Structuring for success

The 2011 MEP Giants discuss current challenges and how the industry is preparing for what 2012 will bring.

08/12/2011


Meet the roundtable participants:

  • David Cooper, PE, LEED AP BD+C, President + CEO, WSP Flack + Kurtz, New York
  • Paul Gibson, PE, President, exp, San Diego
  • John Harriman, PE, LEED AP, Director of Engineering, SmithGroup, Washington
  • Mark A. Henthorn, PE, LEED AP, Vice President – Federal Business Leader, Stanley Consultants, Muscatine, Iowa
  • Tony Litton, PE, CEM, Chief Executive Officer, Sebesta Blomberg and Associates, Roseville, Minn.
  • Patrick F. Lynch, PE, LEED AP, CEM, President, OLA Consulting Engineers, PC, Hawthorne, N.Y.
  • Ken Panucci, PE, CEM, Senior Vice President, Primera Engineers, Ltd., Chicago

Consulting-Specifying Engineer: What are the top three challenges your firm has faced over the past year?

Tony Litton: Competition for talent continues to be a challenge in the industry. Overall, the difficulty comes in keeping skilled and specialized staff engaged in a shifting work environment.

  1. Competition for work has increased in every market place.
  2. Market shifts continue to adjust at a greater rate than they did previously. In some circumstances the dynamics have worked to our advantage and at other times against us. Overall the difficulty comes in keeping skilled and specialized staff engaged in a shifting work environment.
  3. Competition for talent continues to be a challenge in the industry.

Paul Gibson: During the fourth quarter of 2010 and first of 2011, our back log grew quite rapidly and we had difficulty staffing projects and finding qualified candidates to hire. Since then the back log has begun to decline and the prospects for new work have also declined. Another challenge we’ve faced is knowing when to hire.

  1. Employee morale resulting from pay freezes and cut back in benefits. Pay raises have occurred and benefits are being brought back so morale has improved.
  2. Work load - 4Q of 2010 and 1Q of 2011 our back log grew quite rapidly and we had difficulty staffing projects and finding qualified candidates to hire. Since then the back log has begun to decline and the prospects for new work have also decline.
  3. Knowing when to hire.

Patrick F. Lynch: Revenue growth, fee based competition, and cash flow. Over the past year, finding good sized projects has been challenging. Many clients are still slow to get larger capital projects moving so we are seeing many smaller projects. Clients seem to have more pressure to get their costs down so what used to be a referral and a fee negotiation is now a competitive process.

  1. Revenue growth,
  2. fee based competition, and
  3. cash flow.

Over the past year, finding good sized projects has been challenging. Many clients are still slow to get larger capital projects moving so we are seeing many smaller projects. A number of these, that were more relationship based a few years ago, are now more fee based. Clients seem to have more pressure to get their costs down so what used to be a referral and a fee negotiation is now a competitive process. Also, we are just seeing people try to hold onto their cash as long as they can and we are spending more and more time on collections issues, which is always a painful process.

John Harriman: With recent improvements in BIM, it can be a challenge to identify, evaluate and implement third party engineering and design software to support our BIM platform.

  1. The biggest challenge has no doubt been the economy; judging where the market will go, which sector will be up or down and which clients will move forward with their project.
  2. The second challenge is retaining excellent talent. There are some younger engineers who have not yet experienced an economic downturn, so in times of uncertainty, they look for greener pastures. Unfortunately, they learn the hard way that the economy is negatively affecting everyone. With this comes the staffing decisions – fluctuation between contemplating hiring new staff, bringing in contract help, or hiring temporary employees. Or, if we need to make any staff reductions.
  3. Software - With recent improvements in BIM, it can be a challenge to identify, evaluate and implement third party engineering and design software to support our BIM platform.

David Cooper: Maintaining quality service with reduced fees – Consulting engineering is not a high margin business so being able to provide the level of service and engineering rigor that we are known for, and expect to provide to our clients, at fees that are as much as 30% lower than what they were just a few years ago, is a challenge. Adding to that are the burgeoning technologies like BIM, which are not yet producing the anticipated efficiency gains.

