- June 22, 2015
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The market has returned to health, which should be good news to professional services firms like construction and program managers. However, many CMs and PMs are seeing the market as a mixed bag, with owners having to be convinced that CM services are worth the price and that experience and expertise, not price, should govern their hiring choices.
The steady if uncertain market for professional service firms can be seen in the results of the ENR Top 100 Construction Management-for-Fee and Program Management Firms list. Revenue for the CM-PM group rose 2.6%, to $19.91 billion, in 2014. Domestic revenue from CM-PM work rose only 1.4%, to $14.83 billion. CM-PM revenue from projects and programs abroad fared a little better, rising 6.1%, to $5.08 billion, after declining 1.6% in 2013.
The overall market is strong. “If we didn’t have the oil and gas sector slowdown, I don’t know whether we could find enough people to do all the work,” says Bruce D’Agostino, CEO of the Construction Management Association of America (CMAA), McLean, Va. He notes CMAA has grown to 14,000 members.
The public sector market is growing for many CM firms. “With the increase in number and size of opportunities, many owners are seeking assistance from the private sector for programmatic support for implementing their increased portfolio of work,” says Mike Orth, senior vice president of Black & Veatch’s water business. He says public agencies also are seeking more construction management support to augment their staff for increased oversight during construction.
One firm that is benefiting from a growing international interest in CM and PM is Hill International. Hill has had a huge presence in the Middle East and that is increasing with its acquisition on April 15 of IMS, an Istanbul-based CM firm. “We went from 50 people to 150 in Turkey with that acquisition,” says David Richter, Hill’s CEO. He says Turkey is a growing market for both infrastructure and buildings.
However, Hill’s big target now is Asia. “We are looking at a major acquisition in Asia and hope to have some news in the next month or two,” Richter says. While Hill has some work in Asia, Richter says the acquisition will help the firm increase its presence in the Chinese, Indian and Australian markets.
Hill also is expanding in U.S. markets. Its 2014 acquisition of Boston-based Collaborative Partners Inc. gives Hill an expanded presence in the education and health care markets. “And we finally got a significant presence in New England,” Richter says, noting that Boston is one of the nation’s hottest markets.
Some CM firms are enjoying a significant uptick in their local core markets. For example, many local school bond issues gained voter approval this past November throughout California. “Our sweet spot is managing the construction process for school districts,” says Lisa Larabee, CEO of Harris & Associates. She says Harris is gaining new work in the state in the K-12 market, for community colleges and in the University of California system.
On the other hand, California is struggling to fund infrastructure projects. “Most infrastructure projects are funding on the local level, so we have launched a new initiative to aid local agencies in finding funds to pay for needed infrastructure upgrades,” says Larabee.
The market for professional services may be growing, but it is not booming. “I see a trend where the owner’s decision-making process for bringing on out- siders is driven by the perception that there is insufficient budget to hire a full-spectrum program manager,” says Randall D. Martinez, executive vice president and COO, Cordoba Corp. So owners procure services in a variety of hybrid management structures, including staff augmentation and program manager with individual construction managers, among other variations, he says.
Many owners are looking to CM firms to supplement their project management staffs, rather than hiring in-house staff, says Reza Amirkhalili, president of Atkins North America/Faithful+Gould. He says owners are keeping a core team in house and using CM firms to supplement their teams or for specific task-orientated work, such as estimating or risk management.
Amirkhalili says owners continue to self-manage their smaller and less complex projects, where they recognize the risks are manageable and only use PM/CM firms to augment their staff, focusing on project controls over costs and schedule. He says owners generally will hire PM/CM firms to manage the entire project only on larger, more complex building programs.
But many executives argue that CM firms should be brought in at the outset of a project. For example, Martinez warns that choosing the appropriate management structure and project delivery method is critical to the success of the project and must occur at the start of a construction program when the owner is in the best position to affect its outcome.
“The owner’s ability to intervene to affect the outcome of the construction project is greatest at the beginning of the project, and can gradually reduce to nearly zero by project completion if effective and continual guidance is not interjected by the owner throughout the life of the program,” Martinez says.
The recovering market has helped CM firms in an indirect way. When work was scarce, designers and contractors would provide extra services as a means of acquiring a new contract. That practice in slowly fading as opportunities have grown and firms become less desperate for work. “We are seeing a reduction in ‘free’ services offered by various players in the industry as a form of business development,” says Peter Heald, president of Cumming. Owners have to find a way to obtain those services in the marketplace, and they are using CM firms to fill this gap.
Commodity Pricing
Many agency CM firms say that owners continue to press for up-front cost savings. The emphasis on cost has carried over into the program management business. “At Arcadis we’re seeing some clients shift away from agency PM/CM in favor of staff augmentation to complement their in-house teams,” says John Jastrem, CEO of Arcadis U.S. He says the cost savings of this approach “is debatable.”
Many CM firms say this focus on cost is a hangover from the market recession, where low-ball bids were common and owners came to expect more for less. “There’s an increasing trend in the industry to see professional services—design or management—as a commodity service,” says Philios Angelides, president, Alpha Corp. “The ROI for professional services is not gained through evaluating the unit cost or hourly rate for such services. Instead, it’s gained through sourcing those firms who have measurable qualifications and experience.”
But D’Agostino says that more owners are joining CMAA specifically to address this issue. “We now have 3,100 owner-practitioners as members.” He says that the growth of CMAA, particularly among owners, has been driven largely by the groups CM certification program. “Owners increasingly are demanding that the firms they hire are qualified to manage their projects.”
Finding Talent
Just like contractors and design firms, professional service firms are worrying about finding qualified people to do the work. At the same time, a talent shortage may be driving some owners to resort to hiring outside CM firms to manage their projects rather than joining the search for people in a diminishing pool.
“With all of the players across the continuum from subcontractors to owners fighting for a limited pool of talent, owners are becoming more and more likely to bring on third-party consultants to help set up and manage large, complex projects,” says Heald of Cumming. He says some owners are reluctant to build up internal teams due to memories of downsizing from the last recession.
CM firms are worried about their own potential staff shortages. “Finding good people is our top priority,” says Richter. He says Hill vigorously recruits new graduates at top colleges around the country. “We have 4,800 employees and will probably exceed 5,000 by the end of the year.”
D’Agostino says CMAA is working hard with colleges to develop academic CM programs. “But the real impact is when you reach down to the high schools to get students interested in construction as a career.”
D’Agostino says the way to reach students is to emphasize concepts they can relate to. “When you start talking about drones, geospatial analysis, laser scanning and building information modeling in construction, young people sit up and take notice. The begin to realize that construction is more than digging ditches.”