Engineering Services In The US Industry Report

WWW.IBISWORLD.COM� Engineering�Services�in�the�US November 2010 1

IBISWorld Industry Report 54133Engineering Services in the USNovember�2010� Kevin�Culbert

Engineering a recovery: Rising capital investment propels the industry back to growth

2� About�this�Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4� Industry�at�a�Glance

5� Industry�Performance5 Executive Summary

6 Key External Drivers

7 Current Performance

9 Industry Outlook

12 Industry Life Cycle

14� Products�&�Markets14 Supply Chain

14 Products & Services

16 Demand Determinants

17 Major Markets

18 International Trade

19 Business Locations

21� Competitive�Landscape21 Market Share Concentration

21 Key Success Factors

22 Cost Structure Benchmarks

23 Basis of Competition

24 Barriers to Entry

25 Industry Globalization

26� Major�Companies

30� Operating�Conditions30 Capital Intensity

31 Technology & Systems

31 Revenue Volatility

32 Regulation & Policy

33 Industry Assistance

34� Key�Statistics34 Industry Data

34 Annual Change

34 Key Ratios

35� Jargon�&�Glossary

www.ibisworld.com��|��1-800-330-3772��| ��[email protected]


Industry establishments apply physical laws and principles of engineering in the design, development and use of machines, materials, instruments, structures, processes and systems. Services may involve the provision of advice,

preparation of feasibility studies, preparation of plans and designs, provision of technical services during the construction or installation phase, inspection and evaluation of engineering projects, and related services.

The�primary�activities�of�this�industry�are

Design and management services to construction and engineering infrastructure projects

Design and management services on environmental projects

Design and management services on industrial processes and equipment

Construction management services

Process management (e.g. assess engineering and product problems)

Project planning and economic assessments

Asset management, including life cycle asset management and management systems

Feasibility studies, including environmental impact assessment and community consultation

Quality management assessment and accreditation

23 Construction�in�the�USEstablishments primarily engaged in both the design and construction of buildings, highways, and other structures or in managing construction projects.

54131 Architectural�Services�in�the�USEstablishments mainly engaged in the provision of architectural services involving the design of buildings and structures.

54132 Landscape�Design�&�Planning�Services�in�the�USEstablishments mainly engaged in the provision of landscape architectural services involving the design of streetscapes, gardens and public access areas.

54136 Geophysical�Services�in�the�USEstablishments primarily engaged in gathering, interpreting, and mapping geophysical data.

Industry�Definition

Main�Activities�

Similar�Industries

About�this�Industry

The�major�products�and�services�in�this�industry�are

Commercial, public and institutional projects

Industrial and manufacturing plant and process projects

Miscellaneous federal government projects

Municipal utility projects

Other

Project management services

Residential building projects

Transportation projects


About�this�Industry

54137 Surveying�&�Mapping�Services�in�the�USEstablishments primarily engaged in performing surveying and mapping services of the surface of the earth, including the sea floor.

54142 Industrial�Design�Services�in�the�USEstablishments primarily engaged in creating and developing designs and specifications that optimize the use, value and appearance of products.

54151 IT�Consulting�in�the�USEstablishments primarily engaged in planning and designing computer systems that integrate computer hardware, software and communication technologies.

54162 Environmental�Consulting�in�the�USEstablishments providing advice and assistance to others on environmental issues, such as the control of environmental contamination from pollutants, toxic substances and hazardous materials.

Similar�Industriescontinued

For�additional�information�on�this�industry

www.acec.org�American Council of Engineering Companies

www.aiche.org�American Institute of Chemical Engineers

www.asce.org�American Society of Civil Engineers

www.asme.org�American Society of Mechanical Engineers

www.enr.com�Engineering News Record

www.nspe.org�National Society of Professional Engineers

Additional�Resources

�IBISWorld writes over 700 US industry reports that are updated up to four times a year. To see all reports, go to www.ibisworld.com


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Value of private non-residential construction

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2010)

