This report provides a macro view of the architectural and engineering design industry in the U.S. in order to understand strategies employed by both successful and unsuccessful firms over the past 50 years. It also evaluates technological trends that design firms must embrace in order to maintain a competitive edge moving forward into the future.
Past, Present, and Future Analysis of the Architectural & Engineering Design Industry
1. PAST, PRESENT, AND FUTURE ANALYSIS OF THE ARCHITECTURAL &
ENGINEERING DESIGN INDUSTRY
Prepared By:
William J. McConnell, J.D., P.E.
Chief Executive Officer
The Vertex Companies, Inc.
July 2016
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Table of Contents
I. Executive Summary 3
II. Design Marketplace 4
III. Overall Industry Growth 4
IV. International Growth 5
V. Market Consolidation 7
VI. Employee OwnedAEC Firms 8
VII. Lifecycles of the Largest AEC Firms in the US over the past 50 Years 8
A. 24 Surviving Firms 11
B. 35 Firms that were Acquired 12
C. 41 Firms that Failed 12
VIII. Design Sector Growth 12
IX. Impact to Design Firms due to the Market Shift in the Hazardous Waste Industry during the 1990s 14
X. Technological Advances that AEC Firms Must Embrace to be Competitive in the Near Future 20
A. AEC Firms will Realize Additional Benefits of BIM 21
B. Use of Unmanned Aerial Vehicles(UAVs) to Capture Existing Conditions 21
C. Use of Laser Scanning to Capture Existing Conditions 22
D. Virtual and Augmented Reality 22
E. BIMProcesses Will Revolutionize Building DeliveryVia Prefabrication 23
F. Improved Energy Performance Modeling 23
G. Cloud Based Data Storage Will Improve Collaboration 24
H. 3D-Printed Architectural Models 24
I. Use of Composites in Construction 25
XI. Conclusions 25
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I. Executive Summary
Thisreportprovidesamacro view of the architectural andengineeringdesignindustryinthe
U.S. inorder to understandstrategiesemployedbybothsuccessful andunsuccessfulfirmsoverthe past
50 years.It alsoevaluatestechnological trendsthatdesignfirmsmustembrace inordertomaintaina
competitiveedge movingforwardintothe future.
The majorityof the top20 designfirmsare publiclytradedandlooktoM&A activityto maintain
robustgrowthprograms. Largerfirmsoverthe past50 years that have ignoredstrategicM&A activity
have steadilyfallendownoroff ENR’stopdesignfirmlist.Lackof M&A oftenleadstoan
overconcentrationof workinfew marketsectors.Because marketsectorsebbandflow overtime,alack
of diversificationcausedseveral failuresof large designfirmssince 1965. Anoverconcentrationinoil and
gas workin the 1970s ledtomany failuresinthe 1980s. Similarly,anoverweighedfocusonhazardous
waste workin the 1980s andearly1990s ledto a numberof large bankruptciesandfire salesinthe late
1990s and early2000s. Thus,a keylessonfromthisstudyisthe importance of marketdiversification.
Overthe past twentyyearsthe growthof the top500 architectural andengineeringdesignfirms
has outpacedthe U.S. GrossDomesticProductby nearlytwopercentage pointsinlarge partbecause of
rapidgrowthin internationalwork.The average percentageof international revenue forthe top20
designfirmshasdoubledoverthe pasttwentyyears,from14% to 28%; thus,the large firmsmustnot
ignore international marketstomaintaincompetitiveness.
In additiontodiversificationandinternational expansion,designfirmsmustembrace
technological advancesinordertopositionforfuture work.Forinstance,BIMsoftware isutilizedon
nearlyall large designprojectsto,amongotherthings,coordinate the workof varioustrades—ignoring
thistrendis almosta bar to qualificationforlarge-scale work.Newertrends,suchasthe use of drones
and laserscanningtocapture existingconditions,cloudbasedstorage forimprovedcollaboration, and
3D-Printingtoprepare earlyarchitectural models,mustbe embracedtokeeponthe forefrontof market
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adoption.Inaddition,architectsandengineersmustunderstandthe use of new productofferings,such
as compositestokeepdesignseconomicallyviable andawe-inspiring.
II. DesignMarketplace
The architectural and engineeringdesignmarketplace ismade upof approximately100,000
firms,butthe majorityof the industry’srevenueisgeneratedfromthe top500 companies.1 2
Like
construction,the overall designindustryisfragmented—onlytenpercentof all firmshave more than20
employees.3
Thispaperfocusesonthe largerdesignfirms,whichtraditionallyfall intoone of the
followingfive categories:
AEC: architect,engineering,andconstructioncompany
AE: architectand engineeringcompany
EC: engineeringandconstructioncompany
A: architectural company
E: engineeringcompany
Of the top20 rankedfirms,9 are EC, 5 are AEC,4 are AE,1 is A,and 1 isE; hence,the majorityof
top designfirmsalsohave aconstructioncomponent.Inaddition,the onlypure engineeringfirm(“E”) is
Tetra Tech,and it wascategorizedasan EC firmuntil lastyearwhenit droppeditsconstruction
program,whichis a trendthat I will discusslaterinthisreport.The revenue recordedbyENR,the
publicationthatranksthe top 500 designfirmseachyear,doesnotinclude constructionrevenue;thus,
the rankingispurelybasedondesignservices.
