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In response to ongoing labor challenges in the AEC industry, ENR’s top 100 professional services firms are reconfiguring operations to hire helpers where they’re needed most. However, amid higher construction costs and increased competition for resources, companies say there is pressure to de-risk the project, add value and prove their services are worth the price.
The AEC industry’s labor shortage challenges are far from new, but inflated costs have further raised the stakes for meeting project goals and profitability, comments from the This year’s ENR Top 100 Construction Management-for-Fee (CM) and Program Management. (PM) listed companies. The result is a highly competitive market, the top 100 companies say, where some owners are doubling down on construction and program management services, while others are holding onto projects for better market conditions.
The labor shortage only “exacerbates the lack of efficiency in the industry,” says Bryan Carruthers, Accenture’s North America leader for infrastructure and capital projects. An influx of projects related to the Jobs and Infrastructure Investment Act, the CHIPS and Science Act, and the Inflation Reduction Act add to the urgency for professional services firms to find short-term solutions to the challenges of long-term industry staff.
“Many clients are undertaking once-in-a-generation projects and the pressure on project teams is limitless,” says MGAC President and CEO Mark Anderson. He says that poorly managed projects “tend to go sideways,” adding, “This is a tough business.”
Owners rely on construction and program managers to ensure that the right teams are assembled for the project. “That means performing at a higher level all the time and making sure we have the best professionals in front of the best clients and the best projects,” says Anderson. “Who wants to play with a second division team?”
Help is needed
As an intermediary representing the interests of owners throughout the project cycle, third-party professional services firms are uniquely positioned to improve project outcomes for all stakeholders. Delving deeper into this equation, the top 100 companies say that having the right people is crucial to their success. For this reason, companies say that attracting and retaining talent has become their top priority.
Chicago-based Admore Roderick says it is 20 months behind schedule and is planning resources for overlapping projects. “This means we have to hire around 25% [more staff]and finding the right people,” explains President and CEO Rashod R. Johnson, “hasn’t been easy.”
Recruiting and developing team members is also a priority for Cumming Group, says company president and CEO Derek Hutchison, but adds that the talent market is also highly competitive.
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Balance of bottom lines
Labor shortages, along with rising material prices and supply chain disruptions, have added additional layers of complexity to project timelines, the top 100 companies say.
In Puerto Rico, CPM President Héctor Javier Rivera says a shortage of civil, mechanical and electrical engineers, combined with the rising cost of importing materials, has stalled the island’s ability to rebuild after seasonal extreme weather events.
Rivera adds, “The need for skilled labor combined with high material cost has resulted in a construction environment where the importance of effective planning and value engineering has become critical to being competitive and keep projects on budget.”
Overall, Top 100 CM/PM revenue rose 6% to $27.7 billion from $26.6 billion a year earlier. Domestic revenue rose 2.9% to $19.7 billion, and international revenue rose 14.4% to just over $8 billion.
As the Federal Reserve seeks to curb inflation, “Every project is looking to reduce costs,” says OAC Services President and CEO Shawn Mahoney.
Kraus-Anderson takes a proactive approach to value engineering by making cost an input to the design process, says Rich Jacobson, COO and executive vice president. “We align project teams, owners and designers to establish clear value objectives and optimize project outcomes within budget constraints,” he says.
The labor shortage changed the way professional services firms work, with many firms using prefabrication and modular construction methods to minimize the need for on-site labor and speed up project timelines.
Improvement of project results
This year, the average revenue of the Top 100 CM/PM company reached $64.9 million, up slightly from last year’s $63.8 million. Of the 95 companies that reported earnings both this year and last year, 78.9% saw revenue increase.
Revenues for the top 50 fee-based CM firms and the top 50 fee-based PM firms continue to trend in opposite directions. Top 50 CM revenue rose 22.5% to $11.5 billion this year, following a 21.4% increase last year. Meanwhile, revenue for the top 50 PM fell 4.1% after a 1.72% drop last year.
In the private sector, Mahoney says there’s a lack of certainty that’s leading many landlords to shelve entire programs until interest rates drop.
“I see signs of activity throughout the AEC industry,” says Mahoney. “I just think we’re going to have to see a reduction in interest rates before homeowners are willing to start backup projects or start new projects.”
McDonough Bolyard Peck Inc. President and CEO Christopher Payne says all markets where the Virginia-based company operates “continue to be strong.”
“With our prevalence of work in the public sector and additional funding available at all levels of government, our services are in greater demand than ever,” says Payne.
Persistent supply chain issues have been a barrier to meeting deadlines. “Delivery times for electrical and mechanical equipment are driving project schedules. Lead times are long and equipment is critical,” explains Adam Jelen, president and CEO of Gilbane Building Co. The firm often recommends its clients who release MEP packages very early in the design process to meet the project schedule.
For Cumming Group, design flexibility can be key. “For our customers in the semiconductor and data center spaces, the pace of technological advancement in some cases can outpace the speed of construction in those spaces,” says Hutchison. Some of these customers choose to start with a shell and basic requirements (size, power requirements, data capacity) and determine the exact fit later in the project. “From a procurement perspective, this translates into a bit more separation in the acquisition strategy of a GC building the shell and then bringing in multi-prime subcontractors as the design is completed,” he says.
Invest in innovation
Overall, this year’s Top 100 CM/PM companies overwhelmingly agreed that AI was poised to have the biggest impact on the way they work, with companies investing in the technology to varying degrees to give your teams some digital hands.
Last year, Accenture announced a $3 billion investment in AI and is also helping its clients use generative AI “with more than 53,000 data and AI professionals,” Carruthers explains. “In addition, we have built many proprietary accelerators and digital platforms, which integrate and aggregate data across disparate systems to drive process efficiency and distill information into actionable insights and forecasts to improve decision-making for our projects. customers,” he says. “We see great potential for using the technology to explore and test more design and execution options.”
In addition to CPM’s interest in AI, Rivera says the company is also investing in drones, 3D mapping, thermography and aerial imaging technology to conduct site surveys, improve progress monitoring and capture images high resolution for better project planning and documentation.
Rivera adds that the firm has also implemented the use of PMIS software for better team collaboration, document management and to track project progress.
“Leveraging this data and analytics, we can continuously monitor and evaluate project performance, identify areas for improvement, and implement targeted interventions to improve overall project success and deliver value to our clients,” says Rivera.
Cumming Group’s Hutchison adds, “The more complex the project, the greater the need for highly specialized project teams committed to creating value through their expertise.”
