Professional services firms find growing opportunities as owners refuse to staff up to build, preferring to outsource the work
Professional services firms are seeing their opportunities expand as the market grows. They also are seeing that their clients are no longer requesting, but demanding, a broader array of services as fewer owners have the capacity to manage construction programs from the earliest stages of planning to the operation of the completed facilities, nor do they have the inclination to staff up to perform these functions.
The growing market for professional services 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 jumped 13.8%, to $22.66 billion, in 2015, up from $19.91 billion in 2014. Domestic revenue from CM-PM work rose 12.1%, to $16.62 billion. CM-PM revenue from projects and programs abroad fared even better, rising 18.9%, to $6.04 billion, in 2015.
The U.S. market for professional services is ramping up. “The market in the U.S. is doing very well,” says David Richter, CEO of Hill International. He says about 25% of Hill’s revenue now comes from domestic work, “but we see it growing to nearly 40% in the coming years.” Richter says Hill is targeting the U.S. market for potential acquisitions, particularly to strengthen the firm’s offices in the Northeast, mid-Atlantic and West Coast.
The growing reluctance of owners to employ their own staff for construction supervision makes the U.S. market attractive. “Agencies, whether public or private, don’t want to bring expertise in-house, adding to their payrolls and benefits burdens, when they can simply outsource,” Richter says. He says the firm’s backlog could reach $900 million by the end of the year.
Hill isn’t the only firm seeing growth. “In the current market, we are not seeing anyone moving away from third-party professional service firms. In fact, we have seen just the opposite, as our project and development services business has grown by over 27%, year on year,” says Todd Burns, president of JLL Project and Development Services.
Further, JLL is not sitting still. In the first eight days of June, JLL acquired five firms: Procofin Oy, a Helsinki-based project development and architectural firm; Integral UK Ltd., a London-based facilities management firm; Merritt & Harris Inc., a Chicago-based construction management firm; BRG, also from Chicago, which specializes in workplace technology; and Travis Commercial, a San Antonio-based real estate and construction management firm.
Outsourcing on the Rise
The inability or unwillingness to staff up for projects is particularly true among public agencies, which have been reducing staffing. However, as capital improvement programs are legislated to proceed, these agencies cannot adapt quickly enough to meet added project goals using their existing staff. “We see that the agencies rely on consultant management services to deliver the capital programs and provide the needed versatility to increase or decrease staffing efforts. We do not see this trend changing since the emphasis in public agencies is to reduce staffing levels,” says Chandra Prasad, CEO of Omega & Associates.
Further, many public agencies now are under regulatory or judicial pressure to put together construction programs they are not prepared to handle on their own. “For example, consent decrees with aggressive deadlines in the Northeast are creating a large number of projects in a given area that can benefit by leveraging an overall