The annual economic state of the A/E/C Industry, presented by David Burstein P.E.at PSMJ THRIVE 2018 in San Diego.

1. #PSMJTHRIVE
The State of the A/E/C Industry
PSMJ’s Outlook for 2019 and Beyond
1. Introduction
2. Employment and
compensation trends
3. Financial performance trends
4. Ownership Transition Trends
5. Market trends
6. Black swans on the pond?
7. Recommendations
8. Q&A

2. #PSMJTHRIVE 2
About Me
B.S., M.S. Civil Engineering
26 years with Parsons Corp.
• Junior Engineer
• Project Engineer
• Project Manager
• Department Manager
• Office Manager
• Regional Manager
• U.S. Operations Manager
• President of Parsons Engineering
Science, Inc. and of Harland
Bartholomew Associates
Affiliated with PSMJ since 1979
• Part time from 1979 – 1997
• Full time since 1997

3. #PSMJTHRIVE
We’re Going to Cover a Lot of Information.
So Hold Onto Your Hat!
3

4. #PSMJTHRIVE
Employment and Compensation Trends

5. #PSMJTHRIVE
U.S. Employment Reached Pre-Recession Levels in
Early 2014
5
Source: U.S. Bureau of Labor Statistics

6. #PSMJTHRIVE 6
It’s Taken 4 Years Longer for the U.S. A/E Industry to Catch
Up
Source: U.S. Bureau of Labor Statistics

7. #PSMJTHRIVE
Engineering Firms Are Doing a Bit Better
7
Source: U.S. Dept. of Labor Bureau of Labor Statistics

8. #PSMJTHRIVE 8
Architecture Firms Still Haven’t Fully Recovered
Source: U.S. Dept. of Labor Bureau of Labor Statistics

9. #PSMJTHRIVE
For the ENR 500, the U.S. Market is Stronger
Than International Markets
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
U.S. Employees International
Employees
Hiring of Professional Staff
Increased Decreased
Source: Engineering News Record
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
U.S. Employees International
Employees
Profitability
Increased Decreased

10. #PSMJTHRIVE 10
A/E Growth is Expected to Continue
Source: PSMJ 2018 Management Compensation Survey

11. #PSMJTHRIVE 11
Professional/Technical Services
Quit Rates Are Increasing
Source: U.S. Department of Labor

12. #PSMJTHRIVE 12
Turnover is also increasing in the A/E industry
8%
10%
12%
14%
16%
18%
20%
22%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
MedianAnnualTurnover
3-year Moving Average
Source: 2018 PSMJ Financial Performance Survey
8%
10%
12%
14%
16%
18%
20%
22%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
MedianAnnualTurnover

13. #PSMJTHRIVE
Large firms have higher turnover
11.1
13.8
12.5
13.3 14 13.6
20
1-20 21-50 51-100 101-200 201-350 351 - 750 Over 750
Firm Size (Employees)
Meidan Employee Turnover (%)
13
Source: 2018 PSMJ Financial Performance Survey

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How would you like to be responsible for recruiting at
AECOM?

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That may explain their poor performance
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
2016 2017 2018 thru Q2
AECOM Financial Performance (Including Acquisitions)
Revenue Growth
Profitability

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Wages of All U.S. Workers Are Escalating
16
Source: U.S. Bureau of Labor Statistics

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After a Hiatus, Wages in U.S. A/E Firms Are Also
Escalating
17
Source: U.S. Bureau of Labor Statistics

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Salaries Are Increasing Faster for Junior and Mid-level
Architects
18
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
2015 2016 2017 2018
Median Base Salaries for Architects
New Grads
6-9 Years Experience
10-14 Years Experience
20+ Years Experience
Source: PSMJ 2018 Staff Salary Survey

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…and for Mid-level Civil Engineers
19
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
2015 2016 2017 2018
Median Base Salaries for Civil Engineers
New Grads
6-9 Years Experience
10-14 Years Experience
20+ Years Experience
Source: PSMJ 2018 Staff Salary Survey

20. #PSMJTHRIVE
Larger Firms Are Starting to Pay More
R² = 0.9112
R² = 0.7352
$40,000
$42,000
$44,000
$46,000
$48,000
$50,000
$52,000
$54,000
$56,000
$58,000
1-20 21-50 51-100 101-250 251-500 Over 500
Firm Size (Employees)
Entry Level Base Salaries
Architects Civil Engineers
20

