serve the needs of an aging population; a focus on energy efficiency and green design; and an increasing move toward commissioning and services—suggest that these firms are taking a long-term perspective. They are not just looking at the next play or even the next game. They're looking ahead to future seasons.