EC&M magazine ranks the year’s biggest electrical design firms
Despite the fact that the firms on EC&M's 2009 Top 40 electrical design list labored under the conditions of an undeclared recession for all of 2008, they reported $18.9 billion in overall design services revenue in response to a proprietary survey (click here to see the Top 40 Design Firms). Of the 30 firms present on last year's list, only four experienced a decrease in overall design services revenue from 2007 to 2008, marking an average increase of 21% over the disclosed totals for 2007. Four firms reported increases of more than 50% in overall design services revenue, with San Antonio-based Zachry Group (No. 9) leading the pack at 116.7%. Englewood, Colo.-based CH2M Hill (No. 2) posted a 98.9% increase, followed more distantly by Muscatine, Iowa-based Stanley Consultants (No. 13) with a 58% increase, and Omaha, Neb.-based HDR (No.10) with a 52.5% jump. Ten firms are new to the Top 40 list this year.
In addition, 38 firms (including four that do not appear on the Top 40 list) broke out their electrical design services revenue from overall design services revenue and reported $1.6 billion in total electrical design services revenue for 2008 (click here to see Top Electrical Design Firms). Of the 28 firms that separately reported electrical design work for the last two years, 20 experienced an increase in revenue for electrical design work, marking an average increase of 13.5% over 2007. Two firms experienced increases of more than 50% in electrical design services revenue: Kansas City, Mo.-based Burns & McDonnell (No. 7) held fast to its No. 2 position on the electrical-only list with a whopping 142.1% increase, followed by CH2M Hill (No. 2) with a 57.5% increase in electrical design revenue. Ten firms are new to the Top Electrical Design Firms list this year.
An uncertain future
When asked if they met, exceeded, or did not meet their revenue expectations for 2008, of the 38 firms that replied, 18 reported exceeding revenue expectations, while 10 indicated they met revenue expectations, and eight revealed they did not meet revenue expectations (Fig. 1). The firms that met revenue expectations most often credited healthy niche markets, such as health care, power, and electronic security and access control; geographic diversity; and an increased desire for energy efficiency and green building, for their success.
CH2M Hill entered the energy market through two acquisitions. “CH2M Hill has always been a pretty diverse company, but those acquisitions and the addition of the energy business, which now represents about a quarter to a third of our overall business, have allowed us to be diversified,” says Tessa Anderson, communications specialist for CH2M Hill. “When one business group is taking a hit in the recession, another is able to offset that, so we've been able to remain pretty steady in our growth and profitability.”
Factors that negatively affected revenue in 2008 included a weakening economy; cost escalation for commodities, equipment and labor; loss of backlog through uncertainty of funding; and an indirect link to the slowdown in the housing market. “The decline in the housing market resulted in developer-based infrastructure projects slowing from breakneck speed to virtually a complete halt in some markets,” says Steve March, marketing manager for DLT&V Systems Engineering (No. 39), Phoenix. “The water and wastewater infrastructure was being done to support the residential growth. The developers just pulled the plug. We also even saw one or two that went into bankruptcy, and projects just ground to a halt almost overnight. Some municipalities have scaled their capital improvement program budgets way back as income from developer impact fees has dropped by two-thirds or more.”
The Top 40 electrical design firms were almost evenly split in how they characterized the 2008 business climate. Seventeen described the 2008 business climate as “strong,” 14 called it “fair,” and six said it was “weak” (Fig. 2). Recruiting and retaining qualified personnel was cited most often as the greatest challenge the Top 40 firms faced in 2008, as well as the greatest challenge facing the firms during the remainder of 2009 and in 2010 (Table 1). Other challenges included the condition of the U.S. and global economy, held or canceled projects, and competition. “The evaporation of all that work resulted in an extremely competitive environment where some (especially newer, smaller firms) are willing to bid low to win work,” says DLT&V's March. “These firms may not last through the downturn, but they make it more difficult for the rest of us right now.”