III. Overall Industry Growth
Domesticdesignrevenue forthe top500 designfirmsoutpacedboththe U.S.GDP and put-in-
place constructionrevenue overthe pasttwentyyears,withanaverage annual growthrate of 5.3%.
1
https://www.census.gov/epcd/susb/2002/us/US5413.HTM
2
https://research.stlouisfed.org/fred2/series/REV5413TAXABL157QNSA
3
https://www.census.gov/epcd/susb/2002/us/US5413.HTM#table1
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International designrevenueforthe top500 designcompaniesgrew ata healthy9.8% withinthe noted
time frame.Combined, domesticandinternational designrevenuegrew atan annual rate of 6.1%.
Annual Growth
Category Rate (’95 – ’15)
Top 500 DomesticDesignRevenue: 5.3%
Top 500 InternationalDesignRevenue: 9.8%
Top 500 DesignRevenue(Domestic&International): 6.1%
US GDP4
: 4.4%
Put InPlace Construction(domestic) 5
: 3.6%
Overall designrevenueoutpacedconstructionrevenue andGDPfiguresfortworeasons.First,
the constructionandGDP figuresdonotinclude internationalexpenditures,which, asnotedabove,are
outpacingdomesticwork.Second,duringthe GreatRecessionof 2007-2009, manyownerscontinuedto
authorize designworkand,once complete,projectswereshelved,whichcausedagreatimpactto
overall constructionrevenue.Asaresult, the downturndidnotaffectdesignfirmsasseverelyas
contractors.
IV. International Growth
Large designfirmsmustlooktointernationalworktomaintaintheirpositionasa topplayerin
the marketplace.Onaverage,the top20 designfirmsgenerateone thirdof revenue frominternational
projects.Intermsof overall figuresfromthe top500 designers,international workpercentage has
doubledfrom14.6% in1995 to 28.3% in2015. The figuressuggestthatlarge AECfirmscan no longer
ignore the internationalmarketplace asasource of growth.
4
http://www.bea.gov/newsreleases/national/gdp/2016/gdp4q15_3rd.htm
5
https://www.census.gov/construction/c30/c30index.html
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Domestic Int’l Overall % Int’l
Year Revenue Revenue Revenue Revenue
1995 $23,860 $4,090 $27,950 14.6%
2000 $33,200 $7,800 $41,000 19.0%
2005 $42,100 $10,900 $53,000 20.6%
2010 $59,200 $20,800 $80,000 26.0%
2015 $66,200 $26,100 $92,300 28.3%
Accordingto industryexperts,the future of internationalworkismore aboutcitiesthan
countriesdue tourbanizationandsustainablelivingtrends.The EconomistIntelligence Unit’sreport
titled“HotSpots:BenchmarkingGlobal CityCompetitiveness,”notesthatcompaniesshouldtargetcities
that have highrankingsinthe followingeightindicatorcategories:6
1. EconomicStrength
2. Human Capital
3. InstitutionalEffectiveness
4. Financial Maturity
5. Global Appeal
6. Physical Capital
7. EnvironmentandNatural Hazards,and
6
http://abyssglobal.com
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8. Social and Cultural Character
Reportedly,citieswiththe highestcombinedrankings,basedonthe notedmetrics,provide sufficient
infrastructure andwork/life environmentfor“people toconducttheirlivesandbusinesseffectively.”7
V. Market Consolidation
Many of the large designfirmsrelyuponacquisitionsasthe primarymeansof growthforseveral
reasons.First,annual organicgrowthforlarge companiesistypicallylimitedtolow single digits,whichis
consideredtooslow bymostlarge companies.Second,manyof the topdesignfirmsare publiclytraded,
whichisunlike the topconstructioncompanies.Publiclytradedcompanieshave addedpressure togrow
and are valuedatmuch highermultiplesthanprivatelyheldfirms.Specifically,12of the top 20 AEC
firmsare publicandthe majorityof firmshave a P/E ratiointhe 15 to 20 range.Meanwhile,accordingly
to FMI, privatelyheldfirmsare typicallyvaluedatamultiple of 3 to 6 timesearnings.Hence,public
companiesoftenacquire privatecompaniesformuchlowermultiples,andwhenthe acquiredfirm’s
earningsare postedina publicsetting,the value doubles,if nottriples.Thisdifference invaluation
betweenpublicandprivate marketsdrivesdealflow.
As a resultof thisarbitrage,the marketshare of the top10 designfirms,inrelationtothe top
500 designfirmrevenue,continuestogrow.Infact, the top 10 designfirmshave a50.0% marketshare,
whichisup from30.2% in 1995. Companieslike AECOM,Jacobs,AMEC,TetraTech, Arcadis,andothers
continue togobble upmiddle marketplayers.
MarketShare of
Year the Top10 AECFirms
1995 30.2%
2000 40.5%
2005 44.2%
2010 50.4%
2015 50.0%
7
Id.
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VI. Employee OwnedAEC Firms
As notedabove,the 12 of the top 20 designfirmsare publiclytraded.Of the remaining8firms,
7 are 100% employee owned.The onlyexceptiontothismodel inthe top20 listisBechtel,whichis
ownedbythe Bechtel familyandvariousinternallyelectedemployees;Bechtel isthe fifthlargest
privatelyheldcompanyinthe US.8
Basedonmy review of the ownershipmodel of the top100 design
firms,the mosteffectiveownershipstrategies,inordertopositionadesignfirmforgrowth,isthe public
marketplace or100% employeeownership.The publicmodeloffershighvaluationmultipleswhich
promotesgrowththroughacquisition,while the employee ownershipmodel providesdesignteamswith
additional motivationtogrow the businessinordertoincrease corporate valuation.
