6/13/18 – ENR: ENR 2018 Top 100 Professional Service Firms
By Gary J. Tulacz
Professional services firms in the construction industry were once thought of as entities hired by owners to keep an eye on contractors during the construction process. However, as construction has become more complex, funding sources have become more elusive and project delivery has become more diverse, owners now are relying on professional services firms to provide a much wider array of services.
The market for professional services remains strong, as can be seen in the results of the ENR Top 100 Construction Management-for-Fee and Program Management Firms list. While revenue for the CM-PM group overall was down 5.4%, to $22.14 billion in 2017, from $23.41 billion in 2016, domestic revenue from CM-PM work rose a healthy 6.7%, to $17.74 billion. However, CM-PM revenue from projects and programs abroad fell sharply by 35.1%, to $4.40 billion in 2017.
One major development in CM-PM this past year, which had some impact on revenue numbers, was the sale of Hill International’s claims group in May 2017 to British equity investor Bridgepoint. As a result, Hill’s overall revenue dropped to $540 million this year, from $690.1 million on last year’s list, and its international revenue fell to $315.0 million this year, from $507.1 million last year.
The sale of the claims group may eventually pay off in new business for Hill. The claims group was about 25% of Hill’s business, says Michael V. Griffin, president of Hill’s Americas Group. “However, the sale actually helps our CM practice as it eliminates the conflict-of-interest restrictions on claims clients we may wish to pursue for CM work,” he says.
Hill has won several major international CM-PM projects, including a joint venture consultancy services contract for the 20-mile, 32-station, $2.26-billion Mumbai Metro Line 4 in India, awarded in April. However, Griffin says the firm increasingly is looking at the domestic market. “The U.S. market is growing and is more reliable than the international market is at this time, ” he says. Griffin notes major wins for Hill in the U.S., including the expansion program for the Port of Long Beach in California and the Scudder Falls Bridge replacement in Bucks County, Pa.
Riding the Rapids
Overall, the domestic market for professional services is growing rapidly, and not just for traditional project delivery. Firms are being called upon earlier in the process to assist with everything from planning, financing, risk assessment and management and the choice of project delivery methodology.
Many owners are not equipped to handle the complex choices they face in the construction process from the earliest stages through delivery of the finished project. “Today’s construction market is best described as construction while rafting in raging white waters,” says Fred Parker, program manager for Gafcon Inc. “The most effective way to navigate these changing white waters is through early and proper planning. The most reliable partners to assist with these challenges are experienced agency PM-CM firms.”
“Today’s construction market is best described as construction while rafting in raging white waters. The most effective way to navigate these changing white waters is through early and proper planning. The most reliable partners to assist with these challenges are experienced agency PM-CM firms.”
– Fred Parker, Program Manager, Gafcon Inc.
Because projects have become so complex, along with schedule and budget considerations and specialized program needs, firms see outsourcing as a growing trend. Parker says agency CM-PM firms increasingly are being hired to help plan the right time to sell bonds, manage cash flow and develop key strategies for project initiation and successful delivery. Further, he says most owners are ill-equipped to deal with challenges like significant increases in cost escalation, material costs and a very strained resource pool.
Another trend for CM-PM firms is the growing need for professional guidance on risk management. This is particularly true on complex projects, starting from the early stages of the project and continuing through the life cycle of project delivery. “We have experienced this on both transportation projects as well as vertical construction for both federal and state agencies,” says Philios Angelides, president of Alpha Corp.
CM-PM firms increasingly are being called on to engage in early development of project risk registers that are updated as the project evolves to include all potential issues that could be detrimental in project delivery. They are expected to provide proactive risk management strategies to engage all project stakeholders to develop strategies to mitigate risks, says Angelides. “The risk model also becomes a valuable tool in assessing factors that would impact project cost and schedule.”
CM-PM firms also are being expected to implement project controls and risk mitigation strategies over the course of actual construction. “As part of the risk mitigation emphasis, we’re seeing more interest in project controls solutions as well as program management with our CM-PM offerings, and trusted-advisor types of relationships to preempt the need for a lot of post-award changes,” says Jim Turner, director of facilities solutions for Markon Solutions.
There is growing use among public agencies for having early engagement of PM firms in the planning and design stages of the project to bring construction management subject matter expertise to shape the direction of design. For example, the U.S. State Dept.’s Overseas Buildings Operations bureau is asking
CM-PM firms “to provide independent cost estimates, constructibility reviews and preliminary schedules to validate construction duration and milestones to ensure the design is practical, constructible, and in line with construction industry practices,” says Angelides.
Many clients in the infrastructure markets have significant capital improvement programs they need to implement and are moving toward the use of third-party professional services firms, says Sam Unger, senior project manager-water infrastructure for Cordoba Corp. “Their staff resources are often stretched, and they look to outside professional service firms to provide staff, expertise and resources to assist agencies in meeting their infrastructure needs.”
Public owners’ lack of staff is resulting in more out-sourcing of project management, but it also has many owners calling on CM-PM firms to provide staff augmentation. “In the public sector, the trend is towards hiring embedded personnel, while our private sector clients focus on deliverables with a project-by-project approach,” says Turner of Markon Solutions.
However, many professional services firms say simply supplying needed people to fill owners’ gaps in staff to assist on project management is not always the wisest choice. For example, Angelides says many owners are using indefinite delivery/indefinite quantity or blanket purchase agreement task-order contracts to support their needs. “These contracts cover the full range of professional PM services from preconstruction to post-construction services,” he says.
But Angelides cautions that, while the role of a CM-PM firm in project delivery is always a value-added strategy for any job, the staff-augmentation role tends to limit a firm’s ability to provide the full range of its subject-matter expertise “when the role is limited to one person’s knowledge of a defined part of the work [as opposed to] a firm’s PM team bringing the collective strengths of multiple key staff in managing all aspects of the work,” he says.
As professional services firms are facing a rising market and are being asked to provide more services, they are getting hit with the same staffing shortages that are affecting the rest of the industry. “Certainly, the shortage of qualified labor is affecting the AEC industry across the board, including professional services. We are seeing price inflation, scarcity of resources and competition for talent,” says Mark Anderson, CEO of Mark G. Anderson Consultants Inc. This shortage is becoming more acute as major corporations increasingly are outsourcing their project management to third-party firms, he says.
Hill International is no exception to the need to grow staff. Griffin says that Hill is providing a very attractive compensation package for its staff, but he admits that there will continue to be salary escalation going forward because of staff shortages.
The way to attract people into the industry may be to tell people what a professional does in the industry. “We have to make this industry more attractive to young people, but just as important, we have to make it welcoming to a more diverse group of people,” says Andrea Rutledge, CEO of the Construction Management Association of America, McLean, Va.
Rutledge points out that communication is the key. “Not everyone in this industry works in a hard hat. Many work in a suit with laptops and iPhones,” she says. This fact may make the industry more appealing to young people seeking a professional career.
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