Giants 300 'Business Is Good'

Hallelujah! Business was good in 2004 for many AEC firms in Building Design & Construction's Giants 300, and there's cautious optimism that business will stay strong throughout 2005.

That positive attitude has led many firms to expand geographically and to test new markets. They're also experimenting with new technology and new ways of doing business. For most AEC firms, the fun has returned to the $358 billion building design and construction industry.

BD&C's Giants 300 expanded globally in 2004, notably to China. Fourteen of BD&C's Giants set up shop there last year, among them HOK (A/E 1), Skidmore, Owings & Merrill (A/E 2), Gensler (A 1), NBBJ (A 2), Callison (A 5), and A. Epstein and Sons (A/E 10). Toledo-based SSOE (E/A 12) hung a shingle in Shanghai to focus on the automotive industry.

"It's the Wild West," said M. Arthur Gensler, Jr., FAIA, chair of the nation's largest architecture firm, which has about 40 people in Beijing and Shanghai. "It's 18 hours a day, every day. The cycles are two or three times, maybe five times, faster than in the U.S. You get a month to design something the size of Rockefeller Center."

Gensler believes the situation in China is changing quickly. "The design institutes are picking our brains," he told BD&C. "You've got to get paid, and you're giving up your intellectual property at the front end of the project."

NBBJ has an office in Beijing and plans to open one in Shanghai this fall, with Chinese nationals at the helm in both. "The gold rush is over," said chairman Friedrich K.M. Böhm, FAIA, whose firm recently completed a 100,000-sm headquarters building for China Electronics Corp. "The market is clearly overcrowded, but we're there for the long haul, and we want to develop a local presence as much as we can."

Böhm said he's limiting NBBJ's expansion to Shanghai, Dubai, and Moscow, which he admits are totally different cities, with totally different needs. "You need to be careful—it's not that easy to do business everywhere," he said. "We look to locate in countries with a good cultural history and education system. China and Russia have it, Dubai does not." Then why Dubai? "It's a boomtown economy," and the design opportunities are too tempting, he told BD&C.

Then there's Moscow. The firm just finished the 27,000-sm Moscow Medical Center and Krylatsky Hills, a 54,000-sm suburban office park. "We made money, and everyone is looking at us as a good business partner, but it's a risk," he admits. "Russia is scary."

In the U.S., AEC firms spun the roulette wheel and the ball landed on Las Vegas. With its 30 million tourists each year, America's fastest-growing city has become a hotbed of construction activity—with condos, casinos, resorts, and mixed-use developments.

Seven firms on BD&C's Giants 300 list opened offices in Sin City last year, including Fields Devereaux (A/E 44), GRG (E 25), KKE (A 45), and R.G. Vanderweil Engineers (E 10). Walter P. Moore's (E 17) new office—its ninth regional location—will serve as engineering HQ for The Palazzo, a 54-story casino/hotel under construction on The Strip, and a $30 million theater addition to the Venetian.

HKS (A/E 5) needed an office in Vegas, where it's working on three hospitals, an office building, an addition to the University of Nevada Las Vegas, and the Venetian. The firm is also architect of record on Project CityCenter, MGM Mirage's planned $4.7 billion mega-project, due for 2009 completion.

Gensler, which designed the city's new monorail stations and is serving as executive architect on CityCenter, is staffing its Las Vegas office with about 50 employees. "We're seeing Las Vegas expand as a major market," said Gensler, an editorial advisor to BD&C.

The desert was hot for AEC firms in 2004. Six firms expanded into Phoenix last year, among them Corgan Associates (A 8), Henderson Engineers (E 18), and M.A. Mortenson Co. (C 19), which was recently selected as CM/GC for a $13 million theme park in Chandler, Ariz.

Some firms chose to expand within their current markets. Shawmut Design & Construction (C 41), headquartered in Boston, recently enlarged an existing office in nearby Providence, R.I. The expansion took place after Shawmut completed a molecular medicine laboratory last August at Brown University. On the Left Coast, Rudolph & Sletten (C 29) will move from Foster City to Redwood City, Calif., shooting for LEED-CI Gold for its new corporate headquarters.

For many firms, expansion was just the logical way to do business. CJL Engineering (E 48) added to its Pittsburgh office with staff from Meucci Engineering and opened an office in Youngstown, Ohio, to serve that city's healthcare sector. Ware Malcolm (A 22) moved into Chicago and Sacramento, Calif., both relatively strong markets, while Westlake Reed Leskosky (new to the list, at A/E 47) couldn't resist taking the plunge into the Washington, D.C., pool.

