AEC firms' biggest worry for '05
Can you guess what issue AEC firms see as their Number One Concern going into 2005? Mold liability? No. The escalating cost of steel and other basic materials? Wrong. How about all those worries over outsourcing? Sorry, wrong again. The correct answer: insurance.
Specifically, the skyrocketing cost of providing health insurance to employees. That's the biggest scare cited by respondents to ZweigWhite's 2005 AEC Industry Outlook: Strategy & Insight for Design & Construction Firms. The rising cost of health insurance received a 4.15 score on a scale where 5 is "extremely important." In fact, nearly half (48%) of responding firms gave this issue a 5.
Just like every other business in the U.S., AEC firms are seeing their health insurance premiums go through the roof. The employer-paid portion of health, dental, and life insurance has gone from a median of $2,332 in 2000 to $3,959 in 2004, a 70% jump in four years, according to ZweigWhite, a management consulting firm based in Natick, Mass. As a percentage of net service revenue, these costs have gone up from 3.1% four years ago, to 4.2% in 2004. And while 2005 may see the first break in double-digit annual increases for health insurance (according to benefits consultant Towers Perrin), the aging of the work force, the demand for top-quality care, and the escalating cost of medical technology will keep premiums at stratospheric levels.
Right behind health insurance woes, AEC firms rated the "declining use of qualifications-based selection for A/E firms" (3.81 on the 5-point scale). Among concerns here: the steady increase in demand for design/build procurement for A/E services and the GSA Schedule Contract program, which accounted for more than $3 billion in fees to professional firms in 2003.
In third place, AEC firms cited an "inability to find qualified staff" (3.73) as a major business trend to watch in 2005. The overall labor market is expected to tighten this year, and ZweigWhite sees firms facing a talent crunch, especially for professionals with 7–10 years of experience.
Then, in fourth place (3.71), insurance came roaring back — this time, the cost of professional liability insurance. After a slight dip from $646 per employee in 2000 to $625 in 2001, liability coverage has risen 88% over the last three years, to $1,172 in 2004.
ZweigWhite offers a number of suggestions for alleviating these cost increases — for example, taking a higher deductible on your liability insurance, purchasing health insurance through an industry association or your chamber of commerce, exploring new options like Health Savings Accounts.
The bright side of the report is that many AEC firms surveyed see 2005 as a banner year. Forty percent of firms said the AEC business will outperform the U.S. economy, versus 40% who said AEC firms will do about as well as the overall economy and 20% who said the AEC sector will lag behind the general economy.
The best sectors to be in? Healthcare (3.49 of 5), K-12 schools (3.47), higher education (3.45), and homeland security (3.30).
The report ($203) may be ordered at www.zweigwhite.com/store/outlook05.