VII. Lifecyclesof the Largest AEC Firms in the US over the past 50 Years
Of the top100 designfirmsreportedbyENRin1965, 24 survived,35were acquired,and41
failed.Thisdataissimilar,butsurprisinglyabitbleaker,thanmyanalysisof the top100 contractors
listedbyENRin 1965 where 26 survived,41 were acquired,and33 failed.
Survived Acquired Failed
CurrentStatusof Top 100 DesignFirmsfrom1965: 24 35 41
CurrentStatusof Top 100 Contractors from1965: 26 41 33
While more designfirmsfailedwhencomparedtocontractors,the successrate of acquisitions
of designfirmsisconsiderablyhigherthanthe successrate of contractors. The vast majorityof the 35
designfirmacquisitionsweresuccessful,whileoverhalf of the 41 contractor acquisitionsfailedduring
the notedtime period.
Anotherinterestingfactisthatonly3 of the 8 survivingdesignfirmsthatwere listedinthe top
25 in 1965 remaininthe top 25 in2015. The five firmsthatslippedoutof the top25 made minimal, if
any,acquisitionsoverthe past50 years.Thissuggeststhatan acquisitionstrategyisnecessarytokeep
8
http://www.forbes.com/companies/bechtel/
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pace (orabove) withthe industry. Designfirmsthatlackthe personnel, capital,and/oranappetite for
risk(vis-a-visM&A transactions) oftenfall downthe topdesignerlistovertime.A seeminglygoodexit
strategyfor large designfirmsthatfall intothiscategoryistobe acquiredbya large and diverse design
firm.
As notedinthe “Lifecycle of ConstructionContractors”study,anumberof AECfirmshave
startedto acquire pure contractors.The converse isnottrue—onlyone pure contractortriggereda
mergerwitha large architectural firm(The BeckGroup’smergerwithUrban Architecture in1999) based
on myresearch;thisis likelydue tolackof funding.
The followingisareview of ENR’stopdesignfirmlistof 1965:
1965 2015
Rank Rank CompanyName (AcquiringFirm)
1 10 CHAS.T. MAIN INC.(PARSONS)
2 2 SVERDRUP & PARCEL& ASSOCS.INC.(JACOBS)
3 33 MICHAEL BAKER INTERNATIONAL
4 20 HNTB
5 21 HARZA ENGINEERINGCO. (MWH)
6 1 TIPPETTS-ABBETT-MCCARTHY-STRATTON (AECOM)
7 44 SKIDMORE OWINGS& MERRILL LLP
8 12 BROWN & ROOT INC.(KBR)
9 1 DANIEL,MANN,JOHNSON & MENDENHALL (AECOM)
10 45 BURNS & ROE INC.(POWER ENGINEERS)
11 30 SARGENT & LUNDY LLC
12 1 FREDRIC R. HARRISINC.(AECOM)
13 2 GIBBS & HILL INC.(JACOBS)
14 25 LOUIS BERGER
15 16 PARSONS,BRINCKERHOFF,QUADE&DOUGLAS (WSP-PARSONSBRINCKERHOFF)
16 15 BLACK& VEATCH
17 FAILED
18 1 METCALF & EDDY ENGINEERS (AECOM)
19 65 SMITH, HINCHMAN & GRYLLS ASSOC.INC.(SMITHGROUPJJR)
20 10 DELEUW, CATHER & CO. (PARSONS)
21 207 AMMANN & WHITNEY
22 10 GILBERT ASSOCS.INC.(PARSONS)
23 4 LOCKWOODGREENE ENGINEERSINC.(CH2M HILL)
24 38 PERKINS+ WILL
25 FAILED
26 49 GANNETTFLEMING
27 1 WELTON BECKET & ASSOCIATES(AECOM)
28 322 HLW INTERNATIONAL
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29 FAILED
30 FAILED
31 470 ALBERT KAHN FAMILY OF COS.
32 22 WILBUR SMITH & ASSOCS.(CDMSMITH)
33 1 WOODWARD-CLYDE-SHERARD& ASSOCS.(AECOM)
34 FAILED
35 1 CONSOER,TOWNSEND& ASSOCS.(AECOM)
36 66 STANLEY CONSULTANTS
37 70 RS&H
38 6 FOSTER WHEELER CORP.(AMEC FOSTER WHEELER)
39 39 SANDERS& THOMAS INC.(STV GROUP INC.)
40 1 ELLERBE & CO. (AECOM)
41 2 J.E. SIRRINECO.(JACOBS)
42 FAILED
43 FAILED
44 81 LEO A DALY
45 FAILED
46 1 J.E. GREINER CO.(AECOM)
47 94 JOHN GRAHAM & CO.(DLR GROUP)
48 1 DAMES AND MOORE (AECOM)
49 FAILED
50 133 SYSKA & HENNESSY
51 FAILED
52 17 BURNS & MCDONNELL
53 39 STV GROUP INC.