McCarthy Building Cos. (C 16), with more than 70 completed projects in the Southeast over the last 20 years, bit the bullet and opened an office in Atlanta last April. The contractor is currently building the $160 million Center for Emerging Infectious Diseases facility at the Centers for Disease Control and Prevention.

Giants 300 firms are extending their reach into new locations through mergers and acquisitions. Montana-based CTA Inc. (A/E 40) strengthened its grip on the Seattle market by acquiring Moberg Epstein, and Austin AECOM was created to combine the McClier Corporation with the Chicago and Houston offices of the Austin Company.

Engineer/architect Stantec Inc. (E/A 9) relocated to larger facilities in Guaynabo, Puerto Rico, last fall to enhance its presence in the island's pharmaceutical industry. Stantec experienced double-digit growth last year after purchasing engineer/architect Sear-Brown. The firm also acquired two Canadian architecture/interior design firms, GBR Architects Ltd., Winnipeg, and Dunlop Architects, Toronto.

Other M&A activity in the last year:

• Perkins+Will (A 3) purchased Busby + Associates Architects, Vancouver, B.C., to gain the expertise of green-building guru Peter Busby, FRAIC. P+W recently scooped up the Washington, D.C., firm Ai, known for its strength in corporate and government workplace design. The deal has already yielded two hefty projects: the $96 million Gateway Community College in New Haven, Conn., and the 160,000-sf National Biodefense Analysis and Countermeasures Center at Fort Detrick, Md.
• NTD Architects and The Stichler Group merged in early 2004 to form NTDStichler (A 18). The merger capitalizes on Stichler's expertise in healthcare and education and NTD's focus on educational, corporate, and commercial facilities.
• Stanley Consultants (E/A 22) purchased Bolduc, Smiley & Associates, a traffic engineering consulting firm in Phoenix.
• Heery International (A/E 3, CM 10) fattened its portfolio with three acquisitions: HLM Design, The JCM Group, and FPM.
• Jacobs Engineering (E/A 2, C 13, CM 8) bought the Babtie Group Ltd., Glasgow, Scotland. The 3,500-employee firm adds to Jacobs' infrastructure, environmental, defense, and government outsourcing capability.
• Dewberry (E/A 13) snapped up Phillips Swager Associates, Peoria, Ill. (the 47^th largest A/E firm in our 2004 listings), while Perini Corp. (C 11) absorbed Cherry Hill Construction, Jessup, Md., on January 1.
• Not strictly a merger, but CRB Consulting Engineers (E 15) signed an agreement with Ireland's Project Management Ltd., Dublin, to pursue biopharmaceutical facilities work in the Emerald Isle.

For the mega-Giants, bigness let's you throw your weight around—presumably for the benefit of the client. Turner (C 1, CM 17) has a separate division, called Turner Logistics, that uses the contractor's huge purchasing power to save clients money on everything from chillers to insurance. "We're the largest purchaser of certain kinds of medical equipment in the world," says chairman Thomas C. Leppert. "We pull our volume together and use that to negotiate with suppliers."

Size also keeps everyone busy at the nation's largest architecture firm. "We share work between offices much more than other firms do," says Art Gensler. "In a crunch, we can move pieces of the project to another office and keep them busy." Management at all 29 offices meet by phone every Monday at 8 a.m. Pacific time to divvy up the work.

Size allows HDR Architecture (A/E 4) to link an established office with a new outpost. The new eight-member Denver office, where HDR is doing work for the University of Colorado, is tied to the headquarters office in Omaha, Neb., while the new Charlotte, N.C., shop gets help as needed from the bigger Alexandria, Va., office. "Clients want our national expertise, but they want somebody to be local, too," said president Merle Bachman.

Gilbane Building Co. (C 14, CM 6), Providence, R.I., uses its size to concentrate technical expertise on specific client issues, such as infection control and preconstruction services for hospitals. Each of the firm's nine regional offices delegates its top expert in each category to these "centers of excellence," said president William J. Gilbane, Jr. "They understand the whole functionality of hospitals—adjacency of departments, patient care issues, ICUs, the right sizing of operating rooms," he said.

