After three years of slow but continuing improvement, architecture and engineering (A&E) firms are healthier now than at any time since the start of the great recession, according to initial findings of the 2013 Architectural and Engineering Study from DiCicco, Gulman & Company LLP (DGC), a CPA and business consulting firm specializing in the A&E profession.
This soon-to-be released survey benchmarks financial performance and other key indicators based on input from over 40 architecture and engineering firms headquartered in the greater Boston area. The study, conducted annually, contains some of the most comprehensive financial data available on the A&E industry.
“Most firms are doing better than they did in 2011,” says Chad DaGraca, a partner in DCG’s A&E practice. While the report shows a 2.6% increase in profits, perhaps more significant is the fact that firms also increased hiring, made investments in infrastructure and saw continued growth in the volume of their business. “These are signs of a true recovery,” DaGraca says.
One reason for the improvement is renewed activity in the private sector. Many companies—including a good number of the Fortune 500—have been loosening their purse strings and investing in new buildings and facilities. “Companies are spending money because they have more confidence in the overall direction of the economy,” he says.
At the same time, the residential housing market has stabilized and is improving in certain markets across the country. With more work to be found in the housing sector, firms that were forced to bid on other types of projects are increasingly returning to their normal line of work.
While competition remains stiff, there are clear signs of easing within the industry. The average billing multiple, for example, rose again in 2012, increasing to 3.12 from 3.08 in 2011. “The pricing pressure in the marketplace is loosening up,” DaGraca says. “Most firms would still characterize the competition as significant, but there is certainly more work to be had. This will also shift more and more emphasis towards focusing on best practices in the area of project management; as firms begin to grow again, they will need to ensure their projects are profitable in this competitive environment.”
Likewise, the utilization rate, which is the percentage of time worked on billable projects, rose slightly to 65.3%, putting it above 65% for the first time since the recession.
While the survey focuses on 2012 data, responses indicate that 2013 will likely show continued improvement, DaGraca says. Another indication of continuing industry growth, he says, is the AIA's Architectural Billings Index, which has reported growth in design firm billings for eight of the last nine months. “We are still not back to pre-2008 levels, but we are moving in the right direction, says Dave Sullivan, partner in DGC’s A&E practice.”
As A&E firms gain strength, Sullivan expects to see many firms tackling long-range strategic initiatives such as succession planning, the impact of industry consolidation, and staff development. Staffing, for example, is getting increased attention as firms try to make sure that they have people with the right skill sets in the right positions. Employees are also beginning to look for new opportunities as the job market eases. Turnover has been relatively low over the past two years, but that will change in 2013, so firms need to be prepared for those changes and have a plan in place to attract and retain good people.
“Industry consolidation and succession planning will continue to be among the leading challenges for the industry in 2013”, says Sullivan. “The recession has put more pressure on the demographic shift in firm ownership created as the baby boomer generation heads to retirement. Firm owners need to plan early to execute a successful succession plan and to achieve their longer term ownership goals for the firm. This is not an easy task as many firms will attest to.” The DGC 2013 Architectural and Engineering Study, which will be available this summer, highlights the firm’s expertise and in-depth knowledge of the architecture and engineering professions. DGC experts analyze financial data from prominent firms in the Greater Boston region, focusing on operational performance metrics and identifying emerging trends.
About DiCicco, Gulman & Company LLP
DiCicco, Gulman & Company LLP (DGC) is a CPA and business consulting firm specializing in A&E firms, as well as private clients, real estate and commercial business. As an independent member firm of Moore Stephens North America, DGC has access to a global network of technical expertise and best practices, which result in elevated performance standards. For more information please visit www.dgccpa.com or call 781-937-5320.