The firms' outlook for 2009 was also weighted across the board. Seven firms are forecasting no change in revenue for 2009, 17 are expecting a decrease, ranging from 5% or less to more than 10%, and nine firms are predicting an increase in revenue from 2008 to 2009, ranging from 5% or less to more than 10% (click here to see Fig. 3). The companies expecting a decrease in revenue for 2009 say they will take strong measures to offset or minimize the drop. These strategies include salary and staff reductions, increasing competitiveness, acquisition, intensifying market focus, and exploring new market sectors and geographic areas. According to a recent study by ZweigWhite, Wayland, Mass., 21% of architecture, engineering, and environmental consulting firms cut principals' pay in 2008. This has resulted in a $5,000 drop in pay since 2007, the time when the median principals' base salary reached a 10-year high of $135,000.
More than half the firms on the Top 40 list have not experienced tighter credit standards in 2008 or expect to encounter difficulty in obtaining credit in 2009, although seven say they have experienced or expect to experience tighter credit standards. Several firms reported that, although their firms had not experienced tighter credit standards directly, they were affected by projects canceled or postponed by owners and developers experiencing tighter credit standards. “We've seen a couple projects pulled back or canceled that were in the range of $100,000 or more, as have others I've spoken with,” says March.
In addition, three-fourths of the Top 40 firms claim the American Recovery and Reinvestment Act (ARRA) of 2009 has not had an effect on the project bookings or current workload, while less than 20% say it has had an effect on project bookings or current workload. More than half of the Top 40 firms expect the ARRA to have little effect on their bookings and workload in 2009 and into 2010. Eight firms expect it to have a big effect on their bookings and workload in 2009 and into 2010, and three reported not knowing if it will have an effect on their bookings and workload for the rest of the year and into the next.
However, the federal program is not the only one to support businesses in creating infrastructure and jobs. To continue its work on green designs, Rocky Hill, Conn.-based Harrington Engineering (No. 35) and its dedicated design group, Legnos & Cramer, will receive financing support from the Connecticut Development Authority (CDA). In cooperation with its lending partner People's United Bank, CDA is providing a business loan guarantee to the design firm for additional working capital for job growth. Much like the philosophy behind the ARRA, the organization's primary goal is to stimulate business investment and create jobs by financing companies and projects that contribute to the state's economy, technology base, intellectual capital, urban infrastructure, and employment opportunities. “As we look forward, we are confident that our green energy designs will continue to represent additional growth opportunities for Harrington Engineering and the State of Connecticut,” says Dan Wilkie, president and CEO of Harrington Engineering.
The recruitment paradox
In a year that ended with massive layoffs across many industries, more than half of the Top 40 electrical design firms reported hiring additional employees in 2008, four indicated no change in the number of employees from 2007 to 2008, and nine revealed ending the year with fewer employees than in 2007. For many firms, there was a delicate balance between reducing the workforce to cut spending in the near-term but also retaining qualified managers and supervisors so as to place themselves in an advantageous position when the economy turns around. “Anybody making those decisions has to try and look at what cuts will hurt the least, in terms of the company,” says March. “None are pleasant, but you always try and look at what skills are in demand — and how do those match up with our different staff resources.”
According to March, the electrical design industry is in a constant tug-of-war between looking for more work and looking for more people. “You rarely have that perfect mix of resources and work demand,” he explains. “If you have enough people, you're going to look for more work. If you find more work, you're going to need more people.”
Of course, companies with deeper pockets will be able to retain and recruit for the long-term. Firms with multiple divisions may be able to shuffle workers from one project to another. “Even though we have some clients in some of our business sectors that are cutting back on their work, others are staying the course and still others are expanding the scope of the work they need us to do so we still need to actively recruit despite the current economic situation,” says Anderson of CH2M Hill. “Because our services cross several industries, in addition to hiring new talent, we are often able to aggressively redeploy our existing employees to new projects in other industry segments if the work in the industry segment they're supporting has finished or has been put on hold or canceled. This is especially true of employees with critical skills like engineering and project management.”
