2016 Mid-Year CEO Outlook

What a strange and unsettled year 2016 has turned out to be! The A/E industry marches along resiliently despite mixed economic signals, uneven growth and global headwinds, and restless political uncertainty. To help us make sense of it all, we’ve assembled our biggest and broadest Mid-Year CEO Outlook ever. We touched base with 7 prominent A/E leaders from across the country to gauge how their years are shaping up, where they see promising opportunities for growth, what are their client’s top concerns, and their post-election hopes for our industry and nation. 

Jack Bedessem, P.E., President & CEO, TriHydro, Laramie, WY

BedessemHow has Trihydro’s performance fared so far in 2016?

At the beginning of FY 2016, we established conservatively optimistic financial performance goals. These goals were less than our standard target range because of the economic challenges in the energy markets. Trihydro’s top-line performance has been flat, but our bottom-line performance has been strong through the first three-quarters of FY 2016. In general, our growth trend has flattened somewhat this year following more than ten years managed increases on the order of 14% annually.

In what market or service areas are you seeing promising opportunities for growth?

Focused and managed diversification has been extremely important to our success, particularly during the great recession and more recently with the uncertainties facing the mining, oil and gas industries. All of our business units are realizing solid prospects for growth, but we anticipate our technology, water, air and ecological services will be more in demand over this coming year. Last year we opened a new office in Alaska, which created growth opportunities for staff, as well as new avenues to expand our environmental and engineering services.

What are the biggest concerns your clients face today?

Trihydro is fortunate to have an extensive long-standing client base, including many directly associated with the energy industry. Most clients, both private and government, are dealing with the same challenges and issues that our engineering and environmental consulting industry is facing. Planning for any type of major project or development becomes very difficult, if not impossible, during times of volatile markets. Uncertainty slows business decisions and undertakings to almost a halt, except for essential activities. Second, the price of oil, gas and commodities has caused many companies, as well as some local and state government entities to cut budgets, refrain from hiring, lay off employees and defer capital projects. Continued low prices appear to be having some impacts on other sectors in many areas and an underlining root for concern about the frailness of the overall economy. Lastly, there seems to be at least some concern about how to overcome the loss of experienced managers, as numerous baby boomers retire within the next five years.

Have you had to change your style of leadership over the last few years due to the uncertain and tepid economy?

I would say the messaging has had to change, but not necessarily style. The issues dominating news headlines over this past year have the potential to create subtle distractions and feelings of gloom and despair. We have been reinforcing information about the company’s health and our expectations for top-quality and responsive services, along with encouragement to work proactively with clients in solving their problems. It is also important to remember that the bearing of global and economic issues can be less evident, yet have very serious effects on field employees and subcontractors. As such, leadership actions and communications have emphasized the importance of working safely, so every employee gets home safe and healthy every night.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle?

There is really only so much that an individual, group or industry can do to influence the mega issues going on around us. It is important to track and understand those issues that can directly impact us, in order to sustain and grow our businesses, and safeguard our employees and clients. As far as hope beyond the elections, it would be nice to see less drama, more cooperation and forward-thinking real efforts that actually result in solving many of our national and global problems.

What are your plans this summer for rest and relaxation?

This summer has been busy and will continue that way. My wife and I are planning a couple of long weekends at our cabin, as well as a week-long camping trip to celebrate our 30th anniversary. Our daughters and their friends are also planning to visit and take in some western entertainment during Cheyenne Frontier Days. There is no better way for rest and relaxation, than spending time with family and casting for rising trout.

Kumar Buvanendaran, P.E., President & CEO, Prime AE Group, Baltimore, MD

BuvanendaranHow has PRIME’s performance fared so far in 2016?

PRIME has been extremely successful so far in 2016. We have been strategically aligning our projections for growth with our year-end goals. We have pursued and won large, complex projects with new clients; hired top talented professionals to enhance our geographic and strategic footprint; and broadened and strengthened our service areas to provide comprehensive professional A/E and technology services. PRIME started the beginning of 2016 with just over 300 professionals and by mid-year, we are at almost 360 and on target to exceed our revenue and staff-count projections. Our success can be directly attributed to the hardworking professionals who make up this company! At the end of the day, all you have are the relationships you fostered with your clients, and our success speaks to these valued relationships.

In what market or service areas are you seeing promising opportunities for growth?