17%Industrial and manufacturing

plant and process projects

10%Miscellaneous federal government projects 15.5%


10%Project management

services

7.5%Residential building

projects

14.5%Other

13.5%Commercial, public and

institutional projects

12%Municipal utility

projects


Key�Statistics�Snapshot

Industry�at�a�GlanceEngineering�Services�in�2010

Industry�Structure Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance Low

Concentration Level Low

Regulation Level Medium

Technology Change High

Barriers to Entry Medium

Industry Globalization Low

Competition Level High

Revenue

$172.8bnProfit

$8.8bnExports

$27.0bnBusinesses

147,422

Annual�Growth�10-15

3.5%Annual�Growth�05-10

0.1%

Key�External�DriversValue�of�utilities�constructionValue�of�private�non-residential�constructionDownstream�demand�from�manufacturingDownstream�demand�from�miningDownstream�demand�from�building�construction

Market�ShareThere are no Major Players in this industry

p. 26

p. 6

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 34



Executive�Summary

If it works, thank an engineer; if it breaks, blame an engineer. There is little, however, an engineer could have done to stop the recent collapse in industry revenue. Engineering is one of the largest professional service markets in the United States, generating revenue of about $172.8 billion in 2010. It applies scientific knowledge to design structures, products and industrial processes aimed at servicing the economy and society. Local and foreign-based consulting firms compete in this market, along with the in-house engineering service operations of construction contractors, manufacturers and utility owners, including private electricity generators and public water authorities.

The trend toward outsourcing engineering activities has supported the long-term expansion of the industry. Technological advances in key markets, like telecommunications and power generation, have also fueled growth. However, revenue has grown at an average annual rate of just 0.1% in the five years to 2010. This relatively weak growth reflects the effect of divergent trends in the construction and industrial markets. Despite solid demand conditions across many infrastructure markets (notably the energy, transport and water supply markets), US industrial production and capital expenditure have trended downward.

While long-term contracts allowed many engineering firms to maintain growth as the recession began, many companies delayed projects, causing a decline in engineering firms’ backlogs. The onset of recessionary conditions and the shortage of liquidity on global financial

markets negatively affected demand for engineering services. This factor drove down industry performance in 2009, and revenue is expected to decline by a further 7.2% in 2010.

The industry currently employs about 995,000 people. It is fragmented, with a large number of small-scale establishments, which often confines operations to regional markets or specialized niches. The industry is composed of about 147,000 establishments in 2010, including 91,000 non-employer establishments (typically small-scale sole proprietors). In the five years to 2010, establishment growth has remained relatively flat, hampered by the recent decline in demand. In 2009 and 2010, many firms reduced wages, head counts and the number of branch offices in order to maintain profits, which declined for many players as a result of poor demand.

International trade represents a significant share of activity among the larger-scale players in this industry; export earnings currently contribute 15.6% to industry revenue. Many of the large domestic firms have secured lucrative export contracts associated with the reconstruction of Iraq and Afghanistan over the past five years, while others have expanded operations into foreign markets through strategic acquisitions or joint-venture alliances. Import penetration accounts for approximately 3.7% of domestic demand and represents the total earnings repatriated by foreign-based firms from US operations.

Through 2015, the industry is anticipated to return to growth as the economy recovers. Revenue is projected to increase at an average annual rate of 3.5% over the period to $205.2 billion, supported by increased demand for non-residential buildings. Profit margins are also forecast to improve, particularly among larger players that provide services such as construction management.

Industry�PerformanceExecutive�Summary�� |�� Key�External�Drivers�� |�� Current�PerformanceIndustry�Outlook�� |�� Life�Cycle�Stage

� Improving levels of non-residential building construction will raise demand for engineering services


Industry�Performance

Key�External�Drivers Value of utilities constructionThis industry provides engineering assessment and advisory and construction management services across the entire construction sector. In particular, it provides services for heavy industrial construction like power plants and railroads and for highway and bridge construction. Increased public sector investment into fixed capital construction generates increased demand for engineering consulting services. This driver is expected to increase over the next year. This represents a potential opportunity for the industry.