  1. Secured Order Book or Backlog – The challenges here are twofold, the reduced amount of real opportunities combined with the hyper-competitive environment we are operating in. While we have seen a marked increase in the number of opportunities this year as compared to this time last year, the conversion from opportunity to secured revenue stream remains challenging. Many opportunities do not seem to progress to real work in a timely manner, and for many that do this remains a “buyers” market with more firms chasing fewer projects resulting in greatly reduced fee levels from what we have seen over the past many years. While fee pressures domestically are challenging those pressures in the international arena are even more severe as we find ourselves competing with firms operating in much lower cost environments. We are a well diversified business both in terms of market sector and geography, which continues to prove to be extremely valuable, although not many sectors or geographies were spared in this economic downturn.
  2. Maintaining quality service with reduced fees – Consulting engineering is not a high margin business so being able to provide the level of service and engineering rigor that we are known for, and expect to provide to our clients, at fees that are as much as 30% lower than what they were just a few years ago, is a challenge. Adding to that are the burgeoning technologies like BIM, which we are fully committed to, but which are not yet producing the anticipated efficiency gains.
  3. Staffing - These difficult economic times have resulted in a number of challenges around staff. We are very mindful that in this third year of a depressed industry, with our secured order book comprised of more smaller projects than in prior years, shorter visibility of secured work, very tight fees to manage, and often increased time pressures to deliver service, this is clearly a more stressful environment for our staff. To ensure we maximize staff retention we have been working hard on maintaining and building staff morale and ensuring our staff view us as a great company to work for. Based on our recent employee survey we have done a good job however, there is always room for improvement and this is an area of focus for our management team. Another area of concern is that many talented staff have left our industry through this economic downturn and as we experienced in the aftermath of past recessions there is bound to be a reduction of engineers entering the industry out of school. As such we anticipate, and are already beginning to see, a war for talent. This will tend to push up staff costs even before fee levels rebound which will further challenge margins.

Mark A. Henthorn: The great societal challenges of achieving abundant clean water, sustainable energy, safe transportation, access to modern healthcare, and sustainable manufacturing and agriculture continue to increase with the growth in global population.

  1. The failure of the Congress to pass an extended transportation bill has had a negative impact on all of our state Department of Transportation (DOT) clients’ ability to properly plan and sequence work. Even with utilization of expedited delivery methods, transportation projects are multi-year programs that require knowledge of certain and consistent funding sources. Our company and many others are on hold, but poised to design solutions to our nation’s aging infrastructure of highways and bridges. The transportation network, at the same time, continues to see critical infrastructure needs deferred.
  2. With the slowdown in the economy and the increased hiring in the public sector, we are seeing a dramatic increase in the federal government ‘in-sourcing’ design work that has historically been contracted to the AE community. This has taken the form of existing contracts being cancelled and expiring indefinite delivery indefinite quantity contracts not being re-competed or not funded.
  3. The great societal challenges of achieving abundant clean water, sustainable energy, safe transportation, access to modern healthcare, and sustainable manufacturing and agriculture continue to increase with the growth in global population. Leadership continues to wrestle with how best to continue enabling our members to contribute significantly toward sustainable and economical solutions for our clients and society in general. That is why we chose our various career fields within the engineering community.

Ken Panucci:

  1. Attracting top talent
  2. Profitability in a time of rapidly changing technology, and
  3. Adapting to BIM.

CSE: How does your firm overcome the challenge of finding and replacing older engineers with younger engineers? Define your succession planning program.

Panucci: Finding and replacing older engineers with younger engineers is still an emerging issue at Primera, but at this time we are focusing on the professional development and advancement process so our engineers can enjoy a long-term career at our firm. Engineers develop into Project Engineers and are given the opportunity to manage their scope and mentor junior engineers. Qualified Project Engineers also have the opportunity to get promoted to Department Managers; however we will also recruit for these positions. Division Managers grow into Department Managers or we’ll turn to the recruiting process.

