Diversification of A/E/C Firm’s Services

Below is a collaboration between Zweig Group and The Brand Constructors.

ThinkstockPhotos-477576432-smDuring a recent conversation with each other regarding changes in the A/E/C (Architecture/Engineering/Construction) industry, we both noted a diversification of services by all types of firms. Construction companies are doing design/build work while architecture and engineering firms were in the field doing construction management. Also, many engineering clients are now working directly with (third-party) clients when historically many engineering firms worked in conjunction with architecture firms. However, these common practices have appeared due to needs: independent 1099 contractors are being directed towards construction firms as well as towards smaller independent firms with a surplus of successful bids while larger engineering firms are building in-house teams and a more “hybrid” approach to PCA’s and ESA’s and HUD work.

Why the shift? That’s the big question with lots of variables and potential answers. Ideally, it is because firms want to take care of their clients and adding additional services allows them to stay connected with the client throughout the project as a trusted advisor. Other factors driving this trend includes clients wanting projects done faster and with less work change orders. This forces contractors to get involved earlier with design/build projects than historically done with the design/bid/build production model. A good contractor with years of expertise can see potential concerns to prevent potentially costly work-changes, which BIM alone would not be able to catch. Many contractors feel they can contribute their full talents and expertise with design/build. The traditional design/bid/build delivery method builds animosity for contractors because they are just a vendor instead of an advisor.

Some say architects doing construction management is their retort to construction companies doing design/build and pushing architects aside. Architects getting back into the field allows them to maintain control of the design throughout the project and learn to identify any mistakes made in the field. I’ve worked with a contractor that said every time he worked with this particular architect, the HVAC ductwork plans were wrong, so they always added some additional money to the budget. This need to add money would be eliminated if either the contractor was involved earlier or if the architecture stayed engaged in the project long-term, including having a more detailed eye during site visits.

Another factor driving this diversification movement is firms needing to find alternative revenue sources due to lower billing rates and less work because of the recession. We’ve each seen architecture firm’s utilize their internal marketing and graphic design teams to create additional billable time. Property condition assessments are a hot expansion practice for engineering firms. However, not all firms are successful because the new breed of employees that are essential for expanding engineering firms are essentially construction-centered client managers with a background in architecture and engineering. Individuals with 7 to 10 years of background experience leading third-party assessments and large client lists are flooded by recruiters since they are key in expanding the business territory of successful firms into new regions.

Furthermore, a full-service engineering firm needs department and division managers that are not peripheral. EIT’s, project managers, and even senior project managers are now being led by individuals from the construction industry that understand both construction loan monitoring as well as environmental or site development.

Besides needing revenue due to the recession’s impact, diversifying services also diversifies revenue streams. Diversification is extremely helpful when one particular service line has little opportunity for new work or numerous vendors saturate a market, thus driving down the margins. Because of this, many independent or niche service firms are being bought out by the larger A/E/C firms. These alternative revenue streams make each client more profitable because the firm is doing more work for them. It also means the firm needs to acquire fewer, larger clients.

Also, let’s not eliminate human greed from the equation. Many successful business owners are always looking at what to conquer next and how to grow the firm’s profitability. We’d like to all think this shift in services is to purely benefit the client, but we can’t be blind to human nature to want more.

These alternative revenues streams from diversifying services lines have cons too. It can lead to animosity on the jobsite because a firm is stepping on another firm’s toes, or the architect is just “babysitting” the contractor. Also, the client does not get the expert at each stage because each aspect of the A/E/C industry is a specialty that requires different education and different ways of thinking. Visionary architects struggle with the details of a construction management schedule as does a contractor in developing an innovative design.

These cons are why design/build works best for repeatable, turnkey buildings like prisons, warehouses, and schools that most architects do not want to design anyway. Also, many architecture firms have separated the design and build aspects of their firms into two distinct work groups because it requires different expertise and ways of thinking – two different hemispheres of the brain. Diversification also muddies the water for joint projects when two firms are now competing for the same work when they previously partnered together to do the work.

One of the worst aspects of this diversification is that it confuses buyers. Would you buy a coffee maker or a pool from a Ford dealership? It doesn’t make sense. For many buyers, neither does environmental firms that have construction professionals doing land development when in the past this was done by separate companies. As a result, buyers are becoming acutely aware of how a firm’s individual ecosystem works. More and more project managers are executing one-step duties for smaller firms in each third-party evaluation or land development project. These firms may require a project manager only to perform a quality assurance check before his or her work is then passed on to a 1099 contractor to execute the next phase. This adapted process eliminates the project manager from the process. On the other hand, larger engineering firms may have a team of in-house technical engineers that are overseen and trained through the entire project. This other approach means a senior project manager or department leader stays engaged from start to finish. In short, 1099 contractors and other firms are not needed to complete the process.

In a perfect world, true partnerships are made in joint ventures with companies that have successfully worked together, and they focus on their respective crafts. Their unified front does not confuse the client, and it gives the client experts in each space. Having the build team involved in the design phase should save costs and the design team working with the field team should ensure the end results are the same as the approved designs