Value of private non-residential constructionThis industry provides engineering assessment and advisory and construction management services across the entire construction sector. It particularly provides these services for heavy industrial construction, including oil and gas facilities and chemical plants. The recent decline in this driver has inhibited revenue growth late in the period between 2005 and 2010. This driver is expected to decrease over the next year. This represents a potential threat to the industry.

Downstream demand from manufacturingThe Engineering Services industry generates a significant proportion of revenue from activities in the manufacturing and industrial market. Growth in manufacturing output generally increases capacity utilization, which adds to demand for engineering consulting services on the addition of new capital stock or the configuration of existing stock in order to increase efficiency. This driver is expected to increase over the next year.

Downstream demand from miningThe industry generates a significant proportion of revenue from activities in the mining and mineral processing market. Growth in domestic and global demand for mining commodities generally increases demand for engineering consulting services in the areas of improving productive efficiency, exploration and new mine-site development. This driver is expected to increase over the next year.

Downstream demand from building constructionThis industry provides engineering design and construction management

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Current�Performance

Throughout the mid-2000s, the Engineering Services industry maintained a robust pace of expansion. Its growth corresponded with strong cyclical growth in downstream construction markets, record levels of investment into industrial capacity and energy infrastructure, and increased spending on public infrastructure. However, the recession significantly eroded investment trends in several key markets, resulting in slower industry growth. In fact, IBISWorld estimates that industry revenue rose at an average annual rate of only 0.1% to $172.8 billion in the five years to 2010.

The industry’s revenue has been subdued because of the poor economy. Demand for engineering services was largely supported by the strong 10.2% annual growth in non-residential building construction over the last five years. Furthermore, long-term contracts signed by operators in the early part of the period kept the industry growing through 2008, despite the slowing economy. However, this growth has also been hampered by a variety of factors during the latter part of the period. As businesses faced tighter budgets, many delayed planned projects or scaled back on existing ones. Engineering firms’ backlogs dried up, and the number of projects in their pipelines also declined. Consequently, operators eventually felt the pinch of the economic slowdown in 2009 and 2010, as revenue fell both years.

In the five years to 2010, US industrial production declined at an annual rate of 0.7%, with a decline of 9.3% in 2009 alone. This negative pattern has stifled

growth for engineering services within the manufacturing market. Furthermore, private fixed investment in structures (both residential and non-residential) declined every year since 2005, including a 20.2% fall in 2009. Weak business sentiment, tight credit conditions, business deleveraging and little need to expand production and office space caused this decline in construction investment. All of these factors contributed to the industry’s poor performance late in the decade, and are expected to cause industry revenue to fall by 7.2% from 2009 to 2010.

Despite these declines, demand for consulting engineering has been supported by technological advancements in key markets and increased outsourcing of engineering activities to specialist firms in the past decade. Additionally, the growth of multi-disciplined firms with greater financial and technological resources has opened access to international markets.

Key�External�Driverscontinued

services across the entire construction sector, including non-residential building construction projects, such as large-scale office projects. Increased investment in commercial, institutional

and industrial building construction can lead to greater demand for engineering consulting services. This driver is expected to increase during the next year.

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Weak�demand�erodes�profits

Historically, the Engineering Services industry’s profitability has displayed wide cyclical fluctuations. Over the long term, however, cost-reduction programs, the application of new technologies and the stabilization of cash flow through long-term contracts have enhanced profitability. Profit margins among major engineering firms flourished during the mid- to late 2000s, largely driven by accelerated growth in non-residential construction activity, particularly infrastructure projects and lucrative government contracts including foreign contracts in Iraq and Afghanistan. Recently, however, profitability has tightened and competition has intensified because of the weaker global economy and the winding back of contracts in the Middle East.

The fall in profitability has caused some players to scale back their operations. Throughout 2009 and 2010, firms closed branch offices and reduced employee head count and wages to maintain profit margins. During the five years to 2010, IBISWorld estimates that the number of industry employees increased at an average annual rate of only 0.5% to 995,345 people.