Henthorn: We have had great success hiring young engineers right out of university and training and retaining them though out their careers. This is more difficult in large metropolitan areas, but it can still work. We also use networking by our members and member recruiting bonuses to identify and hire key talent. Stanley Consultants actively uses a succession planning program called our Bench Strength Plan. Corporate officers work with operations managers to identify and develop members to be ready to fill key leadership positions within the company. The Bench Strength Plan identifies the key positions with current members and their length of service. Each position is analyzed at least annually for short-term, mid-term, or long-term demand. Potential candidates are identified for each ‘critical position.’ With this information, a bench strength list is identified and maintained for each key organizational position. Development plans are created for each member’s potential position or positions. Another component of the Bench Strength Plan is an analysis of our project management and technical members who regularly service each key client. This analysis is to address and maintain technical bench strength for the client perspective.

Harriman: We are finding the senior leadership and engineers are not leaving the work place. To avoid stagnation of rising engineers, senior leadership and engineers step back for rising engineers to fill their positions. We feel this has best opportunity for success in larger firms, where there can be fluidity in positions. A change in mind set is required with regard to who is and was the “boss.” This change can be challenging and this may not work for each individual. Importantly, prior to succession, a plan is developed and put in place, replacements are identified, roles and responsibilities are identified for the engineer “stepping back” and a timeline is established.

Lynch: We like to continue to bring in young engineers to learn the business from us, right from the start. In fact, we prefer to have several intern engineers working for us at all times and particularly summer and winter breaks. We are proud of the interns that have come to work for us after graduation but also proud of the ones that go on to successful engineering related careers elsewhere. As we bring in and train our young engineers, it makes transitioning out a retiring engineer much easier.

CSE: Have there been any important legislative or code changes that have impacted you over the past 12 to 18 months?

Henthorn: Regulatory initiatives, particularly new and evolving federal air quality regulations and standards, have created a level of uncertainty that has largely limited project development beyond the conceptual stages. It has been a combination of rules bouncing around within legal and procedural activities such as the Boiler MACT, in addition to making national standards much more stringent. All of this has created uncertainty regarding what capital projects, specifically energy related, will be affordable and compliant a year or two from now. This has created an obvious negative financial impact for both consultants and our clients. The Small Business Administration (SBA) made the first major revision to its 8(a) program in a decade. Overall these rule changes are good, but they have changed how we will approach future mentor-protégé relationships, associated joint ventures, and the size of solicitations that we should pursue. We anticipate that the adoption of a new SBA size standard will negatively impact mid-sized companies such as ours.

Harriman: The ever-changing federal energy act and amendments are impacting how we design and build all mechanical, plumbing and electrical systems.

Litton: The major impact comes from short lived changes that impact long term business decisions. There is ambiguity with regard to where major national initiatives are headed from environment to healthcare all while our infrastructure continues to erode. In Minnesota the state government has shut down non-essential services due to state budget impasse. Fortunately this has affected us less than some of the firms that we partner with but overall it is a negative impact to us, our clients and the community.

Panucci: State Legislated Energy Grants through Public Utilities and federal stimulus funding has resulted directly in new design projects and consulting opportunities. EPA legislation will also require engineering consulting.

Cooper: There have been numerous code and legislative changes implemented across the country (e.g. PlaNYC, Miami21, Calgreen,etc.) geared around sustainability, addressing energy efficiency, commissioning of both new and existing buildings, etc. Sustainability has always been a core ethos of our engineering consulting practice but we continue to expand our sustainability service offerings in response to the changing landscape.

Lynch: The NYC Local Laws related to fire protection and energy bench marking have been helpful to generate opportunities. On the federal level, the stimulus money generated a few opportunities in the multifamily housing sector as well as the energy sector but not as many as we thought.

CSE: What new design trends have you been incorporating, or do you plan to incorporate, in 2012?

Gibson: LEED and energy reductions continue to be a consistent theme with Owners.

Litton: We continue to engage in the development of BIM. Not only from a design tool perspective but also from an overall life cycle tool that utilizes the information from conception, through design and commissioning and into operation and maintenance.

Panucci: Building Information Modeling, Ground source heat pumps (geothermal), Renewables, Chilled Beam Technology beyond laboratories, and Use of Rain Water Harvesting in Plumbing Systems.