PRIME is seeing tremendous growth opportunities in the water/wastewater markets on a national level. With the federal government mandating consent decrees on local governments, we are seeing aggressive and ambitious project schedules within the capital programs of our targeted clients. Because of this, we have positioned ourselves with qualified key staff who will align with the projects administered through our current and prospective clients.

What are the biggest concerns your clients face today?

Our clients today are typically facing great pressure to “do more with less” in a faster timeframe. Budgetary demands tend to dictate the overall feasibility of a project but not the overall functionality that is still required. We see in our meetings the number of non-negotiables mandated within a project scope yet the flexibility to increase the budget to meet these items is unwavering. Our clients want to know the solution to their problem will not only be improved, but maintained and sustained for any unforeseeable future impacts.

You have acquired numerous firms as part of PRIME AE’s growth strategy. What do you typically look for in target firms and owners?

Strategic acquisitions have become an integral aspect for PRIME’s growth. I typically look for firms that can either supplement or complement a service we provide in-house, services that showcase a niche area expertise, and/or firms that expand our geographic footprint. I consider those to be my three most important considerations.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle?

I never thought I would be as politically invested in the election cycle for this year, but as PRIME continues to grow, I have to follow the platforms that will continue to endorse the importance of infrastructure improvement projects as well as the advancement of technological efficiencies. Every election year, I find myself more engaged with each political platform and how it relates to the A/E/C and technology industries. No matter who wins the election, I hope the emphasis on funding for transportation, healthcare, technology, and education improvements remain top priority.

Mark Israel, P.E., President, Universal Engineering Sciences, Orlando, FL

IsraelHow has Universal Engineering Sciences’ performance fared so far in 2016?

Our performance this year has been well above last year and well above plan. Revenues are above plan and up 29% year over year. Profits are 30% above plan and 168% above last year. Last year was a very good year for Universal. This year has been exceptional.

In what market or service areas are you seeing promising opportunities for growth?

We see opportunities in the larger design build and P3 projects. We began focusing on these projects several years ago and we are seeing the benefits of that effort. The pursuit effort for design build is significant, the time frame to win is longer, and the win ratio is generally lower, but the projects are much larger and can be very profitable.

What are the biggest concerns your clients face today?

The biggest concerns include uncertainty in the private sector markets. We have land development and homebuilder clients that are always concerned about economic issues that will affect home builders. Our larger construction clients are most concerned with labor and material availability. Some sectors are becoming super heated and prices are escalating quickly.

Florida has bounced back in a big way from the depths of the recession. How have you responded to hiring and retaining talent in a more competitive market for staff?

Our staff levels are almost where they were at our peak in 2006. Our biggest challenge has been hiring certified field inspectors. We have retained a staffing firm to recruit candidates for interviews. Additionally, we have increased our in-house HR team to help with on-boarding, training and retaining our existing staff.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle?

My wish for the coming election is that it would come sooner, so we can get it over with. This process is awful and reflects poorly on the United States. We are better than this.

What are your plans this summer for rest and relaxation?

We just returned from Italy with the family. Next, my wife and I will be travelling in California and then biking in the Canadian Rockies.

John Lee, P.E., President & CEO, Barr, Minneapolis, MN

LeeHow has Barr’s performance fared so far in 2016?

2016 has been a challenging year for us. We are focused on providing environmental and engineering services to the power, mining, fuels, and public market sectors. Prolonged low commodity prices have stifled investment by many of our mining and fuels clients, which has in turn negatively impacted our fees with those clients. Fortunately, we have seen continued strength in the power and public sectors. We have also benefited from our long-term strong relationships with several fuels and mining clients—while their total spend is down significantly, we are increasing our wallet share.

In what market or service areas are you seeing promising opportunities for growth?

We are still optimistic about the long-term prospects in our focus market sectors.  Early this year we opened an office in Salt Lake City to solidify our relationships with mining clients in the region and to expand our client base in the refineries and pipeline companies in the Rocky Mountain region. We continue to see our combination of environmental expertise and full-service engineering capabilities being valued by our clients.

What are the biggest concerns your clients face today?

Our clients struggle most with the continued uncertainty in today’s business climate associated with the economy, politics, and environmental regulations. While the general US economy is in recovery, many industrial sectors are lagging due to the lack of a robust recovery in their global markets. We need to help them navigate through the uncertainty, being aware of their fiscal constraints, but keeping an eye on the opportunities the future still provides.