Furthermore, some firms are expected to leave the industry altogether. During the last five years, the number of firms has remained relatively flat, increasing by only 0.3% annually to 139,209 in 2010. Non-employer firms, accounting for approximately 65.6% of the firms in this industry, have been hit particularly hard since the recession. Sole proprietors are typically limited to lower-margin projects because of their small capacity. Unfortunately, many of these projects have been delayed while investors wait for signs of economic improvement.

Competitive�conditions

Unlike sole proprietors, large engineering firms are multi-disciplined, multi-branch companies with the capacity to complete contracts in varying geographic areas and service markets. All of the major players in this industry generate revenue outside the United States, and all have expanded through a series of strategic acquisitions. However, there are variations in the strategic objectives of the major players and how they have expanded.

Some players have grown by acquiring firms with a presence in key markets. For example, industry player URS Corp. acquired several companies to

strengthen its capacity and secure contracts in the government services and nuclear power markets. Many players have taken similar actions to focus on securing contracts in certain markets. The energy, power generation and government services markets have been particularly attractive throughout the five years to 2010. Industry player KBR Inc., formerly part of Halliburton Group, is one of the largest defense services contractors in the industry. The company has extensive operations in the reconstruction of Iraq and Afghanistan. However, other players have developed strategic alliances and joint venture arrangements as a way

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Competitive�conditionscontinued

to grow. For instance, Bechtel Corp. and Foster Wheeler have entered into strategic alliances to expand their resources. Through such arrangements,

companies are able to improve their likelihood of securing contracts by spreading the risk and increasing their performance capabilities.

Industry�Outlook

In the five years to 2015, industry revenue is forecast to increase at an average annual rate of 3.5% to $205.2 billion. The industry will endure further contraction in the short term, as engineering firms struggle to increase the number of projects in their backlog. However, demand conditions will strengthen from 2012, boosted by a resurgence in private fixed capital investment, increased industrial production and growing business sentiment.

Improving economic conditions will support demand for project design, construction management and procurement. The value of non-residential building construction is projected to increase by an average of

Demand�crashes�with�economy

The onset of the recession hurt demand for engineering services. The recession severely affected government budgetary finances, private company balance sheets and household spending. Instability in the financial markets and a decline in economic confidence severely limited the availability of investment funds. Local governments found it difficult to raise funds through the issue of municipal bonds, leaving a hole in funding for capital works projects.

The magnitude of the recent economic slowdown and the lack of liquidity on global financial markets forced cutbacks to existing infrastructure and building projects. Many projects that were already in the planning and bidding stages have been put on hold. Construction activity on power-generating facilities peaked in 2009, since these long-term projects cannot be stopped midstream, but the

completion of some projects in the market are expected to decline in 2010.

The Obama administration’s fiscal stimulus package allocates substantial additional funding to transport infrastructure, including roads, bridges and rails. While this funding will boost demand for engineering services, much of it is allocated to shovel-ready projects that are small-scale and can proceed within a short 120-day time frame. However, federal funding through defense or infrastructure programs is an important driver for this industry. Some consultants have benefited from ongoing investment in highway construction through multi-year funding arrangements. Others have been able to mitigate losses through work on conservation and development projects, following the collapse in demand in the non-residential construction market.

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Revenue Exports

Revenue vs. exports




Industry�Outlookcontinued

3.7% annually over the next five years. Similarly, private fixed investment in structures is projected to increase at an average annual rate of 11.6%. Growth in exports is also expected to boost demand for the industry beginning in 2012, supported by the gradual recovery in investment into infrastructure projects in the Middle East, the Pacific Rim and South American regions.

The industry is anticipated to return to solid profit performance during the five years to 2015, driven by rising demand. The profit margins of large-scale engineering firms will widen as they continue to provide more multi-disciplined services and leverage their financial and technical resources. In turn, growth in profit margins will increase the number of players operating in the industry. Many of the sole proprietors that left the industry because of poor operating conditions will return as demand increases. In the five years to 2015, the number of firms operating in this industry is expected to increase at an average rate of 1.2% annually to 147,531.