Harriman: We are constantly looking to improve a building’s energy usage through HVAC, plumbing and lighting systems, as well as building enclosures. We are looking internationally to see how similar problems are solved through design, technology or equipment.

Cooper: Advanced analytical tools such as advanced energy modeling, daylight harvesting analysis and simulation, and computational fluid dynamic (CFD) computer simulations are increasingly becoming common design tools on our projects as our clients increasingly seek higher performing buildings. All of these advanced analytics are performed in-house, and while some of these capabilities are embedded across many of our technical staff we also have a dedicated group of specialists who are truly expert in these advanced analytical techniques. Beyond sustainability BIM, or Building Information Modeling, is the fastest emerging design trend. BIM is more than a technology for when implemented properly it fosters a more integrated and sustainable design process. IPD (Integrated Project Delivery) is one such example of new ways that teams are working together that is dependent on an integrated BIM process. We have been actively working in and developing our skills and capabilities across multiple BIM platforms for 6 years now. But the software, especially relative to Building Systems, and the industry have a way to go in their maturation before the potential of BIM will truly be unleashed as a powerful tool resulting in a digital model that fully transitions from design to construction to operations (facility management).

Lynch: We have been incorporating energy modeling technologies into our designs as well as utilizing BIM and we expect to see this trend increase in 2012. As BIM continue to improve, and the number of users, and clients requiring it, increases, we see the number of projects designed using BIM increase dramatically. In addition, based on what we are currently experiencing, we expect to see more design/build projects, both the small scale and large scale projects. With respect to design concepts, we anticipate more projects seeking “net zero” energy usage utilizing technologies such as combined heat and power (CHP), fuel cells, solar, geothermal, and wind.

CSE: On international projects, how do you overcome the challenges of different countries’ codes and standards? How do you deal with local workers and construction teams?

Cooper: We have been working internationally for over 20 years and are well versed with delving into and understanding local codes, practices, and construction norms. As an integral part of WSP we have a truly global reach with office presence throughout Asia, the Middle East, India, and Europe. Paying attention to local practice and capability, and knowing when and how to push the boundary or live within it, is absolutely essential for a successful project. Should we need to go outside of WSP to obtain the required level of local information we team with a local engineer and actively listen and learn.

Lynch: OLA has limited experience in international work at this time. We are involved in a development project in the Caribbean presently and we definitely are adjusting for the local construction workers in terms of tooling, capabilities, and process. The codes and standards were relatively easy to for us to adapt to after detailed review.

Gibson: On most projects we carry the design to some level of DD and then the design is turned over to local engineers who finish it according to local codes and standards. In other instances where the project is close to one of our offices, our international employees know the standards and codes.

Harriman: Dealing with different codes, standards, and methods of construction of a specific country can be most effectively dealt with by forming partnerships with local design and construction companies in the country.Before beginning a project, we develop a good understanding of how to do business in the particular country. From this, we make decisions about pursuing the project and where the local labor force is. As a project moves ahead, fortunately most codes are available for purchase in English. Teaming with the local design firms and face-to-face meetings greatly helps with the language barrier. Understanding “their way” has proven to help us to eliminate the learning curve and positions us for future projects, too.

Henthorn: Stanley Consultants began working internationally in 1956. Over the past 50 years we have learned enumerable business practices to achieve long-term success. We regularly find known U.S. and European codes and standards used in many African and Asian countries. Even though, our technical staff still must study and learn many countries’ codes and standards. Recent International Codes and Standards are beginning to decrease the number of documents architects and engineers must be familiar with, but there is a long way to go. Stanley Consultants mobilizes the correct mixture of experienced senior company managers and technical staff, along with expat and local workers, to be successful in our international planning, design, and construction support services assignments. Understanding local construction materials and methods is important to delivering successful project designs. Many third-world construction teams are not familiar with ‘western’ construction standards, requiring more supervision in order to receive the intended quality within the project. This takes upfront planning and detailed project execution.

Litton: We have a program set up where experienced world travelers guide and mentor those with less experience. We avoid sending non-seasoned travelers alone to an international assignment.