As the recession eases, it will be firms like this that will have the opportunity to grow as well as pick up employees previously let go by other firms. By holding onto qualified employees, the firm will be able to pick up more work when it comes available. Therefore, firms may want to consider other cost-cutting measures instead of layoffs. “A part of it is you try and be more effective and efficient with your project management,” March says. “Unfortunately, sometimes it's too easy to have the highest-qualified people, who are your project managers, doing a lot of the work. They bill out at a higher rate, so they really should be managing more projects and using lower-cost resources to do the work, and then quality checking and making corrections. You still get the quality, but you should be using those higher-cost resources more efficiently instead of using them to provide the labor.”
Only four firms reported outsourcing some of their services to companies outside of the United States in 2008. Of those four, several outsourced work to international divisions of their own firms. Thirty-two firms reported they did not outsource some of their services outside of the United States in 2008. However, eight firms are considering outsourcing work to companies outside of the United States in 2009, with only 28 reporting that they are not considering such a move.
The mastery of a particular technology may also make a firm more competitive. When asked to list the top three technologies that may radically change the landscape in electrical design work in the next three to five years and into the next decade, the firms overwhelmingly provided Building Information Modeling (BIM) as the answer (Table 2). This was followed by renewable energy sources and systems, smart grid technology, light-emitting diode (LED) technology, and wireless systems. In an effort to invest in the ongoing evolution of BIM technology and project management, Mazzetti Nash Lipsey Burch (No. 30) added three BIM specialists to its San Francisco headquarters. “With the evolution of BIM and a world requiring direct digital exchange, our experts have the skill set to provide the latest in BIM project delivery,” says Jon Inman, a principal at Mazzetti's San Francisco office.
To weather the recession, many of the firms in the Top 40 list diversified markets and specialties to reflect popular demand (Table 3). With the major U.S. car manufacturers facing bankruptcy, it's no surprise that none of the Top 40 firms named the automotive market as one of their most active areas. The residential market remained low on the list for the third year in a row.
Overland Park, Kan.-based Black & Veatch (No. 5) expanded its expertise to include energy, water, telecommunications, management consulting, and federal services operations. In June 2008, the company launched Smart Utility to provide service offerings in the development and implementation of smart grid technologies. “Research tells us that in the next 30 years the world will need more than $40 trillion of infrastructure to satisfy its power and water needs, and we are well positioned to continue delivering solutions to help meet this demand,” says Len C. Rodman, chairman, president, and CEO of Black & Veatch.
A change in markets wasn't the only way the Top 40 firms faced the downturn in the construction economy. The firms reported more activity with design/build, particularly as a way to increase competitiveness by offering turnkey design and construction (Table 4 on page 24). Furthermore, many firms sought opportunities in green building and energy efficiency.
Harrington Engineering formed an Energy Services Group dedicated to cooling, heat, and power (CHP) and renewable energy solutions. Throughout 2008, the firm positioned itself as a leader in the growing market of green building systems. The company engineered and constructed a number of ecofriendly facilities, including structures using micro-turbines, fuel cells, photovoltaic cells, thermal ice storage, and geothermal systems. “As we look forward, we are confident that CHP and renewable energy solutions will continue to represent additional potential growth opportunities for Harrington Engineering,” says Wilkie, of Harrington Engineering.
Lenexa, Kan.-based Henderson Engineers (HEI), at No. 24, is also getting in on the act. The firm recently formed Concept 520, a sustainable consulting team, which will serve as a central base for sustainable Leadership in Energy and Environmental Design (LEED) design for the company's internal design teams and seven branch offices, in addition to further incorporating sustainable practices into HEI's design standards. “Henderson has been a national sustainable design leader through multiple market sectors and regionally through our branch offices,” says Rich Smith, executive VP of HEI. “With the addition of this team, we are solidifying our commitment to sustainable design and environmentally responsible engineering.”
