DiCicco, Gulman & Company LLP (DGC), a CPA and business consulting firm specializing in the architecture and engineering (A&E) industry, has released initial findings from its 2010 Architectural Study. The annual survey benchmarks financial performance based on input from over 30 prominent firms in the Greater Boston marketplace. The study contains some of the most comprehensive, historical data available for New England firms.
This year’s study is evidence of just how hard the A&E industry has been hit in the past year. New England was hit particularly hard due to the concentration of A&E firms in this region. Over 90% of firms experienced layoffs and/or pay cuts and as a result, average hourly rates for employees were down 5%, indicating a deflation in wages. On average, profitability was a meager 1% of net fee, with half of the firms operating at a loss during 2009.
“It was devastating for many firms, to say the least,” said David M. Sullivan, CPA and Partner in charge of the A&E group at DGC, "This recession has taken its toll on the A&E industry financially and emotionally when you take into account the staggering number of staff cuts that were made. Currently, we are starting to see it level off, which indicates that most firms are ‘right-sized’ for now, but serious management challenges remain. Pricing is very competitive now and many firms are still dealing with a fixed cost structure that remains from a larger firm; returning to consistent profitability will be challenging in 2010. We are encouraging firms to maintain adequate working capital levels and to keep their relationships with banks in good standing.”
The DGC 2010 Architectural Study reports the average utilization of A&E firms dropped by 20% to 58.6%, the lowest chargeability rate on record. At the same time, overhead rates shot up 16% as firms struggled to balance and reduce their fixed costs in the face of declining volume. The direct labor billing multiple hovered at 3.32, which remains strong while the breakeven ratio rose to 3.24, up from 3.01 in 2009. The end result was that the average firm realized profit per direct hour of just under $1.00.
Additionally, two trends emerged as a result of the study which may further impact the industry. First, international expansion seems to have slowed as more and more of those clients fall victim to the global economy. Many foreign countries operate under different contract laws, leaving some U.S. firms with little means of recourse for recouping losses in some cases. Second, the combination of professionals leaving the industry and fewer existing opportunities for new talent entering the industry, may create residual staffing issues.
“We believe, the worst is behind us,” said Chad DaGraca, CPA and a Principal in the A&E group at DGC. “It is going to be a slow recovery. Firms will need to evaluate their strategies going forward. They will need to think about their business model, the types of markets they are in, and how they can leverage their talent and resources to give them a competitive edge.”
One glimmer of hope for the industry may be the number of new start ups. As firms shed talent, many entrepreneurs decided it was time to strike out on their own. “While the overall marketplace is challenging, there is a real opportunity for agile, fast moving, entrepreneurial groups to take advantage of new technology, hire available talent, and deliver projects in non-traditional methods,” said Susan Packard, Co-Founder of Packard Design an architecture, interior design and consulting firm founded on 11/30/09. “All this leads to a leaner, more efficient service provider.”
The DGC Architectural Study highlights the firm’s expertise and in-depth knowledge of the architecture and engineering industries. DGC experts analyze financial data from prominent firms in the Greater Boston region, focusing on operational performance metrics and identifying emerging trends. Elements of the study will be discussed at DGC’s upcoming A&E Northeast Management Summit in June.