Time to pick and choose - the Infrastructure Intelligence SME round table discussion

Supporting the growing infrastructure market is presenting both challenges
and opportunities for small to medium sized firms who are being more selective over clients, Bernadette Ballantyne discovered at our round table event with software firm Deltek.

Bernadette Ballantyne
01 August 2014

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When enterprise resource planning (ERP) software firm Deltek released the findings from its 2014 report ‘Trends and Challenges in Architecture and Engineering’ the findings highlighted that the industry had growth at the forefront of its collective mind. Of the 235 firms surveyed 72% were expecting growth in the year ahead compared to 66% in 2013. But the survey also highlighted the challenges facing the industry, which was hit hard by the prolonged recession where prices were driven down so low that firms were forced to walk along a knife edge – balancing fighting hard to win work against achieving the tightest of margins. 

Chair: Antony Oliver, Editor, Infrastructure Intelligence

Michael Coombs, Senior Partner, Alan Baxter & Associates LLP

Steve Wooler, Managing Director, BWB Consulting

David Innes, Senior Partner, Campbell Reith Hill LLP

David Dryden, Managing Partner, Cundall

Fergus Gilmore, Managing Director, Deltek

Chris Duddridge, Senior Business Director, Deltek

Mark Cowlard, Partner and Group Head of Rail, EC Harris (UK)

Mark Ingram, Managing Director, GHA Livigunn

Neil Smith, Senior Partner, Max Fordham LLP

Paul Jackson, Sector Director Infrastructure, N G Bailey

Steve Capel-Davies, Partner, Peter Brett Associates LLP

Andrew Almond, Partner, Pick Everard

Tushar Prahbu, Director, Pell Frischmann

Bernard Obika, CEO, Roughton Group Limited

Today things are looking brighter but the challenge for consultants is to achieve their growth ambitions in a sustainable way. To further explore the issues laid out by Deltek, Infrastructure Intelligence gathered 12 of the industry’s leading consultants, focusing on small to medium companies, for a round table discussion to dig deeper and discover what lay behind some of the findings.

Delivering profits

Enabling controlled growth that provides great career development opportunities for engineers and professionals but also delivers profitability was considered a high priority. “We only want to work for clients that value the value that we bring,” said Steve Wooler, managing director of BWB Consulting. “It sounds simple but many of the clients we have worked for just want to extract the maximum service for the smallest fee or sometimes not even pay at all. Eventually we will just get rid of those high maintenance clients and invest in building long term relationships with more sophisticated organisations.”

Clients that have been in the habit of ‘extracting the maximum service’ without respecting payment terms are set to find it harder to secure good quality consultancy services in the growing market. “Some of the major contractors of this world are absolutely the worst payers that we have worked with,” pointed out David Dryden, chairman of the multi-disciplinary consultant Cundall, highlighting one UK based tier 1 contractor in particular. “We are avoiding being on projects not only by declining to work for them but also by asking not to have them on tender lists if necessary. We won’t work with them at all. Seriously why should we? They should now feel the effects of their behaviour in the past.”

Another effect of the growing market should be rising fees said firms who are already reporting that some clients are seeking to secure long term resource on relatively high margins. “There is a massive amount of work out there and we are underselling our services,” said Michael Coombs, senior partner at Alan Baxter & Associates. “During the recession fees were too low, so to maintain quality we all did more than we were paid to do. What I find extraordinary is how long it takes the pendulum to swing for people to realize that we should be charging more.”

Clients will notice however when firms start to turn down work said participants. “We have just done a labour plan to 2033,” said Paul Jackson, sector director for infrastructure at NG Bailey, which is a tier 2 contractor specialising in mechanical and electrical engineering services. “Considering the growing work in rail and new nuclear we have found that we will have to be more selective.”

Resourcing challenge

 “Without questions resources are the biggest constraint for the whole global industry,” said Mark Cowlard, a partner and group head of rail at the largest consultant at the discussion EC Harris. “We have to grow in order to create more opportunities for our people to step up into those roles and for retaining them in order to maintain the business goals that we have in the first place,” he said. 

Resources:
“We expected staff churn as soon as the job market improved but I think we have been somewhat taken aback by the
extent of it.”

This is even more challenging for an industry coming out of a recession as firms are struggling to retain staff that have weathered the storm of salary cuts, redundancies and working for cut throat fees. “People hunkered down during the recession and we expected staff churn as soon as the job market improved but I think we have been somewhat taken aback by the extent of it,” said BWB’s Wooler. 

With ambition returning to the market some staff are looking for new opportunities (and more money) making this a busy environment for recruitment agencies. Frustration among firms over the role of agencies was palpable with the industry trapped in a cycle of paying higher rates to agency staff to fill gaps while at the same time losing their existing engineers to agencies who are offering significantly higher salaries. 

Furthermore this is a short term cycle as firms report that agencies seek to fill roles rather than build careers. “Since things have picked up we have been rich pickings for the agencies and we have found that very hard,” said Coombs who recently had to object to a recruitment advert circulating in a structural engineering magazine that specifically requested engineers trained by his firm. “We invest a lot in training and an Alan Baxter engineer is quite sought after.”

Retention of staff is therefore high up on the agenda for all companies. “You probably have to recruit at double the rate that you think that you would to cover the bleed of people going away,” said Mark Ingram, managing director of consultant GHA Livigunn. “You absolutely have to pay market rate otherwise you are at great risk of losing people and will end up paying agency fees, and losing time in management and disruption.”

Resourses:

“You probably have to recruit at double the rate that you think that you would to cover the bleed of people going away,”

Other firms report the problem of staff being poached by client bodies who are paying up to £20,000 per year more – a figure which firms say they can’t compete with even if they over promote their engineers.