Panucci: Primera hasn’t completed MEP design work outside of the US, but in our consulting role on projects in other countries, we have found that clear understanding of local codes, practices and working together with local firms and local leadership is crucial. Understanding Culture and Language is key to any success.

What would you consider to be your firm’s competitive advantage?

Lynch: Our competitive advantage is our flexibility to handle large and small projects, our principal structure and our focus on energy efficiency. Our structure allows for principal involvement in projects from conception through the construction phase. That gives our clients a real good sense of level of quality and attention each project will receive, whatever the size. Our knowledge and experience in energy efficient design, analysis and modeling, as well as commissioning, applied throughout our various services, gives us a great insight into system performance that many firms do not have.

Gibson:

  • Our global resources delivered through a local presence.
  • Cost competitive with production capability in lower cost regions of the US as well as international production.
  • Not trying to be everything to everyone but rather being specialists in certain market sectors within the industry.

Panucci: Primera is focused on building an organization where the client is central to our business. In order to achieve that goal, we’ve transformed our business into a full-service engineering firm focused on quality, sustainability and constant innovation. Diversity is also an important component in setting us apart from many of our competitors. Women and minorities comprise many of our leadership roles and play an important role in our strategic growth.

Harriman: SmithGroup integrates multiple disciplines; our combination of architecture, engineering, interiors and planning is definitely our competitive edge. Diverse technical staff work side-by-side to benefit our clients and their projects. SmithGroup is now 158 years old and this multi-disciplinary approach has proven, over many years, to work well.

Cooper: We believe we have two competitive advantages over many of our domestic competitors. Firstly as WSP we are a global multi-disciplinary engineering consultancy addressing Property, Transportation and Infrastructure, Environment and Energy, and Industrial markets both here in the USA and around the world. Within Property, WSP F+K’s specific area of focus, we can provide a fully integrated offering covering basic and specialty building systems and structures. While there are other international multi-disciplinary firms practicing in the USA who offer similar capability, most of our domestic competition cannot provide this broad range of high quality integrated services. Secondly, we are hearing from clients that they are growing increasingly frustrated with hiring a dedicated specialist sustainability consultant in addition to their building systems consultant, both due to cost and potential conflict. Sustainability has been embedded as a core ethos within our MEP design practice for 30 years, but through our Built Ecology practice, we offer a world class full service sustainability and high performance building consulting practice. This combination of multi-disciplinary and specialist sustainable services and capabilities is not generally available in the industry, especially in a firm with our proven capability for delivering very large, innovative, and complex projects. This full service offering provides added value to our clients both in terms of the development of truly integrated and deliverable high performance design and sustainability strategies, while at the same time minimizing their consultant costs and potential team conflict.

Henthorn: It may sound like a cliché, but I believe Stanley Consultants’ competitive advantage can be found in our workforce. We call them “members” rather than employees. In just the past week, I have received a number of letters and e-mails complimenting Stanley Consultants’ members on their “competency, work ethic, dedication, and professionalism.” In the areas of professional services, our expertise in energy generation, transmission, and efficient utilization provides a competitive advantage along with our highway transportation focus, international experience in over 100 countries, and our support of federal agencies since 1942.

Litton: Our firm’s competitive advantage is derived from its committed and passionate employee owners. At the beginning of the year we moved to a 100 percent ESOP. This structure inspires innovation by providing long term reward back to the employee owners.

CSE: Beyond engineering practice, what do young engineers need to learn coming out of school?

Gibson: Business, accounting and finance. If your boss is running all or part of the business, the best way to advance yourself is by helping them be successful. The more employees understand business, cash flow, etc., the better aligned their activities will be with management.

Cooper: While a solid theoretical engineering foundation as learned in school is extremely important, there is a lot more learning to be done once working as an engineering consultant. On the technical side, there is the real world application of engineering principals, understanding how systems really work, balancing the multitude of competing interests in establishing the “right” solution, etc. More importantly from an educational point of view is learning how to be a good “consultant”. An engineering consulting practice is as much art as it is science, and much of that art is about client engagement and relationships, something not really addressed in an engineering curriculum. It is never too early to start building client relationships and a personal network, and recognizing that all members of the design team are potential clients. That said young engineers these days seem to aspire to become Project Managers in advance of their gaining a solid and broad technical foundation. My advice is to have a bit more patience and ensure you first focus on becoming technically proficient with a solid understanding of all building disciplines, for that will facilitate becoming a truly effective project manager and providing the best client service.