Similarly, employee compensation will grow at an annual rate of 3.3% over the next five years, reflecting average annual growth of 1.2% in industry employment. Nevertheless, wages as a proportion of

industry revenue will likely show a marginal decline as firms continue to use temporary labor agreements. This decline will be especially true for companies that provide services in remote locations, particularly on export contracts, which rely more heavily on subcontracted labor than direct employment.

The process of industry globalization over the past decade, coupled with advances in communication and IT, will likely result in the major international players sourcing an increasing proportion of professional labor requirements from lower-cost countries. The majority of domestic engineering firms already have resources outside the United States, including access to suitably qualified personnel in lower-cost countries like Mexico, South Africa and India.

During the five years to 2015, more firms are expected to use these personnel remotely on US-based design projects.

Short-term�pain�before�gain

The industry’s performance is expected to continue to deteriorate in the short term before an upswing emerges in 2012. The downward trend in demand for engineering services during 2011 is a lagged effect from the recession on business investment and industrial production. The deferral of private investment into electric power, energy and mass transport infrastructure projects will continue to subdue the non-building construction market.

Furthermore, many businesses will be wary of committing to large projects before sustained signs of recovery. These factors will ultimately cause a shortage in the number of projects in firms’ pipelines, inhibiting early recovery.

Industry revenue is forecast to decline by 1.8% to $169.6 billion in 2011, with the likelihood of further restructuring between domestic consulting firms. The ongoing instability on the US equity markets will likely expose some firms to

� The economic rebound will raise demand for industry services in project design and management



Short-term�pain�before�gaincontinued

liquidity shortfalls. However, as the domestic economy continues to improve in the short term, firms will be able to

increase the number of projects they have planned for the remainder of the five years to 2015.

Growth�strengthens�from�2013

Demand conditions for consulting engineering services are forecast to improve across all key downstream markets toward 2013. Continued growth in the private fixed investment of structures will provide the platform for industry expansion. The solid pace of industry expansion will also be supported by the return of investment into electric power infrastructure and communications markets, which experienced many delays in projects over the last five years.

Several other factors will boost industry demand during the five years to 2015. While most of the growth in industrial production will be recovery during the five years to 2015, industrial production is expected to meet the pre-recession levels. Private fixed capital expenditure is also expected to grow, driving up demand for engineering

design and process management services on the planning and installation of industrial equipment, and asset management services for maintenance and operation of existing plants. Demand for engineering services will also be boosted by demand for work on energy projects outside the United States (notably in South America, the Middle East and East Asia). However, export earnings from activity in Iraq and Afghanistan are projected to drastically decrease during the five years to 2015.

� Demand for engineering services will rise abroad, particularly in South America and East Asia


Industry�PerformanceIndustry revenue growth has started to slow and is generally in line with the overall economy

The industry has experienced slow growth in the number of engineering firms

The industry has experienced a slowdown in the growth of new types of buyers

Life�Cycle�Stage


30

25

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DeclineCrash or Grow?

Potential�Hidden�GemsFuture Industries

Quality�GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time�WastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shake-out

Shake-out

Quantity�GrowthMany new companies; minor growth in economic importance; substantial technology change

Key�Features�of�a�Mature�Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Architectural�Services

Landscape�Design�&�Planning�Services

Rail�TransportationLaw�Firms

Geophysical�Services

Engineering�Services



Industry�Life�Cycle During the early 2000s, the industry experienced strong growth as operators expanded into new markets, including environmental management and monitoring and planning services. Furthermore, the prospects for securing government contracts increased when the US entered Iraq and Afghanistan. However, the industry has since entered a mature phase of its life cycle. Industry growth has slowed to be roughly on par with the overall economy, a factor that is expected to continue during the five years to 2015. In the 10 years to 2010, IBISWorld estimates that the industry’s contribution to the overall economy will increase at an average annual rate of 2.3%, compared with GDP growth of 2.0% during the same period. Recently, many companies reduced the scope of their engineering projects as the economy began to decline. During the five years to 2015, businesses are expected to increase spending on these projects once again, but at a moderated pace compared to what was seen the early 2000s.