54 FAILED
55 FAILED
56 FAILED
57 114 WHITMAN, REQUARDT & ASSOCIATESLLP
58 FAILED
59 FAILED
60 1 BOYLE ENGINEERING (AECOM)
61 FAILED
62 FAILED
63 FAILED
64 FAILED
65 FAILED
66 FAILED
67 2 EDWARDS & KELCEY (JACOBS)
68 349 BUCHART ASSOCIATES(BUCHART-HORN INC.-BASCOASSOCIATES
69 477 EPSTEIN
70 247 FAY SPOFFORD& THORNDIKE
71 FAILED
72 FAILED
73 FAILED
74 FAILED
75 1 THE KEN R. WHITE CO.(AECOM)
76 FAILED
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77 FAILED
78 41 ANDERSON-NICHOLS&CO. INC.(DEWBERRY)
79 349 BUCHART-HORN
80 FAILED
81 40 R.W. BECK & ASSOCS.(LEIDOS)
82 124 GEORGE S. NOLTE CONSULTINGCIVILENG’RSINC.(NV5)
83 FAILED
84 37 HOK
85 FAILED
86 FAILED
87 71 RUMMEL KLEPPER & KAHL LLP
88 FAILED
89 41 GOODKIND& O’DEA (DEWBERRY)
90 FAILED
91 2 VINCENTG. KLING& ASSOCS.(JACOBS)
92 FAILED
93 FAILED
94 127 ALFRED BENESCH & CO.
95 FAILED
96 4 CLAIRA. HILL & ASSOC.(CH2MHILL)
97 FAILED
98 FAILED
99 FAILED
100 FAILED
Summary:
24 FirmsSurvived
41 FirmsFailed
35 FirmsWere Acquired(5movedup list/19 moveddownlist)
A. 24 SurvivingFirms
The vast majorityof the survivingfirms,or19 of 24, moveddownENR’sTop100 AEC listover
the past 50 years.The five survivingfirmsthatactuallymovedupENR’slistincludedBlack&Veatch(#16
to #15), Burns& McDonnell (#52 to #17), STV Group (#53 to #39), HOK (#84 to #37), andRumel Klepper
& Kahl (#87 to #31).
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B. 35 Firms that were Acquired
AECOM(publiclytraded)acquired12,or approximatelyone-third,of the top100 designfirms
that were acquiredoverthe past50 years—note the majorityof AECOM’sacquisitionstookplace over
the past twodecades. Jacobs(publiclytraded) hadthe secondmostacquisitionsat4,Parsons(100%
employeeowned) hadthe thirdmostat 3, and CH2M (100% employeeowned) andDewberrytiedfor
the fourthmost acquisitionsat2.
The remaining14 companieswere acquiredbyotherlarge designfirms.The successrate of the
acquisitionswasremarkable,particularlywhencomparedtothe successrate of acquisitionsinthe
constructionindustry.Asdiscussedfurtherbelow,acquisitionsmade bylarge,diverse,andpublicdesign
firmsappearto have more successthan designfirmswithonlyafew service offerings.The diverse firms
tendto performmuchbetterthroughleantimesthathitcertainindustriesatleastonce a decade.
C. 41 Firms that Failed
ENR didnot listthe namesof the faileddesignfirmsinitsanalysis;thus,Iwasunable toevaluate
the reasonsfor failure.Likelythe maincause of failure islackof diversificationand,asaresult,failure
due to shiftsinthe marketplace.
VIII. DesignSector Growth
ENR dividesdesignrevenueintonine sectors.The size andpercentof contributionof each
sectoris everevolving.In1995 the largestdesignsectorwashazardouswaste,now itranks fifth.Forthe
firsttime in20 yearsTransportationnow ranksfirst.Understandinghow eachdesignsectorebbsand
flowsiscritical tosurvival—particularlyfirmsthatlackdiversity.Thisissue isdiscussedindetail below.
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IX. Impact to DesignFirms due to the Market Shift in the Hazardous Waste Industry during the
1990s
On average,the largestdesignsectorinthe 1980s and earlytomid-1990s was HazardousWaste,
primarilydue toCongress’passage of CERCLA legislation(Comprehensive Environmental Response,
Compensation,andLiabilityAct) in1980 and SARA (SuperfundAmendmentsandReauthorizationAct) in
1986. Federal andstate fundingforthisworkcreateda massive industryforengineersandcontractors
alike.However,inthe earlytomid-1990s fundingforthisworkstalled,whichcausedpoorperformance
or worse,failure,of manyfirms.
In 1990, 15 of the top 100 designfirmsinthe US derivedthe majorityof itsrevenue from
hazardouswaste relatedprojects.Nearlyall of the firmslackedthe properdiversificationnecessaryto
allow forproperrepositioningonce aninevitablemarketshiftoccurred,whichstartedtotake place in
the earlyto mid-1990s. Asa consequence, 11of the 15 firmseithersoldoutor wentbankrupt,asnoted
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below.Moreover,the remaining4firmshave struggledtokeeppace withaverage designcompany
performance overthe pastthree decades. The followingisabrief reviewof the 15 firms.
#16 Dames & Moore, Los Angeles,CA(50% Haz. Waste workin1990)(Acquiredby URS in
1999): In the early1990s, as the hazardouswaste industrystartedtoshrink,Dames& Moore
wentpublicinorderto generate sufficientfundingtogoon an acquisitionspree todiversify
away fromthe hazardouswaste sector.In 1995 alone,Dames&Moore acquiredWalkHaydel &
AssociatesInc.(ProgramManagementfirmfocusedonthe Powerindustry),O'BrienKreitzberg,
Inc. (ConstructionManagementfirmthatfocusedonfederal buildingprojects),and
DecisionQuest,Inc.(Behavioral Researchfirm).The acquisitionsprovedtobe toolittle toolate
as Dames& Moore soldout to URS in 1999 due to financial issues.
