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BLOG: ACEC SUMMIT: Trends and Outlooks for the Consulting Engineering Industry

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by Journal Of Commerce

Paul Zofnass, the president of Environmental Financial Consulting Group (EFCG), was the keynote speaker on Friday, June 20 at the Association of Consulting Engineering Companies Leadership Summit 2014, held in Winnipeg, Man.

Paul Zofnass, the president of Environmental Financial Consulting Group (EFCG), was the keynote speaker on Friday, June 20 at the Association of Consulting Engineering Companies Leadership Summit 2014, held in Winnipeg, Man.

Zofnass’s presentation, “Trends and outlook for the consulting engineering industry,” summarized EFCG’s most current research into the consulting engineering sector.

225 firms took part in the 2013 EFCG CEO survey, with revenues ranging from over $1 billion to under $25 million. The majority of the firms were in the $25-50 million range.

The billion dollar players generate over $73 billion In consulting engineering revenues, Zofnass said.

The survey measured internal growth rate and profitability, and Zofnass said in terms of organic growth, 2013 was disappointing, due to declines in internal growth estimates from five per cent in 2013 to 3.5 per cent in April 2014.

Profitability was estimated at 11.2 per cent in October 2013, but was at 9.5 per cent as of April 2014.

Historically, growth rate rose three per cent steadily from 1996 until 9/11, which caused a recession after the terrorist attacks on New York. From there the growth gate got all the way to 12.9 per cent in 2007, before crashing to zero during the financial crisis and rising back to seven per cent projected for 2015.

But it is important to point out that despite the volatility of the industry, it has never had negative growth, Zofnass said. Additionally, the consulting engineering median has been above U.S. GDP for the past 20 years. It has also been 30 per cent higher than world GDP.

In terms of profitability, there has been a gradual improvement for the last 20 years except for a dip after the 9/11 attacks.

The industry is successful because of increasing financial and business maturity on the part of engineering firms. Zofnass said.

Bigger companies are growing by acquisition, Zofnass said, because they have the capital to do so.

Zofnass said the best sectors (as chosen by CEOs in the survey) were energy, water and waste, power, environmental, and transport/infrastructure.

The worst sectors were the building sector, municipal and federal work (in the United States).

“But it’s important to remember these sectors shift from year to year,” Zofnass said.

The survey also found that in terms of variability in performance by business sector, differences within sectors far exceed differences between sectors.

Over 80 per cent of the firms that were around in 1990 are no longer in existence, Zofnass said.

The way to stick around is “don’t be in the bottom half” in terms of metrics of performance and efficiency, he said.

“No medium firm will be around 20 years from now,” he said.

The fastest growing international markets for engineering consulting are Canada, South and Central Americs, primarily Brazil, the Middle East, Africa and the United States.

India and China are “loss leaders,” Zofnass said.

Design/build has seen a significant increase in the last five years, and is expected to continue increasing.

Design/build is more profitable, but also has higher marketing costs.

It is generally more risky, and is prevalent across all sizes of projects.

Design/build also means different things to different firms. It is important to understand the risks you are assuming, and be sure you can afford the risks, Zofnass said. Otherwise the results can be “disastrous.”

Zofnass said P3 work will also grow, but that firms should figure out if P3 work suits them before taking on projects.

Sustainability services are another important growth area, with annual expected growth at 37 per cent.

JOC DIGITAL MEDIA

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