21. #PSMJTHRIVE 21
Management Comp is Also Increasing
Position:
Relative Change Since Feb 2017
Salary Total Comp
Chairman of the Board 5.7% 24.3%
Chief Executive Officer/President/Managing Partner 4.2% 4.2%
Chief Operating Officer/Executive Vice President -2.3% 1.1%
Senior Vice President/Senior Principal 0.5% -4.1%
Other Principals and Partners 5.3% 2.6%
Director of Finance/CFO 2.8% 2.8%
Controller 2.0% -0.4%
Business Manager 1.7% 3.0%
Director of BIM Services 1.0% 2.0%
Director of Operations 1.1% -8.8%
Director of Business Development 0.0% 3.8%
Director of Marketing 5.4% 9.4%
Director of Human Resources 2.0% 4.7%
Director of IT/Computer Operations 10.4% 4.9%
Branch Office Manager 4.7% -3.8%
Department Head -1.5% 5.3%
Senior Project Manager 5.6% 6.4%
Project Manager 2.9% 4.6%
Overall 2.4% 3.4%
Source: Comparison of 126 firms participating in both the 2017 and 2018 PSMJ Management Comp Survey

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Especially for PMs
Source: PSMJ 2018 Management Compensation Survey

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And Senior PMs
Source: PSMJ 2018 Management Compensation Survey

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Bonuses Are Becoming More Prominent for PMs
Source: PSMJ 2018 Management Compensation Survey

25. #PSMJTHRIVE
These Projections May be Too Low
25
Source: PSMJ 2018 Management Compensation Survey

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Financial Performance Trends in the A/E Industry

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Revenue continues modest growth

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Utilization continued its long-term downward trend

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Group insurance costs increased modestly (4%)

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But overhead rates are trending down

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Target DL multiplier has levelled off

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But achieved DL multiplier increased

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Net Revenue Deficit has Turned into a Surplus!

34. #PSMJTHRIVE 34
Net payroll multiplier (revenue factor) increased a bit

35. #PSMJTHRIVE 35
Profitability also increased

36. #PSMJTHRIVE 36
Return on Shareholders’ Equity hit an all-time high!

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It took less time to invoice and collect

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Equity per staff has levelled off

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Ownership Transition Trends

40. #PSMJTHRIVE 40
Contrary to the opinion of many principals…
Source: Equity in Architecture Survey 2016, conducted by AIA and San Francisco Art Institute

41. #PSMJTHRIVE
Current owners have done a poor job of explaining
why younger professionals should buy into their firm

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Change in U.S. Labor Force from 2010–16 by Age
(Millions)
42
Source: Economist.com
Buyers
Sellers

43. #PSMJTHRIVE
So There Are a Lot More Sellers Than Buyers
43
12
6
Sellers Buyers
PSMJ Active M&A Clients

44. #PSMJTHRIVE
Some Big Acquirers Are Getting Indigestion
April 30, 2018 ENR
AECOM, one of the biggest acquirers in recent years, has gone quiet. “We are always
on the lookout for a brilliant company to add, but right now, we are making the most of
what we have,” says Steve Morris, Group VP for America Design and Consulting
Services
44

45. #PSMJTHRIVE
Market Trends

46. #PSMJTHRIVE
A/E Proposal Opportunities Are
the Most Leading Indicator
3-6
Months
6-12
Months
2-4
Months
A/E Firm
Proposal
Opportunities
A/E Firm
Backlog
A/E Firm
Revenues
A/E Firm
Cash
Flow
Construction
Firm
Revenues
1-2 Years
46

47. #PSMJTHRIVE
PSMJ’s Quarterly
Market Surveys
 PSMJ conducts quarterly
market surveys as a free
service to the industry.
 Input is restricted to A/E
firms.
 200-500 people respond to
these surveys.
 We use this data to chart
trends using a “Plus/Minus
Index”.
PSMJ
Survey
PSMJ
Survey
PSMJ
Survey
PSMJ
Survey
47

48. #PSMJTHRIVE
We Look at These A/E/C Markets
48
Energy and Utilities
• Renewable energy
• Power plants
• Utility distribution
• Telecom/cable
• Pipelines
Transportation
• Roads
• Bridges
• Rail
• Airports
• Transportation planning
• Traffic
Education
• K-12 schools
• Higher education facilities
• Laboratories
• Support facilities (gyms, dorms,
libraries, etc.)
Other Government Buildings
• Justice facilities
• Public safety facilities (fire
stations, police, etc.)
• Public recreation
• Sports facilities
Housing
• Condominiums
• Multifamily housing
• Single family development
(subdivisions)
• Single family property (individual
houses)
• Senior & assisted living
(independent living)
Commercial (Developers and
Users)
• Office buildings
• Retail buildings
• Warehouse distribution
• Call centers & data facilities
• Hotels/motels
• Restaurants
Industry (Light and Heavy)
• Component assembly facilities
• Repair facilities
• Warehouse distribution facilities
• Oil drilling and mining
• Petroleum facilities
• Chemical plants
• Primary metals manufacturing
• Product manufacturing
• Pharmaceutical manufacturing
Water and Wastewater
• Water supply
• Water distribution
• Wastewater collection
• Wastewater treatment
• Wastewater reuse
• Water treatment
Environmental
• Solid waste disposal
• Waste cleanup
• Site characterization
• Resource management
• Wetlands delineation
• Environmental permitting
• Air pollution
Health Care
• Hospitals
• Continuing care facilities
• Medical offices
• Medical laboratories