#20 ICF KaiserEngineers,Oakland, CA(42% Haz. Waste workin 1990)(AcquiredbyIT Corp. in
1998): SimilartoDames & Moore,ICF KaiserEngineerswentpublicin1991 inorderto generate
fundingforacquisitionstoallow fordiversificationbeyondhazardouswaste work.Specifically,
ICF Kaiserattemptedtoenterintomanufacturing,whichturnedouttobe unsuccessful asnoted
by the WashingtonPost,"the companyprovednotparticularlygoodatmanagingproduct-
orientedbusinesses."Thereafterthe companysoldoff manyof itsacquisitionsandrestructured
itsdebt.The company’spoor acquisitionstrategy,coupledwiththe continuallyshrinking
hazardouswaste work,ledtoICF Kaiser’ssale toIT Corp.in the late 1990s. The sale wasunusual
because ITCorp. wasin a similarpositiontoICFKaiser—overweighedfocusonhazardouswaste
work.As notedbelow,ITCorp.filedforbankruptcyin2002.
#24 IT Corporation, Torrance, CA (100% Haz. Waste work in1990)(FiledforBankruptcyin
2002): IT Corp.’sprincipal businessinvolvedthe disposalof industrialhazardouswaste.The
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companyhad virtuallynodiversificationbeyondenvironmentalwork inthe early1990s.
Accordingly,ITCorp.ran intofinancial troublesinthe 1990s due to the shrinkingmarketplace
and a recklessacquisitionstrategy.Tomake mattersworse,the companywasnamedina
numberof highprofile environmentallaw suitsinthe early2000s. Accordingly,ITCorp.declared
bankruptcyin2002. Thereafter,the Shaw Groupacquiredsubstantiallyall of ITCorp.’sassets
and some of itsliabilitiesoutof bankruptcy.
#34 ENSR Corporation, Westford,MA(100% Haz. Waste workin 1990)(AcquiredbyAECOMin
2005): ENSR Corporation,like ITCorp.,wassolelyfocusedonhazardouswaste workinthe early
1990s. Asa result,ENSRstruggledthroughthe 1990s and early2000s due to the shrinking
marketplace forhazardouswaste work.Ultimately,ENSRsoldouttoAECOMin 2005.
#37 NUSCorporation, Gaithersburg,MD (40% Haz. Waste work in1990)(Acquiredby
Halliburtonin1992): HalliburtonacquiredNUSCorporationinthe early1990s as the hazardous
waste sectorstartedto compress.Halliburtonhadtrouble turningNUSCorp.around;therefore,
it spunNUS Corp.off to Tetra Tech Inc.in 1997. Over the pastdecade or so, TetraTech has
repositionedTetraTechNUSinto a technologyfirmthatisfocusedonthe environmental
industry.9
#38 Woodward-Clyde Group,Inc.,Denver,CO (33% Haz. Waste Work)(AcquiredbyURSin
1997): While Woodward-Clyde onlygenerated33% of its revenue fromhazardouswaste
projects,itsoverall focuswasenvironmentallydriven;thus,the company’sgrowthlanguished
9
http://isg.applications.tetratech.com/productGallery.aspx
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throughthe earlyand mid-1990s.10
URS, a primarilybuildingandtransportationAECfirm,
acquiredWoodward-Clyde in1997 to diversifyitsservice offerings.11
In2012, URS spent$1.25
billioninitsacquisitionof FlintEnergyServices,whichcreatedanoverconcentrationinrevenue
and debtrelatedtothe oil and gas sector.Asa resultof URS’ subsequentpoorperformance due
to the compressionof the oil andgas sector,AECOMacquiredURS inlate 2014.
#46 The ERM Group, Exton,PA (85% Haz Waste workin 1990)(RemainsinBusiness):ERM
weatheredthe stormof the 1990s eventhoughalarge concentrationof itsworkwas focusedon
hazardouswaste.However,ERMhas struggledwithconsistentgrowththroughthe 1990s. To
helpboostgrowth,ERMaligneditself withprivate equityfirm,BridgeportCapital,inthe early
2000s. In2011, London-basedprivateequityfirmCharterhouse acquiredamajoritystake inthe
businessbybuyingoutCharterhouse’sshares.12
In2015, ERM partneredwithOMERSPrivate
Equityto take out Charterhouse.13
Basedonthisvolatility,ERMappearsto be strugglingwith
thisprivate equityformula.
#57 GroundwaterTechnologyInc., Norwood, MA (100% Haz. Waste workin1990)(Acquiredby
IT Corp. 1998): In 1996, Flour’ssubsidiary,FlourDaniel Environmental Services,Inc.,merged
withGroundwaterTechnologyInc.toformFluorDaniel GTI.14
The mergerdidnot workout as
10
http://www.solidwaste.com/doc/urs-acquires-woodward-clyde-group-0002
11
http://www.nytimes.com/1997/08/20/business/urs-to-pay-100-million-for-woodward-clyde.html
12
http://www.erm.com/en/news-events/news/erm-partners-with-omers-private-equity-to-buy-out-
charterhouses-investment-in-erm/
13
http://www.erm.com/en/news-events/news/archived-news-2011/erm-announces-that-charterhouse-is-to-
acquire-a-majority-stake-in-the-business/
14
http://investor.fluor.com/phoenix.zhtml?c=124955&p=irol-newsArticle&ID=14751
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Flourexpected;therefore,FloursoldFluorDaniel GTI toIT Corp.15
in1998, lessthantwoyears
afterthe transaction.Asnotedabove,IT Corp.filedforbankruptcyin2002.