In the five years to 2010, the number of enterprises operating in this industry remained relatively flat, increasing by an average of only 0.3% annually. In 2009 and 2010, IBISWorld expects that the number of players actually declined as a result of poor operating conditions. While non-employers have been particularly vulnerable to the recession, larger players have not been immune to the decline in demand. Major players, such as KBR and URS, have taken the opportunity to acquire medium-sized firms, a factor that has contributed to slow enterprise growth.

The industry’s relatively low level of revenue volatility is indicative of the mix of end markets: public and private sector; construction and maintenance; mining and energy; industrial and transport. However, those markets have gone largely unchanged over the past decade. While exports are expected to grow during the five years to 2015, the majority of this industry is composed of small regional players that will not reap the benefits of overseas expansion.

�This industry is Mature


Products�&�Services

�Products�&�MarketsSupply�Chain�� |�� Products�&�Services�� |�� Demand�DeterminantsMajor�Markets�� |�� International�Trade�� |�� Business�Locations

KEY�BUYING�INDUSTRIES

21� Mining�in�the�US�Engineering firms help design, manage and develop mines and mining operations.

22� Utilities�in�the�US�Engineers provide design and management services for power, gas and water infrastructure.

23� Construction�in�the�US�This industry helps design and manage construction projects.

48211� Rail�Transportation�in�the�US�Engineers help develop traditional railroads as well as high speed trains systems.

92� Public�Administration�in�the�US�Engineering firms provide the government with a variety of services, such as defense systems.

KEY�SELLING�INDUSTRIES

23� Construction�in�the�US�The construction sector supplies construction services to consultants acting as project managers.

52� Finance�and�Insurance�in�the�US�This sector provides firms with a variety of services, including banking, project financing and professional indemnity insurance.

54� Professional,�Scientific�and�Technical�Services�in�the�US�This sector supplies specialized services on a consulting basis. These include: architectural services, surveying, landscape architecture, building inspection services and drafting.

54111� Law�Firms�in�the�US�Law firms supply legal advice and representation.

54121a� Accounting�&�Tax�Preparation�Services�in�the�US�This industry provides accounting services, bookkeeping and accounts management.

Supply�Chain

Products and services segmentation (2010)

Total $172.8bn

17%Industrial and manufacturing

plant and process projects

10%Miscellaneous federal government projects 15.5%


10%Project

management services

7.5%Residential

building projects

14.5%Other13.5%

Commercial, public and institutional projects

12%Municipal

utility projects



Products�&�Markets

Products�&�Servicescontinued

The principal activities of this industry include design services on construction, the physical environment and industrial processes. However, given the breadth of markets that demand engineering in one form or another, industry operators provide a wide variety of services. Furthermore, many operators have started providing a multitude of value-added services in order to be more competitive.

Industrial and manufacturing projectsAccounting for approximately 17.0% of industry revenue, the industry’s largest product segment is industrial and manufacturing plant and process projects. This segment includes the provision of design services on industrial processes, equipment and product development. It also includes associated services, such as asset management, monitoring and the operation of industrial processes. These services are important for companies involved in mining, refining, power generation and manufacturing operations.

Transportation projectsTransportation projects are estimated to represent 15.5% of industry revenue. The segment accounts for all projects that are related to transportation, including mass transit systems, airports and highway and roadway projects. Highway and roadway projects make up the vast majority of transportation project revenue at approximately 86.5%. The segment largely relies on federal and state budgets for growth. Recently, the transportation segment has grown, largely due to an increase in federal spending on infrastructure projects to reduce unemployment.

Commercial, public and institutional projectsCommercial, public and institutional building projects generate approximately

13.5% of industry revenue. This segment provides renovation and design services for new buildings, including schools, parks and retail space. Renovation accounts for a third of this segment’s revenue; however, such projects are expected to see an increase in demand as more businesses are likely to refrain from enduring the costs of new construction in an uncertain economy.