49. #PSMJTHRIVE 49
How We Compute our “Plus/Minus Index”
Sample Question: Are proposal opportunities in the transportation
sector increasing or decreasing compared to last quarter?
Sample Calculation:
Total firms reporting = 185
Firms reporting an increase = 60 firms x 1 points = +60
Firms reporting no change = 80 firms x 0 points = 0
Firms reporting a decrease = 45 firms x -1 points = -45
Total “points” = +15
Index = 15 ÷ 185 = +8%

50. #PSMJTHRIVE
A/E Proposal Opportunities Have Increased Every
Quarter Since 2009
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%

51. #PSMJTHRIVE
All Regions Are Showing Substantial Increases
+37%
+43%
+39%
+41%
+35%
+31%

52. #PSMJTHRIVE
Summary of Q2 Proposal Plus/Minus Index
Housing
Commercial Users
Commercial Developers
Light Industrial
Heavy Industrial
Energy & Utilities
Water/Wastewater
Environmental
Education
Transportation
Other Gov’t. Buildings
Health Care
0-20-40-60-80 +20 +40 +60 +80 +100-100
0-20-40-60-80 +20 +40 +60 +80 +100-100

53. #PSMJTHRIVE
FMI’s Construction Outlook
Up More than 5% Up Less Than 5% Down
• Single family housing
• Improvement
• Office
• Education
• Public Safety
• Amusement & Recreation
• Transportation
• Communication
• Conservation &
Development
• Multifamily housing
• Lodging
• Commercial
• Health care
• Religious
• Manufacturing
• Highways & Streets
• Sewage & Waste Disposal
• Water Supply
• Power
Source: FMI U.S. Construction Outlook, 2nd Quarter 2018

54. #PSMJTHRIVE
How We Assess the Markets
Profitability
Long Term (2-5 Years)
Short Term (1-2 Years)
54
-2 +20
Awful = -2 Great = +2Neutral = 0

55. #PSMJTHRIVE
Our Latest Prioritization
Markets
Short-Term
Prospects
(-2 to +2)
Long-Term
Prospects
(-2 to +2)
Relative
Profitability
(-2 to +2)
Total Points
(-6 to +6)
Housing +2.0 +2.0 +2.0 +6.0
Govt. Buildings +1.5 +1.5 +2.0 +5.0
Commercial +1.5 +1.5 +1.5 +4.5
Water/Wastewater +2.0 +1.5 +1.0 +4.5
Education +1.5 +1.5 - +3.0
Industrial +1.0 +1.0 +1.0 +3.0
Transportation +1.5 +2.0 -1.0 +2.5
Health Care +1.5 +1.5 -1.0 +2.0
Environmental +1.5 - - +1.5
Energy/Utilities +1.0 +0.5 -0.5 +1.0

56. #PSMJTHRIVE
If you want to look into the future…
56

57. #PSMJTHRIVE
Home sales have only now reached the historic
average

58. #PSMJTHRIVE
Delinquencies Continue to Decline

59. #PSMJTHRIVE
Home ownership is just starting to increase

60. #PSMJTHRIVE
Housing Market Proposal Activity is Strong
-50%
-80%
-15%
11%
0%
20%
55%
70%
53% 57%
47% 48% 48% 49%
65%
55%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%

61. #PSMJTHRIVE
In Every Region
55%
48%
55%
42%
63%
50%
54%

62. #PSMJTHRIVE
New Subdivisions Are Especially Important
62
Housing
Commercial
Users
Commercial
Developers
Transportation
Water &
Wastewater
Education
Energy &
Utilities
Government
Buildings

63. #PSMJTHRIVE
Subdivision Proposal Activity Remains Strong
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
Single Family Development (Subdivisions)

64. #PSMJTHRIVE
But watch out for increasing mortgage rates

65. #PSMJTHRIVE
Black Swans on the Pond?