#59 Harding Associates,Novato, CA (80% Haz. Waste work in1990)(AcquiredbyIT Corp. in
1998): In 1998, Hardingemployedthe ITCorp.strategyandattemptedtoincrease its
marketshare of hazardouswaste work,despite the lackof growthinthissector.Inthe 1998
HardingacquiredABB EnvironmentalServicesInc. outof Portland,ME (#87 on ENR’sTop 500
DesignFirmsin1990).16
Harding’sgrowthstrategywithinthe hazardouswaste sectordidnot
workas two yearlaterit soldoutto Mactec Inc. fora discountedprice due topoorfinancial
performance.17
In2011, AMEC acquiredMactec.18
#70 ATEC AssociatesInc., Indianapolis,IN (45% Haz. Waste work in1990)(Survived;Dropped
off of ENR’sTop 500 list):Onor about 1995, ATC,an environmental firm,acquiredATEC. ATC,
like ERM, appearsto be havingtrouble withitsownershipstructure overthe pastdecade most
likelydue tosluggishmarketgrowth.In2012, Cardno Limited(Australia-basedglobalAECfirm)
acquiredATC.In 2015, a groupledby BernhardCapital Partners(energyfocusedprivateequity
firm),acquiredATCfromCardno.19
ATCwas not listedinENR’sTop500 DesignFirmin2015.
#79 Ecology and Environment,Inc., Lancaster, NY (90% Haz Waste workin1990)(Survived;
Droppeddownto #96 on ENR’sTop 500 list):EcologyandEnvironment,Inc.(“E&E”) wasable to
15
http://www.nytimes.com/1998/10/29/business/company-news-it-group-acquiring-fluor-daniel-gti-for-69-
million.html
16
https://zweiggroup.com/newsletters/checkout.php?id=1082
17
http://www.nytimes.com/2000/03/25/business/company-news-harding-lawson-agrees-to-takeover-by-
mactec.html
18
http://archive.amecfw.com/news/2011/amec-acquires-leading-us-engineering-and-environmental-services-
company-mactec
19
https://www.businessreport.com/article/bernhard-acquires-lafayette-based-environmental-consulting-
engineering-firm-atc-associates
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slowlydiversifyitsserve offeringsoverthe past30 years—itnow offersenvironmental planning,
engineering, waterresources,anddue diligence services.20
AlthoughE&Ewentpubliclike many
of the othernotedfirmsinthe late 1980s, it didnot go ona recklessspendingspree that
saddledmanyof the othernotedfirmswithunmanageabledebtload.WhileE&Eremainsin
businesstoday(#96 inENR’sTop 500 DesignFirmlistof 2015), itsfinancial performance has
beenlackluster—E&E’scurrentstockprice remainslessthanhalf of whatitwas inthe 1980s.
#84 VERSAR Inc., Springfield,VA(40% Haz Waste Work)(Survived;Droppedoff of ENR’sTop
500 List):Aswas the trendinthe 1980s for environmental firms,Versarwentpublictofund
future expansion.AlthoughVersarremainsinbusinesstoday,itsfinancial performance hasbeen
poor evidencedbyitsstockprice,whichisat approximately15% of its highwatermark inthe
1980s.21
Versaris nolongerlistedonENR’sTop 500 DesignFirmlist.
#87 ABB Environmental Services,Inc., Portland, ME (95% Haz. Waste work in1990)(Acquired
by Hardingin1998 – IT Corp. acquiredHardinglaterthatyear):Little informationexistsabout
ABB Environmental Services,Inc.(nottobe confusedwithpowergiantABBGroup).Because
ABB wasprimarilyfocusedonhazardouswaste work,theylikelystruggledthroughthe 1990s,
whichlikelyledtoHardingAssociates’acquisitionof the companyin1998.
#89 Geraghty& MillerInc.,Plainview,NY(95% Haz. Waste workin1990)(Acquiredby Arcadis
in1993): Since itsincorporationinthe 1970s, Geraghty& Millerfocusedonenvironmental
20
http://www.ene.com/
21
http://www.versar.com/investors/corporate.html
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remediationwork.The firmwentpublicin1988 inan efforttodiversify.Afterpoorresults, the
companysoldout to Arcadisin1993.22
#100 EMCON Associates,San Jose,CA (40% Haz. Waste workin1990)(Acquiredby IT Corp.in
1999): Similartoseveral of the firmsnotedabove,EMCON wentpublicinthe early1990s
(Nasdaq:MCON) inan efforttodiversifyintootherindustrysectors.EMCON’sresultswere
mixedandin1999 EMCON soldout to IT Corp., whichsubsequentlywentbankruptin2002.
Needlesstosay,designfirmswithanoverconcentrationof workina shrinkingmarketplace have
a verydifficulttime withsurvival.Seeminglythe bestsolutionforanAEC firminthissituationisto sell to
a more diversifieddesignfirm,similartothe exitstrategyof Woodward-Clyde Group,Inc.(URS) and
Geraghty& MillerInc.(Arcadis).A sale toanothernon-diversifiedcompanythatisstuckinthe same
industry(like ITCorp.inthe examplesabove) isclearlynotthe answer.The firmsthatsurvivedthe
compressionof the hazardouswaste industrydidsothroughdownsizingandslow butsteady
diversification.
