Engineering Inc. - May/June 2006 - 42

B U S I N ESS INSIGhtS f Ro M aCEC'S INStItUtE foR BUSINESS MaNaGEMENt
REASSESSING FEE SCHEDULES; SCOPING OUT FUTURE TRENDS; COMING TO TERMS wITH
OUTSOURCING A Case for Increased Design Rates neering firms, particularly
in the next five years. C onsulting engineering firms should increase
their fee Survey participants also were concerned about several complex
rate structures by 20 percent across the board to cover long-term issues,
including funding for aging infrastructure, the inflation, the growing
complexity of projects and the vitality of the U.S. economy, terrorism and
natural disasters. dramatic increase in construction costs, according to
The full survey is available at www.acec.org. Paul G. Carr, a civil
engineering professor at Cornell University. Reality Check on Outsourcing
During a recent ACEC online seminar, Carr voiced distress over the
profitability of engineering firms and the decline in com- Regardless of
whose statistics you believe, the controversy over pensation of civil
engineers compared with other professionals. the annual number of U.S.
engineering graduates has become a Carr traces the problem back to the
early 1970s, when the U.S. front-burner issue. Some studies show that the
number of new Department of Justice DOJ essentially froze the fee
schedules of American engineers is dwarfed by graduates in countries such
as engineering firms. Most design fee schedules in use today, he said,
China and India. Other studies report that on a per-capita basis, reflect
those in place at the time of the DOJ action. the United States is still
in the lead. With those fee schedules fixed in time, there has been a
Robert vanArsdall, senior business management consultant in greater than
20 percent decline in net design revenues between the Loss Prevention &
Education department of XL Insurance's 1970 and today for the same
project, due simply to the improper Design Professional group, said one
thing is certain: U.S. engi- use of fee schedules, he said. neering firms
are going to have to get used to the idea of out- The basic problem, Carr
said, is that the exponential increase sourcing work abroad. in project
complexity in the past 35 years has meant that engi- One way for
engineering companies to prepare for these neering firms must invest more
in technology, personnel and changes is by using scenario planning, a
common tool for strate- materials. During the same period, however, their
profitability gic planning at larger companies, he said. Scenario planning
calls has remained stagnant or lagged. for firm participants to envision
various future states and how He added that a 20 percent increase in
firms' fee rates, which they would affect the company. The participants
then draw on would include hourly and percentage-of-construction rates,
their experience and market research data to predict which of the should
be updated regularly to reflect the impact of inflation. proposed
scenarios is most probable. Such a move would also have the following
benefits: By examining the value chain in the process of their design n
Enable more experienced designers to be involved in internal work,
engineering companies can determine which activities are quality
assurance/quality control activities; essential to their core business and
which can be outsourced, n Allow greater time to oversee construction;
vanArsdall said. He added that firms looking to outsource work n Make
negotiation for additional services less stressful; and overseas should
consider the following: n Lead to higher-quality documents and better
client service. n Can the work be done more efficiently with fewer people
here in the United States? New ACEC Survey Addresses Future Concerns n How
will you guard against quality-control issues? What are the most important
business issues facing the engineer- n How will you redesign your workflow
processes to incorpo- ing industry in the next five years? What about the
next 20 years? rate outsourcing? Absolute answers are impossible to
predict. But thanks to par- n Will you be able to reorient your firm
toward higher-quality ticipants in ACEC's 2006 Design and Construction
Industry Trends work here by outsourcing? n Survey, some resolutions are
beginning to take shape. One of the chief issues the industry must address
is filling the human pipeline at engineering firms. Many respondents said
the The ACEC Institute for Business Management provides com- one-two punch
of a dearth of qualified U.S. engineering gradu- prehensive and accessible
business management education ates and the expected retirement of large
numbers of baby boom- for engineering company principals and their staffs.
Visit ers could create a critical shortage in some disciplines in the next
ACEC's online educational events calendar at www.acec.org/ decade.
events/index.cfm or bookstore at www.acec.org/publications, Directly
related to this challenge are foreign competition and or call 202-347-7474
for further information. ownership transition, which will become top
priorities for engi- 42 ENGINEERING INC. MaY / JUNE 2006
http://www.acec.org http://www.acec.org/events/index.cfm http://www.acec.org/events/index.cfm http://www.acec.org/publications
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