Gilbane says such a critical mass of knowledge benefits all the firm's clients. "When we go into a small hospital in rural New Hampshire, we want to bring that same expertise into the job," he said.

In similar fashion, super-Giant URS Corp. (E/A 1, CM 1) is looking to extend its solid reputation in federal work to the K-12, retail, and healthcare fields. The firm's facilities unit is teaming with Turner on the $1 billion UCLA Medical Center, managing construction of multiple facilities at Stanford University, and working on a 10-year, $500 million hospital consolidation in the unit's home base of Grand Rapids, Mich.

William ("Sandy") Stevenson, AIA, SVP of the firm's A/E design practice, sees a new type of healthcare facility emerging—the critical access hospital. These are small hospitals in states like California, Michigan, Texas, and Wyoming, where improved reimbursement for rural hospitals is making new construction feasible. "They're $5–10 million projects, but there's a lot of them," said Stevenson.

The Giants 300 are also spreading their wings into new client areas. Design firms are getting into full-scale real estate services. Detroit's HarleyEllis (A/E 28) has formed a separate business unit, Spectrum Strategies, to provide strategic planning, real estate services, project management, asset management, and facilities management to institutional clients and large corporations. Top client: Ford Land.

Dallas healthcare design firm HKS (A/E 5) has created HKS Link, an alliance with Link Systems, New York, N.Y., that provides facility management services to clients upon completion of building projects. "Architects are being turned to by clients who are asking, What do I do now?" said H. Ralph Hawkins, FAIA, HKS president and CEO.

Hawkins said the program, which has been in place three years, has been "a little slower" to take off than projected. "We tried to sell it to some large clients and they backed off, but now they're coming back, because they see the need," he said. Will large hospital systems take up the service? "Ask me in a couple of years," said Hawkins.

Looking ahead, what are the major issues for the Giants 300?

Liability continues to be a huge concern for the mega-Giants. "Our insurance rates have gone up dramatically, and the amount of coverage we have at the firm will triple this year," said SmithGroup (A/E 8) president and CEO Carl Roehling, FAIA, who adds that only 3–4 companies in the world can insure a firm of SmithGroup's size. "Client demand for quality and speed have both increased, and the exposure is daunting. It's a real wet blanket on the ability to experiment and innovate."

HKS's Hawkins says litigation risk is putting a damper on condo construction. "If you put up 200 units and there's a problem, it could be $200,000 per claim," he said. "That's $40 million in liability, for a fee of maybe $4 million." He said insurers are limiting some firms to a cap of 10% of their practice in condo work.

"Value dilution" is another serious issue, especially among design firms. "We don't want to become a commodity," said HDR's Bachman. "We want to be at the forefront." A year ago, he established a Design Council to give his top designers (and the top engineers from HDR's M/E unit) a voice at the management table. HDR also has a program called "Clients for Life" to emphasize client retention. "In healthcare, our repeat business is about 80%," he said.

Bachman sees growth ahead for design-build. "We want to be able to say to the client, We can deliver in whatever delivery method you choose," he said. That may mean working as a subcontractor with Hensel Phelps Construction (C 7) on the Pentagon or in a joint venture with Turner on a prison in Walla Walla, Wash.

NBBJ's Böhm sees growing interest in creating denser environments. "We just can't keep spreading out," he told BD&C. "We need to take used properties and make something better of them, from brownfield to total development." The future, he said, is greater density, especially mixed use—housing, offices, retail, entertainment facilities, even small hospitals and clinics, all in one.

As for green building, if you're not doing it, you're way behind the curve. In education and government, "There's not a client that doesn't have sustainability at the top of the list," said Robert Frasca, FAIA, a founding partner of Zimmer Gunsul Frasca (A 11), Portland, Ore. ZGF recently completed a LEED Silver science building at Duke University and just broke ground on a new EPA building in Denver that will go for LEED Gold.

Frasca says the current green movement is nothing like the short-lived solar "flare" of the 1970s. "The institutional clients are really pushing it, but I think it's going to take off in the private sector, too," he told BD&C.

The next big challenge? "Keeping every person focused on quality," said ZGF's Frasca. "Clients are very sophisticated now. They visit buildings. They want to know who did the jobs. They have architects on their staffs. Client relations are more professional today. It's not a country club set anymore. They don't select an architect based on his golf score."

Merritt Watts, BD&C's Editorial Intern, contributed to this story.