You became Barr’s CEO in 2013. How has your leadership or communication style changed over the last few years?

It is interesting you mentioned leadership and communication together. Since I became CEO, the biggest change for me has been the need to focus on clear, consistent, and continuous communication. I’ve come to see that communicating openly about our intent and direction to our clients, our staff, and other external stakeholders is one of the most important things I do.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle?

I hope for less rancor and more bipartisanship to help eliminate the gridlock and uncertainty we have been seeing at both the federal and state levels. I do not expect a sea change, but perhaps incremental improvement is possible.

What are your plans this summer for rest and relaxation?

As a civil engineer, I find building things relaxing and therapeutic. I have been spending my free time this summer working on long-neglected projects at my home and lake cabin. Funny, but the two tons of flagstone I laid with my kids this past weekend seemed to reset me for another week at work. There are plenty more of those types of activities to carry me into the fall when my kids head back to college.

Ryan McLean, PLS, President & CEO, Psomas, Los Angeles, CA

McLeanHow has Psomas’ performance fared so far in 2016?

We’re on target in 2016 for a solid year with projected growth of 4.4%, after finishing 2015 with an unprecedented 14.7% growth – all organic. Following a year like 2015, where the firm was at a record high for utilization and profitability, 2016 feels slow, but we are really operating at more “normal” utilization rates and are still quite profitable. The firm’s trajectory from 2015 to 2016 may be unique to Psomas since there aren’t any substantive economic factors or market changes that have slowed our growth. Rather, several large dove-tailing projects moving through multiple teams at Psomas in 2015 have recently been completed or slowed. Our present backlog is now at more of a traditional historic pace.

In what market or service areas are you seeing promising opportunities for growth?

Of the firm’s four major services, engineering, surveying, construction management, and environmental, we are expecting the largest percentage growth to come out of our environmental services in the next few years. Psomas acquired an environmental firm in 2013 with extensive experience in the NEPA/CEQA space and there has been much synergy with our clients. Our environmental services are primarily Southern California based and the goal is to move this expertise throughout our western U.S. footprint.

While, the Land Development market has been generally slow in recovery coming out of the recession, there are still major needs for housing in the west and especially California. Apartments are hot right now, and traditional single family housing is gaining traction.

What are the biggest concerns your clients face today?

Coincidently, in preparation of Psomas’ 2021 five year Strategic Plan, we recently interviewed over 100 of our clients to better understand their future and how they see the trends in our space. Three concerns were brought up by nearly all of the interviewees: staffing challenges, unreliable federal and state funding streams, and election uncertainties. The staffing challenges focused on the continued war on talent, resulting in high turnover and also the difficulty engaging and keeping Millennials in their workforce. Election uncertainties and funding issues were definitely related. Our clients didn’t have an answer as to which administration would be best for our industry and friendlier towards the country’s infrastructure needs. The next greatest area of concern, with about 60% of the respondents commenting, was related to government regulation. One of the client quotes explains “government regulations will continue to drive up the costs and reduce the number of projects/programs that can be completed and owners can afford.”

You have acquired numerous firms as part of Psomas’ growth strategy. What do you typically look for in target firms and owners?

In addition to our geographic strategy which includes adjacencies or connectivity to existing locations rather than leap-frogging across the country, we do hope to add specialty skills and leadership to strengthen our core businesses. Significantly, before beginning any real negotiation, and continuing through the due diligence phase of the acquisition process, we spend quite a bit of time assessing cultural fit. We also hope that the owners and leaders of a target firm would want to continue with the combined entity for 3 to 4 years.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle?

That the Congress and the President will develop a strategic plan together for the country to solve our many problems and that this economy doesn’t fall back into a recession.

What are your plans this summer for rest and relaxation?

Friends have been encouraging my wife and I for years to take an Alaskan cruise and we’re finally going to do just that. Everyone who has cruised Alaska has raved to us about the great time and fantastic scenery so we are really looking forward to that time away from the action.

Ozzie Nelson, Jr., Chairman & CEO, NELSON, Philadelphia, PA

NelsonHow has Nelson’s performance fared so far in 2016?