Municipal utility projectsMunicipal utility projects represent approximately 12.0% of industry revenue. This includes the design of landfills and water collection and treatment facilities. It also includes other municipal utility projects, such as local power stations. Water collection, distribution, treatment and disposal projects generate the majority of this segment’s revenue at approximately 59.8% of municipal project’s total. Following the recession, many cities have been strapped for cash and have reduced spending on everything but necessary system upgrades. Consequently, this segment is estimated to have seen a recent decline in demand.

Residential building projectsResidential building projects account for an estimated 7.5% of industry revenue. This segment accounts for high rises, apartments, condos and homes. Like the commercial, public and institutional projects segment, residential building services can be divided between new projects and renovations. New buildings represent the majority of this segment, generating approximately 84.6% of revenue from residential projects. Given the recent decline in business and consumer sentiment, residential projects have declined since the recession.

OtherIndustry operators also provide a variety of other services, including environmental services and project



DemandDeterminants

The principal demand determinant for engineering services is the level of investment into infrastructure and non-residential building construction projects. However, the industry is also heavily influenced by trends in downstream markets, particularly investment into equipment and processes in the manufacturing, energy and transportation markets. Many of the industry’s downstream markets rely on the level of general economic activity, such as commercial building projects. Consequently, the performance of the wider economy can have serious effects on industry demand. Similarly, many firms recently experienced a boom in performance due to a spike in the price of oil.

The share of industry revenue derived from the design of industrial processes and equipment has gradually contracted since the mid-1990s. This has primarily been associated with the scaling back of industrial production to the US economy. On the other hand, the share of revenue derived from environmental design projects has trended upward. Other important areas of industry operation include marine design, manufacturing

product design and services to architectural and drafting activities.

Demand for this industry can also be stimulated by one-off occurrences, such as natural disasters (e.g. Hurricane Katrina), terrorist attacks (e.g. the September 2001 attacks on the World Trade Center and the Pentagon), and from US involvement in military action (e.g. the war in Iraq).

Projects in response to natural disasters typically include the provision of specialist engineering services in risk assessment, project design, logistics and procurement management, and construction project management. Government investment in infrastructure programs can also affect demand.

Other key determinants of industry demand are performance of industries with high levels of complex capital equipment and structures (e.g. mining, manufacturing and transport); increased outsourcing of public sector activities to the private sector and the privatization of public sector assets in the areas of electricity generation and rail transport; and investment into industrial production capacity and the introduction of technologically advanced processes.

Products�&�Servicescontinued

management. Environmental services supplied by this industry involve a broad range of activities, such as urban design; recreation and traffic planning; environmental impact assessment; community consultation; geographic and landscape architecture; contaminated site management and natural resource management.

Project management services, which account for approximately 10.0% of industry revenue, include the provision of pre-design services such as feasibility studies and environmental impact statements. It also involves the planning, scheduling, monitoring,

reporting and controlling of all resources in a project to meet time, cost and quality objectives.

Similarly, construction management involves the management and coordination of independent contractors, along with planning, scheduling and cost reporting, site supervision and quality assurance administration.

Industry operators also provide the federal government with services, such as overseas defense structures. Military spending on engineering services increased dramatically during the early to mid-2000s when the US entered Iraq and Afghanistan.



Major�Markets

Construction companiesThis industry generates the majority of its revenue directly from the construction sector of the economy. Construction companies use engineering services for pre-design work and the asset and project management function of building construction. In general, construction companies represent the wider economy. For example, a construction firm might build a mall for a developer and an office building for a company, but use the same engineering firm to design both. Some portions of this segment, such as firms specializing in residential construction, saw drastic declines following the recession; however, its overall diversity mitigated losses.

Energy and gas companiesEnergy and gas companies use engineering firms to develop refineries, oil rigs and pipelines. The segment also uses engineers to maintain compliance with environmental regulations. This segment is highly specialized and often requires an extensive knowledge of chemicals to prevent potentially dangerous explosions. Furthermore, many of this segment’s projects require a firm with a relatively large capacity; consequently, smaller players do not get

projects under this segment often. During the five years to 2010, this segment increased as a proportion of industry demand as the price of oil increased dramatically. While revenue growth has since subsided, this segment is expected to increase during the five years to 2015 as more research is conducted on new fuels and energy technology.

