Giants stand tall
In comparing last year's CSE Giants Report with our 2007 ranking, two things are striking: First, combined total revenue for all of these 100 firms is a sizable chunk of the economy. Second, growth in revenue compared to the prior year attests to the strength of the AEC industry and the good health of MEP engineering.
In comparing last year’s CSE Giants Report with our 2007 ranking, two things are striking: First, combined total revenue for all of these 100 firms is a sizable chunk of the economy. Second, growth in revenue compared to the prior year attests to the strength of the AEC industry and the good health of MEP engineering.
According to last year’s Giants 100 Report, financial statistics show a positive increase in both total revenue and total MEP design revenue for the top firms. Total MEP design revenue for the Giants 100 in 2006 was $2.7 billion, and the 2007 MEP design revenue increased to a total of $3.4 billion—an increase of $740.5 million in one year and an increase of $866.3 million from 2005 totals. The total revenue for the Giants in 2006 was $10.7 billion, whereas the total revenue for the Giants 100 in 2007 is $12.8 billion, an increase of $2.1 billion. URS Corporation, San Francisco, ranked atop this year’s Giants 100, contributed more than 33% to the 2007 total revenue with more than $4.2 billion in yearly earnings.
This year marks the 30th anniversary of CSE ‘s Giants 100 Report. And this year, as in the past, it was a challenge to rank many diverse engineering firms on the basis of their MEP design revenues, because the firms vary on their percentage of MEP design.
Due to increasing merger and acquisition activity in the AEC industry, and theresulting increase in design-build delivery systems and firm diversification, it has become even more difficult to identify what percentage of a firm’s revenue can be attributed purely to MEP design.
One trend over the past half decade that emerges from the Giants 100 survey is that these firms seem to be increasingly looking beyond their traditional design billings in order to grow their businesses, usually by offering a variety of consulting services: commissioning and retro-commissioning, operation and maintenance, and consulting on specific facility issues such as arc flash hazard and energy efficiency. Now that the sustainability movement has gone mainstream, many of the Giants 100 firms report that this last item—energy efficiency consulting—has become a major source of income.
And with new business offerings come new challenges: “Many clients are looking to us for recommendations on energyefficiency and fuel selection,” reports Wiley & Wilson, Lynchburg, Va. “This requires, to some degree, forecasting the energy prices for 10, 20 and even 30 years. With the volatility of fuel prices that we see day-to-day, it’s difficult to know how accurate a forecast may be 30 years from now.”
Multiple firms in last year’s Giants 100 communicated two key tactics: innovative design tools and energy expertise. Each year, we ask the Giants to identify important design and business management software applications, and needless to say, in recent years energy analysis software is on everyone’s list.
To get an overall picture of how MEP engineers are doing business, we asked participating design firms to give a percentage breakdown of their businesses attributable to new construction and retrofit/renovation. Taking the averages of their responses, 60% of a typical Giant’s work is for new construction, and 40% is for retrofit projects.
For the first time, we asked the firms to tell us what percent of work is for either maintenance/repair/operation, and how much is for commissioning or retro-commissioning. The average amount of work for O&M was 8%, while commissioning accounted for an additional 8% of revenue. And those last two figures will most likely grow in years to come.
Multiple firms in last year’s Giants 100 communicated two key tactics for growing business: innovative design tools and energy expertise. This year we asked them a similar set of questions.
Engineers from Edmonton, Alberta-based Stantec describe Integrated Design as “transforming the industry to a more holistic model of project delivery, whereby the traditional roles and responsibilities of individual disciplines are recognized for their roles in the outcome of the entire project and not just the contractual obligations of the discipline.”
Integrated Design is a process that scraps the traditional approach of engineering disciplines working separately to design specifications for individual systems and equipment. In this process, all design team members work as a group in a process that resembles value engineering—but without the negative connotations of last-minute cost-cutting that this term implies. Cost is an issue, but what is more important is owner satisfaction, as well as long-term environmental and economic performance.
Firms such as Stantec and Minneapolis-based HGA have successfully used this approach on projects and swear by it.
But they also indicate that it involves a complete paradigm shift—totally rethinking how to approach project design: “This will require a reassessment of the fee structure based on results rather than percentage of construction cost,” a Stantec spokesperson explained. “It will also allocate the bulk of resources spent on the project to the conceptual, schematic and design development phases of a project in order to make informed design decisions on how changes in one system will affect the others. This will also affect the liability structure of individual disciplines and the associated risk management of the integrated team.”
This last issue—the changing nature of liability and risk that a new way of doing business brings—is no small matter. But these firms are committed to the integrated design approach, and it’s safe to say that this will be a growing trend.
And going hand-in-hand with the integrated design approached is the new CAD design tool that everyone is talking about: building information modeling (BIM). Several of this year’s Giants report that they have made it a mission to make BIM a central part of the design process.
For those not yet familiar with BIM, it is a technology that goes beyond CAD. With BIM, users can digitally build a structure from the start and all project team members can share information in a virtual environment. The building design is created as a 3-D model that is stored as data in an object-oriented database. Drawings in two and three dimensions are generated from the BIM database. As data changes or as work progresses, the virtual building model is modified. BIM reduces errors because everyone involved in the project has access to the same information. BIM, of course, is an ideal tool for the integrated design approach.
Finding markets, finding clients
In addition to identifying what’s new with respect to design tools and approaches, in surveying the Giants firms, we also wanted to get an overall picture of their fundamental business operations: questions such as what markets are important, how are they finding clients and what types of work are they subcontracting to specialty firms.
We asked the Giants 100 firms to give us a breakdown on their primary markets (see Figure 1). From a look at the chart, one can identify some of the major markets for these firms. Work on facilities for colleges and universities continues to be strong, and for the K-12 market as well. Healthcare has been a hot market for the last half decade, and isn’t likely to subside any time soon.
Just as significant as how these MEP engineering firms describe their markets is their characterization of how they find work (see Figure 2). Some of these findings are predictable. Direct contracts with owners, contracts with architects and government contracts are major sources of business. But it’s interesting that a considerable percentage of these firms indicated that design-build and work for contractors is a major source of projects. When we first started asking firms how much of their work was design-build, this project delivery method was still new. Design-build is no longer in its infancy.
Figure 3 gives a general idea of what type of work is being subcontracted out by these firms. Here again, most results aren’t particularly surprising. Almost all of these firms look to outside specialty firms for help on acoustics, and security and fire protection system design is often handed over to the firms that specialize in this area.
In 2001, when the U.S. economy was in a recession, we described the challenges that MEP design firms faced in finding new business. In the years since, our Giants firms have reported generally optimistic forecasts.
Those are some of the new tools that MEP engineering firms are using to maintain an edge in a competitive business environment. But what do they see as their primary business challenges?
Compliance with increasingly stringent industry codes has become a challenge for these firms as well. The revisions to the seismic codes, meeting and exceeding ASHRAE 90.1, International Building Code changes, application of NFPA 96 to smaller systems and satisfying the arc-flash requirements are some of the major concerns.
And finally, especially as of late, the shortage of qualified engineering recruits remains a problem within the industry, according to these firms. Along with the speed of change in technology and the pursuit of LEED accreditation, these firms say that recruitment is a challenge to overcome both now and in the future.
To view the 2007 Giants 100 listing, click here .