66. #PSMJTHRIVE 66
Swan #1. The Rise of E-commerce

67. #PSMJTHRIVE 67
…is Killing Conventional Retailers

68. #PSMJTHRIVE 68
But Some Will Never Be Replaced by Amazon

69. #PSMJTHRIVE
Toy Stores Are Changing From…To…

70. #PSMJTHRIVE 70
Other Retailing is Changing
Photo courtesy of Interactive Resources, Richmond, CA

71. #PSMJTHRIVE
Why is This A/E Firm Principal so Happy?
• Firm designs cannabis facilities
• Fully integrated from growing to
processing to dispensaries
• DL multiplier of 4.0+
• All cash up front
Photo courtesy of Interactive Resources, Richmond, CA

72. #PSMJTHRIVE 72
Swan #2. Resolution of Obamacare

73. #PSMJTHRIVE
More Major Capital Projects Are Moving Ahead

74. #PSMJTHRIVE
So Health Care A/E Firm Profitability is Improving
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Profitability of Health Care A/E Firms vs. Overall A/E Industry
74

75. #PSMJTHRIVE 75
Swan #3. The Exploding National Debt

76. #PSMJTHRIVE 76
If You Think This is Normal…

77. #PSMJTHRIVE
Federal Debt Service Will Crowd Out Other Federal Infrastructure
Expenditures
77

78. #PSMJTHRIVE
Swan #4. Driverless Cars
78

79. #PSMJTHRIVE 79
Higher Vehicle Utilization Will Reduce the Demand
for New Cars

80. #PSMJTHRIVE 80
Higher Roadway Utilization Will Reduce Demand for
Roads & Bridges

81. #PSMJTHRIVE 81
ITS Will Be Hot

82. #PSMJTHRIVE 82
Urban Design Will Change

83. #PSMJTHRIVE 83
Swan #5. Renewable Energy

84. #PSMJTHRIVE
New Global Power Generation Expenditures in 2040
84
Source: Bloomberg New Energy Outlook 2017

85. #PSMJTHRIVE 85
Old Coal Plants Will Need to be Remediated

86. #PSMJTHRIVE 86
Smart Grids Will Replace Conventional Distribution
Systems

87. #PSMJTHRIVE
Swan #6. Global Warming Will Continue

88. #PSMJTHRIVE
Coastal Engineering Will Be Hot

89. #PSMJTHRIVE 89
Geoengineering May Become the Next Hot Discipline

90. #PSMJTHRIVE
One Pilot Project to Remove Carbon

91. #PSMJTHRIVE
So, What Should I Do With This All This Information?
1. Be sure your salary structure is internally
equitable and competitive with others in
the A/E industry.
2. Now is the time to raise prices more than
you are raising wages (i.e., higher
multiplier).
3. Don’t let your profits leak out as “net
revenue deficit”.
4. Structure your bonus program to promote
ownership transition without giving away
shares.
5. Follow PSMJ’s market trends every quarter.

92. #PSMJTHRIVE
Please participate in PSMJ’s surveys
Survey Timing Benefits To Participate…
Quarterly
Market Survey
• January
• April
• July
• October
• Free quarterly
market report
Go to www.psmj.com/qmf
and click on the
“Participate Now” button
Management &
Staff
Compensation
January-
February 2018
• Free compensation
benchmarking tools
• 40% off each survey
Go to the PSMJ booth to
sign up or send an email to
Jill Stoodley, PSMJ’s Survey
Director, at
jstoodley@psmj.com.
Financial
Performance
January –
April 2018
• Free financial
performance
benchmarking tools
• 40% off each survey
Go to the PSMJ booth to
sign up or send an email to
Jill Stoodley, PSMJ’s Survey
Director, at
jstoodley@psmj.com.

93. #PSMJTHRIVE
New from PSMJ
A/E/C Project Management
Association
Project Management
E-learning Modules
Aptitude Test for PMs
and Business Unit Leaders
• Created by task force of 12
well-respected firms
• PM certification that really
relates to the A/E industry
• Access to great content
• Participation in on-line forums
• Charter memberships still
available
• For more info, see the PSMJ
booth or go to
www.aecpma.org
• 20 modules
• From proposal to close-out
• Take PM Bootcamp without
travelling
• Refreshers for past PM
Bootcamp attendees
• For more info, see the PSMJ
booth go to
www.psmj.com/education-
and-events/online-learning
• Uses well respected Harrison
Assessment
• Predicts the probability of
success as a PM
• Use when considering
promotions or new hires
• For more information, see the
Harrison Assessments booth
or go to www.psmj.com/ae-
project-manager-
performance-benchmarking

94. #PSMJTHRIVE
Questions or Comments???
David Burstein. P.E.
dburstein@psmj.com
770.335.2541