X. Technological Advancesthat AEC Firms Must Embrace to be Competitive inthe Near Future
In orderto maintaincompetitive fornew work,designfirmsmustconsistentlyembrace
technological advancementsthatimprove efficienciesandbolstercreativedesigns. Firmsthatresist
change will have adifficulttime qualifyingforfuture workopportunities.The followingisalistof
technologytrendsthatare affectingthe waythe AECindustryoperates.
22
http://www.enr.com/articles/7551-james-geraghty-pioneer-of-groundwater-study-is-dead-at-90
21. P a g e | 21
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A. AEC Firms will Realize Additional Benefitsof BIM
Overthe past decade,manyAECfirmsusedBIM software tobuild3D modelstocreate 2D
documents,muchlike theydidwithCADsoftware.While the productionof drawingssetsfromBIM
software isuseful,BIMinformationhasmanyotheradvantagesthatAECfirmsare startingto benefit
fromand thistrendwill continue inthe nearfuture.23
BIM can be usedto:24
• Visualizationthrough3Drenderings.
• Fabrication/shopdrawingspreparation(forinstance,sheetmetal ductwork).
• Quantitytakeoff foraccurate cost estimating.
• 3D constructionsequencingdemonstrations.
• Site logisticdemonstrations.
• Conflict,interference,andcollisiondetection(primarilyusedforMEP coordination).
• Forensicanalysistographicallyillustrate potentialfailures,leaks,evacuationplans,etc.
• Assistfacilitymanagerswithplanningforrenovations,space planning, andmaintenance
operations.
The economicbenefitsof afull use of BIMsoftware includesareductionof unbudgetedchange (due to
lessconflicts,etc.),more accurate costestimates,andschedule improvement.
B. Use of UnmannedAerial Vehicles(UAVs) toCapture ExistingConditions
A considerablecostinthe AEC industryiscapturingexistingconditionsof projectsites.Asthe
cost of UAVs continuestodecrease andthe relatedcapture technologycontinuestoadvance,AECfirms
will use UAVsandcapture software tocollectmassdata at a verylow cost witha highdegree of
23
http://www.architectmagazine.com/technology/seven-steps-to-bim-better_o
24
http://ascelibrary.org/doi/pdf/10.1061/(ASCE)LM.1943-5630.0000127
22. P a g e | 22
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accuracy. The mostwidelyusedsoftware thatbridgesUAV datawithdesignsoftware isAutodesk’s
ReCap360.25
One constraintto expandedusage of thistechnologyisFAA regulations.
C. Use of Laser Scanning to Capture ExistingConditions
Historically,the capture of existingconditiondataisparticularlyexpensive onrestoration
projectsthatinvolve olderbuildingswithonlyhanddrawnplans(if that).SimilartoUAV technology,3D
laserscanningtechnologyismore andmore affordable.3Dlaserscannerstypicallysitonatripodand
record a site’sshape andappearance,andthenconvertthe conditionsintoacloudof data pointsthat
can be importedintoaBIMmodel.26
Large contractors suchas Gilbane andDPR have recentlyusedlaser
scanningequipmenttoefficientlycapture dataandcreate BIM modelsonprojectwhere limitedtono
data existedpreviously.27
D. Virtual and AugmentedReality
BIM software developersbelievethatAECfirmswill needtoadoptvirtual andaugmentedreality
as buildingownersandpropertymanagerswill wantto“experienceabuilding’sdesignbeforeitwas
everbuilt.”28
Virtual andaugmentedrealitywill gofarbeyondtoday’s360-degree visualizationsof a
project;once thisprocessgoesmainstream,ownerswill be able tosee whatisbehindwallsandin
closedspacesthroughheadmounteddisplayunits.29
Augmentedrealityisablendof virtual realityandreal life.Withaugmentedreality,userscan
interactwithvirtual contentinthe real worldandcan distinguishbetweenthe two.Virtual reality,on
the otherhand,makesit difficultforthe usertodistinguishbetweenwhatisreal andwhat isnot.
25
http://www.prnewswire.com/news-releases/microdesk-reveals-top-trends-for-2015-that-will-shape-the-aec-
industry-300003320.html
26
https://lineshapespace.com/how-laser-scanning-helps-a-building-company-save-time-and-money/
27
Id.
28
http://www.microdesk.com/Newsroom/Recent-Coverage/Details/ArticleID/850/Microdesk-Reveals-Top-Trends-
For-2015-That-Will-Shape-The-AEC-Industry
29
http://www.techtimes.com/articles/5078/20140406/augmented-reality-vs-virtual-reality-what-are-the-
differences-and-similarities.htm
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E. BIM ProcessesWill Revolutionize BuildingDeliveryViaPrefabrication
Projectteamsare startingto use BIMto improve scheduleandcostby prefabricatingmany
buildingcomponentssuchasmechanical lines,plumbinginfrastructure,restroompods,framedinterior
partitions,andexteriorveneerpanels.30
The prefabricationistypicallydoneinanearbyfactor rather
than ona hecticjobsite.31
Thistrendhas takenoff inSoutheastAsia.Overthe pastsix years,Chinese companyBroad
Sustainable BuildingCompany(“BSB”) hascompletedthree recordbreakingprojectsdue toadvanced
prefabricationtechniques.In2010 BSB constructedArkhotel,a15 story building,in48hours.32
In 2011,
BSB erectedT-30, a 30 story hotel,in15 days.33
Andin 2015, BSB completedJ57,a 57 storiesmixeduse
building, injust19 days.34
One of BRB’s projects,SkyCity,iscurrentlyonhold.If thisprojectmoves
forward,BRB plansto constructthe tallestbuildinginthe world(220 floors) injust90 days.BRB is
startingto license itstechnologyworldwide.35
F. ImprovedEnergy Performance Modeling
Energymodelingsuchasdaylightingandairflow modelsistypicallyalengthyandcost
prohibitiveexercisethatisperformedbyspecialtyconsultants;thisischanging.New software by
AutodeskandSefairaisavailablethatallowsforenergymodelingduringthe conceptual phaseof design.