Harriman: Graduating engineers should strive to have the ability to write and speak effectively and with confidence. They should also be able to show their involvement and leadership outside of engineering; such as within their community, professional organizations or clubs.

Henthorn: Today’s generation of graduate engineers need excellent oral and written communication skills and a real appreciation for the global workplace. Communication skills have always been important but the global workplace has made it critical in avoiding confusion and unpredictability. The global workplace has made knowing a foreign language even more important today. We see our engineers and architects as future leaders of society. I really like the following quote by Colonel Curtis A. Carver, Jr., Vice Dean for Education at the West Point Military Academy. “There is no doubt that globalization is changing the world, and that future leaders have to understand the global context in which we operate.” This applies to our industry.

Litton: The new engineers coming to the work place are second to none on technical ability. They generally excel at using tools and effectively collaborate in team settings. Communication skills continue to be the area where young engineers have the largest opportunity to enhance their career.

Lynch: Young engineers need to learn many skills besides the technical skills of their respective discipline. First, their technology knowledge and usage must be extremely strong, which we generally see. Next, they must have great communications skills, both written and verbal. Our business is really about communicating technical concepts to people with varying levels of technical knowledge. An engineer without strong communications skills will be limited in their career advancement. We would encourage undergraduate engineers to take courses where they will learn writing and speaking skills as well as learn about people and how to deal with different personality types. Young engineers also need to learn about the business of engineering. Understanding some level of finance and accounting would be very useful in understanding how the business works, budgeting, etc. Today’s successful engineer needs to be well rounded.

Panucci: The field of engineering is no longer focused around solving singular problems in a vacuum, its more about the contribution engineering makes to the greater project. When we hire young engineers and recent graduates, we’re seeking people who have technical writing and assertive communication skills. Hands-on experience through internships also helps young engineers differentiate themselves from their competition.

CSE: How do you handle collaboration between the different engineering disciplines at your firm?

Henthorn: Today’s inter-discipline collaboration is a mixture of new and old schools. Stanley Consultants use of BIM and GIS modeling and databases operating in an Enterprise Content Management (ECM) environment allows for near real time sharing of design information across disciplines. Communication tools such as web sharing technology and video conferencing are also used regularly and effectively between clients and our multi-office design teams. We are seeing more use of the web sharing technology and less video conferencing on heavily technical projects. We are also seeing an increase in PC-to-PC video conferencing for meetings where project communications don’t require heavy data transfer or review. These developing technologies are combined with face-to-face meetings where possible to enhance project team collaboration.

Lynch: We are organized in terms of discipline specific groups: mechanical, electrical, and energy engineering groups. For each group, we have a principal and a number of key senior engineers who lead technical teams and also perform our project management functions. Our project managers are responsible for the coordination between the different disciplines on a given project. We encourage the coordination between disciplines to begin at the junior engineer level and carry up to the senior level. Ultimately, the project manager ensures that the proper level of coordination, meetings, drawing review, etc., take place for a given project.

Cooper: We have a number of on-line collaboration tools but nothing takes the place of face to face meetings. Our project teams meet regularly in-house to ensure a sufficient level of communication and coordination of project and client needs and requirements.

Panucci: Each multi-discipline proposal or project has a single project manager overseeing the work of multiple disciplines so all lines of communication remain open throughout the process. Also, Primera’s ISO Certified quality management system requires that there be cross coordination throughout the design process.

Litton: We find it works for us to draw less definitive lines between disciplines. There is always overlap of the disciplines and managing this overlap is the difference between cohesive solution and one that is myopic with clear deficit. We cross pollinate staff within the firm both geographically and cross discipline to build stronger teams that appreciate the abilities and perspectives of others around them.



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