It’s been a really strong year for us so far. For the first half of the year, we actually took a “strategic pause” in terms of additional merger activity to: a) make sure the integration of the 5 firms which we acquired over the past two years was progressing on schedule, and b) evaluate our internal infrastructure to support future growth.  Organic growth will surpass 10% and we will be ready to get back to strong acquisition pace by the end of the year. We’re looking at an annual revenue run rate of close to $100 million dollars with over 700 employees by the end of 2016.

In what market or service areas are you seeing promising opportunities for growth?  

It would probably be easier to identify markets and service that are not busy. We’ve been actively looking to add Teammates to almost all markets and service lines over the past few months. We’re also getting ready to launch our TAMI practice – a team of thought leaders and design talent dedicated to the Technology, Advertising & Media, and Information business sector.

What are the biggest concerns your clients face today?

The business world continues to evolve at an unprecedented pace. Move too cautiously and you will get left behind. Move too aggressively and you might make commitments that cannot withstand significant changes in the market. We are hearing requests for solutions that minimize exposure and maximize flexibility.

You have acquired numerous firms as part of Nelson’s growth strategy. What do you typically look for in target firms and owners? 

Yes, 30 acquisitions to date! Cultural fit and the alignment of strategic objectives are currently the most important early indicators for firms which we consider acquiring. Under those broad topics, commitment to the employee experience, to customer satisfaction, profitability, design capability and brand – those are usually the important subsets.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle? 

That we are able to gain bipartisan support for the reduction of U.S. debt.  That unfortunately is not just a math exercise, it is a matter of the general population recognizing the economic tsunami that continues to pick up steam as it gets kicked down the road.  With that understanding and strong leadership, we would then need to embrace a plan of shared sacrifice in order to spare future generations grave economic hardship.

What’s on your summer reading list? 

No one significant book this summer – instead I am embracing a broad range of inspirational and spiritual readings.  One I would recommend is The Seven Spiritual Laws of Success by Deepak Chopra.

Joseph Tortorella P.E., President, Silman, New York, NY

TortorellaHow has Silman’s performance fared so far in 2016?

This has been a very steady year for us. While the first three months were all record breakers, the next three stalled a bit and balanced off the year. We expect about 10% growth over last year with profits similar as well to last years. We are confident that we will finish the year off very strong as we have an excellent backlog and some really large projects about to start.

In what market or service areas are you seeing promising opportunities for growth?

We continue to see the affordable housing market increase. While this is not a profit center for us, it serves our social consciences. We have also seen growth in the museum sector with many RFP’s still coming into the office. Universities and colleges are spending again and this has remained steady from last year. Lastly, our healthcare division continues to see strong growth.

What are the biggest concerns your clients face today?

I will spin this to voice my concerns on how their demands are affecting public safety and quality. To us, they seem to be mostly concerned about schedules. We see clients getting overly aggressive on this front to a point where we have reached our limits on what we can successfully do. It has to take a set time to complete a project. Despite technology, you cannot keep cutting schedules (and fees). At some point, something has to give and they are putting quality control at a great risk. Everyone needs to slow down a bit and rethink what’s best for the industry.

How have you responded to hiring and retaining talent in a competitive New York City market for engineers?

We have had a successful hiring season, adding about 20 new engineers and several Revit drafters this spring season. Retention has never been a problem for us, although this past year saw several leaving either the profession or the NY market as they were tired of the constant push on their time. In exit interviews, they all struck the same chord…not enough time to do what they consider a quality project and owners are pushing too hard for faster results. We fear this is heading down a dangerous path. We strive for work-life balance and when we fail, we feel the results.

Regardless of the outcomes this fall, what are your hopes coming out of this election cycle?

We are always confident that the strength of our country’s economy and workforce will pull us through almost anything. Having never had a layoff, even after the 2008 recession, we believe we can endure no matter who leads this nation. If there is a hope, it would be that sane heads prevail and finally put money into our aging infrastructure. While we are not horizontal engineers, we believe money invested into infrastructure will reap benefits in the vertical market. Look at New York City’s High Line project and what it did for the neighborhoods surrounding it.

What are your plans this summer for rest and relaxation?

I like to play golf and find that is my “meditation”. Being outside and relaxing for four hours with friends is always a great escape for me. My eldest daughter just got engaged so relaxing this summer in anticipation of the wedding next year will not be easy!

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