Thisallowsdesignerstomake subtle designchangessuchasdetailingshadingdevicesorotheroptions
basedon simulatedenergyperformance,whichpreventscostlyrevisionstowardsthe tail endof a
designprocess.36
Autodesk’sFormItsoftware allowsuserstocalculate “energy-performancefeedback
30
https://soundcloud.com/autodeskaec/phil-bernstein-commentary-your-next-building-wont-be-builtit-will-be-
manufactured
31
http://www.bdcnetwork.com/5-tech-trends-transforming-bimvdc
32
https://www.youtube.com/watch?v=Ps0DSihggio
33
https://www.youtube.com/watch?v=C2K53T81FEs&index=2&list=PLiwZ62tpFvnh4eNmGUVCFO4uj_hZJON3b
34
https://www.youtube.com/watch?v=veNf-bz99cI
35
http://www.constructionweekonline.com/article-19593-broad-sticks-to-90-day-worlds-tallest-target/
36
http://www.bdcnetwork.com/5-tech-trends-transforming-bimvdc#sthash.rJpWVpZ2.dpuf
24. P a g e | 24
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on earlydesigndecisions,suchasbuildingorientation,thermal performance,andmassing.”37
Results
can be importedintoRevit.
G. CloudBased Data Storage Will Improve Collaboration
Historically,architectswouldstore BIMfilesonhisorher PC,whichtookup considerable hard
drive space.Now thatmore andmore data isshiftingtothe cloud,the sharingof projectdata is
becomingismore efficient.Software companiessuchasAssembleSystemsandPanzurahave developed
cloud-basedtoolsforadvanceddatamanagement,whichinclude datastorage,consolidation,archiving,
heightenedaccess,andsecurity.38 39
H. 3D-PrintedArchitectural Models
Ownersrarelyapprove fundingforarchitectural modelsdue tothe expense andtime required
for creation.However,withthe introductionof low cost3D printingtechnology,physical modelsare
now practical.Pricesfor3D printersrange fromseveral hundreddollarstoseveral thousanddollarsfor
lowertomidendmodels. Accordingly,the popularityof architectural modelswill rapidlyincreaseover
the nextseveral years.
The creationof architectural modelshasmanybenefitsincluding:4041
• 3D model provide avisual perspective thatcannotbe achievedwithblueprints,drawings,or
digital 3D models.
• Architectural modelscanbe 3D printedinfull-colorforinspiringpresentationsanddisplays.
• 3D modelshelpthe communicationbetweenarchitectsandcontractorsto betterensure desired
resultsthatcan helpavoidexpensivechangesduringthe course of construction.
37
http://www.bdcnetwork.com/5-tech-trends-transforming-bimvdc
38
http://panzura.com/products/global-file-system/
39
http://assemblesystems.com/
40
http://www.3ders.org/3d-printing.html
41
https://www.whiteclouds.com/blog/benefits-3d-printed-architectural-models
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• Architectural modelsmake effective publicdisplaysthathelpmarketthe projecttoinvestors
and/ortenants.
• Architectural scale modelsquicklycommunicate designconceptsandallow people toeasily
comprehendaproject.
I. Use of CompositesinConstruction
Composite material istypicallyamix of glass,aramid,andcarbonfibers.Recentadvancesin
composite technologyallow partstobe curedat lowerpressuresandtemperatures,whichinturn
lowersthe costof productionandallowsforincreasingsizesof manufacturedparts.42
Thischange has
increasedthe use of compositesinthe buildingindustry.43
The benefitof compositesinclude:flexibility
of form,structural capacity,durability,andlife-cycle cost.
Typical applicationsof forcomposite material inconstructioninclude structural membersfor
bridges,hydraulicstructures,andcladdingmaterial.Composite claddingcanbe insulatedtoform
sandwichpanelsthathave efficientthermal,weatherbarrier,andsoundproperties.The maineconomic
benefitof compositesstemfromitslow-weight/high-strengthmaterial properties,whichcancause a
reductioninthe cost of supportingstructures.Asthe composite manufacturingprocesscontinuesto
improve sowill the adoptionof compositesintomore andmore constructionprojects.
XI. Conclusions
Diversificationisakeyforcontinuedgrowthof large AECfirms.Failure todiversifycausedmany
noteworthyfirmstofail overthe pastfive decades.Moreover, AECfirmsmustpositionthemselvesfor
international workinordertobroadentheirreachto maintainabove average revenueprogression.
Lastly,successful designfirmsembrace,notresist,technological advancessuchasthe evolutionfrom2-
42
http://www.azom.com/article.aspx?ArticleID=1425
43
Id.
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D to 3-D draftingandnow to 4-D modeling.Changesintechnologyoverthe nextdecadeswill be drastic
and firmsthatignore the efficienciesandcreativityofferedbysuchadvancementswill be leftbehind.