In addition, Mazzetti Nash Lipsey Burch announced the advent of a climate-change consulting practice. The new suite of services provides clients with measurement, strategic advice regarding development of greenhouse gas-reduction strategies, and reduction verification services. In combination with the firm's existing focus on energy performance analysis and energy system design, construction, and commissioning, it will provide potential clients with a one-stop shop for dealing with the changing set of legal requirements in the area of emissions reduction. Walt Vernon, president, says clients will benefit from the service by reducing greenhouse gas emissions early, as carbon regulations and carbon trading markets are just beginning to be created. “There is little doubt that regulations and carbon markets are coming,” Vernon says. “This new world of carbon regulation will create all kinds of issues for building owners. We understand the legal, financial, and policy sides of the regulation and reduction of greenhouse gas emissions, and we can help clients turn this from a liability into an opportunity to make investments that pay back over time. Building owners who prepare for a carbon-constrained future will fare much better than those who wait for regulations to take hold and have to act with their backs against the wall.”
Adds, Moves, and Changes
Through acquisition and merger, many firms increase their reach into new markets and geographic territories. In addition, a reduced workforce sometimes forces the closure of a branch office. Therefore, the majority of firms in the Top 40 experienced a change in the number of branch offices in their network. In response to a question asking if their firm had opened or closed any branch offices in 2008, 21 firms reported opening at least one branch office, and eight indicated closing at least one branch office.
Jackson, Mich.-based Commonwealth Associates (No. 34) opened a principal office in Marietta, Ga., which joins the network of offices located in Jackson, Mich.; Benton Harbor, Mich.; Dayton, Ohio; Mount Vernon, Wash.; and Santa Fe, N.M.
As a part of its recession-proofing strategy, CH2M Hill (No. 2) extended its reach into the energy market with the acquisition of VECO, Anchorage, Alaska, specializing in oil and gas, mining, and power clients, and Trigon, Denver, an engineering and field service company specializing in upstream and midstream oil and gas projects.
In response to a contract renewal with the Mississippi Bureau of Buildings to conduct commissioning services at numerous state-owned facilities, Farnsworth Group (No. 29) opened a new project office in Ridgeland, Miss., the firm's 15th office in the United States. The firm anticipates receiving even more work with a local presence to support the projects. In addition, the company was recently selected by the New Orleans Public School District to provide commissioning services for five new schools in New Orleans. The project site will be located within three hours of Jackson, with fees for the project valued at approximately $900,000.
Phoenix-based DLT&V Systems Engineering (No. 39), an electrical and control systems engineering and integration firm with offices in California and Nevada, began offering services to clients in Colorado. Based on the success of their relationship with, and service offerings to, the Arapahoe County Water and Wastewater Authority, Centennial, Colo., DLT&V is now offering its services to other electric utility and industrial clients in the area. In addition, the company combined its two offices in Phoenix, one of which it acquired through a merger in 2007.
KCI Technologies (No. 19), a multi-disciplinary engineering firm with offices in the Northeast, Southeast and Mid-Atlantic regions, moved its Hunt Valley, Md., headquarters to a new green building located in Sparks, Md. “The move to a green building is the first in a series of steps as part of our increasing commitment to sustainable operations,” says KCI Chairman and CEO Terry F. Neimeyer, P.E. “We will continue to support and expand our green design practices, as well as implement strategic planning initiatives that reduce our carbon footprint.” The company's own engineers and LEED experts contributed to the design of the green building, which features high-performance climate control, plumbing, and electrical systems; a white solar reflective roof; and water-efficient landscaping. In 2009, KCI will pursue a U.S. Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) certification for the 4-story facility.
San Francisco-based Mazzetti Nash Lipsey Burch (No. 30) opened a Denver office. “New business opportunities, a need for more high-quality engineers, and the potential to better serve new and existing clients are pushing our expansion into Colorado,” says Walt Vernon, company president.
New York-based STV (No. 11) opened its newest office in Harrisburg, Pa. “The new Harrisburg office will allow us to be within close proximity to many of Pennsylvania's most important agencies and resources,” says Dominick M. Servedio, P.E., chairman and CEO of STV. “It also provides STV with a bridge between two of the state's most important cities — Philadelphia and Pittsburgh — which we previously did not have.”
In April, Baton Rouge, La.-based Wink Companies (No. 20) opened a new office in Covington, La. The office will house Bruno/Wink, the joint venture between Bruno Brothers Development and Management and the Wink Family real estate interests, Gulf State Real Estate Services.