One of the key strategies employed by international consultant Roughton Group is to ensure that staff can move around. “We have low churn because we can offer variety. When people get fed up we can offer them something new such as a project in Botswana. Of our younger graduates we have only lost two in four years,” said Bernard Obika, the company CEO. 

Bringing in graduates is another challenge for firms who said that one of the benefits of the recession was that better quality graduates were more available, and less likely to go into banking. “We saw fantastic graduates coming through during the recession. We have actually had people come from banks to work for us as engineers,” said Coombs. 

At the same time Capel-Davies pointed to the new University Technical Colleges for 14-18 year olds as being a fantastic training ground for young engineers. “We at Peter Brett are supporting the UTC in Reading and it is phenomenal.”

However the group called on the government to do more to encourage more young people to study engineering. “The government could influence the situation through tuition fees. They did it with teaching for science and maths teachers with bursaries. Drop fees for engineering,” said Ingram.

Billing challenge

Perhaps one of the most startling findings of the Deltek report was the revelation that among the surveyed firms 26 per cent reported that only 74 percent of billable hours are invoiced with over one quarter being lost. “The number one problem a couple of years ago is that there was not enough work so in a way this is a nice problem to have, but unfortunately the fees are not all being recovered,” said Fergus Gilmore, managing director of Deltek. He pointed out that the survey finds showed that the issue was applicable to both time and material and fixed price projects. “My personal view is that one of the reasons for it is down to the contraction of staff and then new projects come in and the area of project management is suddenly under resourced and very quickly out of control.”

Payment:
“We are avoiding being on projects not only by declining to work for them but also by asking not to have them on tender lists.”

Firms agreed that scope creep was a major contributor to this problem with designers by nature seeking to develop unique and innovative solutions. “My engineers are very passionate about innovation and doing the best possible job that they can and that burns fee,” said Neil Smith. “One of the problems that we have is that we will go on and on designing until it is perfect even when there are changes to the brief, and we are not very good at charging for it.”

A side effect of this pointed out Jackson of NG Bailey is that this can also lead to over complex designs which then have to be simplified. “This is a really important point because it can be over engineered and sometimes the only way that we can win a bid is to take it back to something more simple.”

For some this means tighter internal controls might be needed. “I can look at my people and from experience I know who needs closer management in respect of fee expenditure,” said Andrew Almond, partner at Pick Everard, who pointed out that a positive thing to come out of the recession is that it forced the firm to manage internal risks better and appoint a person to manage this on each contract. “We found that we were, and remain, really good at looking after our clients and making sure that the client is protected from risk but we were not so good at protecting ourselves in terms of negotiating fees for additional work.”

Payment:
“What I find extraordinary is how long it takes the pendulum to swing for people to realize that we should be charging more.”

A barrier for firms which emerged was the reluctance of engineers to ask for money and this is something that some companies were focusing on. “We should be proud of asking for proper remuneration. It is a cultural thing that we are trying to ingrain in our future leaders, to be forthright,” said Wooler. 

In the main firms agreed that it was important to ensure that client facing staff were aware of the implications of changes and over servicing. “It is incumbent on all of us to be corporately tenacious in terms of how we manage our customers and approach our clients, you have to set the stall right from the beginning with your customers. Let them know that if they ask for something different then there is a likelihood that they will have to pay for that,” said Cowlard. 

Technical investment

The need to invest in new technology came out as a priority for firms with only 7 percent of survey respondents not planning to invest in their systems and tools. This was 14 percent in 2013. Furthermore 63 percent of firms are expecting projects to make more use of technology in the future. “Architecture and engineering are very entrepreneurial in how they build their infrastructure and they are very willing to try new ways of working,” said Chris Duddridge, senior business development director at Deltek. “From tools to look at new technologies, to those that integrate the solutions that they have already have, compared to other professional services architecture and engineering firms are way up on the investment spectrum.”

Technical investment: “Architecture and engineering are very entrepreneurial in how they build their infrastructure and they are very willing to try
new ways of working,”

Participants in the discussion said that investment in communications tools and BIM software were priorities, especially if firms wanted to be competitive after the recession. “We saved hundreds of thousands in travel costs through investment in communications,” says Obika who has also invested in internal software where the benefits are harder to quantify but no less significant. “We use it as a selling tool. Walking in front of a client with this unique technology provides a value that we cannot quantify but it gives the client the impression that we are at the forefront of technology.”

The tools themselves are also evolving to better facilitate client communication in the future. 

“There are a number of technology solutions where social feeds and streams are being introduce that supplements the client contact,” says Duddridge. “We have a collaboration tool that we have tightly integrated into many of our products and that is starting to help clients engage in parts that are not face to face.”

Controlled growth

Looking ahead at the growing market firms were cautious over what level of growth was sustainable and appropriate. “For me growth is an outcome not a target,” said Tushar Prahbu, director at consulting engineer Pell Frischmann. “The point of what we do is to service clients and if we get that right and they like us a lot we will need more people. The people and relationships drive growth and the money comes afterwards.”

Growth:
“What we are really trying to focus on is controlling growth and focusing on profit not turnover.”

“We are looking at 5 – 10 per cent but what we are really trying to focus on is controlling growth and focusing on profit not turnover,” said David Innes, senior partner at Campbell Reith Hill LLP. Other firms said the same with “controlled growth” being the overwhelming ambition and boosting profits being key for most organisations. Raising the capital to support growth
was raised as a concern by some firms, along with retaining and resourcing
the market. 

Despite the challenges firms were largely optimistic about the future with busy markets enabling consultants to exercise more selectivity over who they aim to work with and technology bringing in more efficiency. For small to medium businesses with a strong sense of identity and a focus on quality the next few years are awash with opportunity.

The roundtable was held in association with Deltek. To see the Deltek report click here