Sidebar: Honors, Awards, and Donations
Overland Park, Kan.-based Black & Veatch (No. 5) was rated the largest majority employee-owned company in Kansas and Missouri, and the 11th largest in the United States, according to the 2008 rankings of the National Center for Employee Ownership (NCEO), Oakland, Calif. In addition, the firm was listed as the 126th largest private company in the United States, according to the 2008 annual rankings by Forbes magazine. Black & Veatch moved up 56 places from its 182nd ranking in 2007.
In November 2008, the American Institute of Architects (AIA) Central Illinois Chapter, Normal, Ill., awarded Bloomington, Ill.-based Farnsworth Group (No. 29) with four design awards. The firm's four award-winning projects included an Interiors Design Award for the Electrolux Entry Renovation project in Bloomington, Ill.; an Architecture Design Award for the Bank of Illinois project in Normal, Ill; an Adaptive Re-Use Design Award for the New Hope Apartments project in Peoria, Ill.; and a Restoration Design Award for the Transfer House Restoration project in Decatur, Ill. In addition, two principals-in-charge at the firm, Steve Myers, P.E., and Donald Rutledge, P.E., were honored with awards from the Illinois Society of Professional Engineers (ISPE), Springfield, Ill. Myers was awarded the Mentor of the Year Award, given yearly to the one member of the ISPE who best exemplifies the ideal image of a mentor. Rutledge was awarded the Distinguished Service Award, which recognizes ISPE members for their exceptional technical contributions to the engineering profession, their communities, and the ISPE.
Contracting Business magazine, Cleveland, Ohio, awarded Rocky Hill, Conn.-based Harrington Engineering (No. 35) first place in its national design-build contest. This honor was given in recognition of its innovative work on the South End Elementary School in Bridgeport, Conn., specifically in the areas of retrofit and new construction. In addition, the firm ranked No. 1,440 on New York-based Inc. magazine's 5,000 Fastest Growing Private Companies in America for 2008. Additionally, the company was ranked No. 18 in the Top 50 Fastest Growing Privately Held Engineering Companies listing in America and was Connecticut's only engineering firm to be named to the list.
San Francisco-based Mazzetti Nash Lipsey Burch (No. 30) earned a Champion for Change award for the second year in row. The award is given by Practice Greenhealth and recognizes companies that have made extraordinary efforts to both green their operations and help others in the health care industry reduce their impacts on the environment.
Portland-based Sparling (No. 32) made the list of the “100 Best Companies to Work for in Oregon” for 2008 by Oregon Business magazine. In addition, the firm received two awards in the 2008 American Council of Engineering Companies (ACEC) of Washington Engineering Excellence Awards Competition. Sparling's technology consulting for the Platte Valley Medical Center received a Gold Award in the Building/Technology Systems award category, and the technology study for the Snohomish County Wireless Data Systems received a Silver Award in the Studies and Research.
Gayle Roberts, president of Muscatine, Iowa-based Stanley Consultants (No. 13), is the recent recipient of two awards. Roberts was awarded the Iowa Women's Foundation 50% Solution Award, which was created in 2006 to recognize exceptional contributions made to advance women and girls through the state of Iowa. She also won the Large Company Innovation and Leadership category of the 2008 Iowa Women of Innovation Award. Sponsored by the Technology Association of Iowa, the Iowa Women of Innovation awards elevate and celebrate today's extraordinary women and recognizes those who are innovators, role models, and leaders in technology, science, and engineering. In addition, the Stanley Consultants Charitable Foundation, a non-profit organization funded by Stanley Consultants, pledged $100,000 to the American Red Cross to assist with flood relief operations throughout Iowa. “Stanley Consultants has a strong base in Iowa with offices in Muscatine, Des Moines, and Iowa City. “Virtually all of our Iowa employees and clients have been affected by the flooding,” says Roberts.
After working more than 1.35-million man hours, Baton Rouge, La.-based Wink Companies (No. 20) completed 2008 with only one OSHA recordable incident. This gave the company an estimated Total Recordable Injury and Illness Rate (TRIIR) of 0.15.