Utilities, mining and industrial companiesThis segment uses engineers to develop machinery and systems required by utilities, mining and industrial companies. Engineers develop everything from mines and landfills to machinery and water treatment facilities. Firms in the industry are also used to minimize environmental impact. While local governments run many utility companies, the increasing use of privatization has caused this segment to grow over the past decade.

The governmentSeveral of the leading engineering services firms, such as URS Corp., generate around half their revenue from public sector contracts. The government uses engineering firms for a variety of activities, including public infrastructure

Major market segmentation (2010)

Total $172.8bn

47.5%Construction

companies

20%Energy and

gas companies

17.5%Utilities, mining and industrial companies

15%Government




International�Trade International trade represents a significant share of activity among the larger scale companies. Several of the leading firms (e.g., KBR, Bechtel, and Fluor Corporation), maintain permanent operations outside the US and often generate the majority of their annual revenue from foreign-based activities. Similarly, global players such as the French-based Egis Groupe compete against US firms for a share of the domestic engineering consulting market.

It is difficult to identify the consulting engineering services component of this industry’s export earnings and import consumption. Major players typically contract a wide range of engineering and non-engineering services, including construction, manufacturing processes and logistics operations. Among several of the largest consultant engineering firms, export earnings account for 25% to 30% of annual revenue. The industry’s total export earnings (including revenue from engineering consulting and other services) have grown from around 7.6% of industry revenue in the 2000, to around 14.9%, or $27.0 billion in 2010.

The export earnings component of this foreign revenue principally represents the profits repatriated to the US parent from foreign subsidiaries, as much of the total revenue earned on foreign contracts is paid in operating costs in the country where the consultancy is undertaken (e.g., wages and materials). Industry export earnings have grown by an

average 2.2% per annum over the five years to 2010. During the mid-2000s, exports increased due to US involvement in Afghanistan and Iraq. Export growth has fallen, however, largely due to the downturn of the global economy in the past two years.

Total revenue by foreign-based firms in the US market is estimated to account $5.6 billion of total domestic demand in 2010. In the five years to 2010, import penetration has grown by approximately 3.7% per annum.

The 10 largest US-based engineering firms currently rank among the top 25 international design firms. All the major players in this industry figured prominently among the major players on the global market with URS Corp, AECOM, ABB Lummus Global, Fluor Corp, and Kellogg Brown & Roots ranking within the top 10 firms globally.

Major�Marketscontinued

projects and defense work. Engineering firms also provide the government with urban planning, public transport and environmental cleaning. During the early 2000s, there was an increase in demand from the government as engineers were

needed to design solutions in Iraq and Afghanistan. While revenue from many of those projects has fallen, a recent emphasis on infrastructure programs has increased the segment’s proportion of the industry once again.

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Industry trade balance


Level�&�Trend��Exports in the industry are Medium and Increasing

Imports in the industry are �Low�and�Increasing


�Products�&�Markets

Business�Locations�2010

MO1.7

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.1

MA4.4

RI0.3

NJ3.2

DE0.3

NH0.3

CT1.0

MD4.4

DC0.4

1

5

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7

2

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8 9

Additional�States�(as marked on map)

AZ1.4

CA15.1

NV1.2

OR0.8

WA2.3

MT0.2

NE0.3

MN1.1

IA0.3

OH2.6 VA

4.6

FL4.7

KS1.4

CO3.6

UT0.5

ID0.6

TX10.2

OK0.9

NC1.9

AK0.4

WY0.1

TN2.0

KY0.6

GA2.4

IL3.0

ME0.3

ND0.1

WI0.9 MI

4.0 PA4.3

WV0.2

SD0.2

NM0.6

AR0.2

MS0.4

AL1.4

SC2.1

LA1.6

HI0.4

IN1.0

NY4.0 5

67

8

321

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9


Mid- Atlantic

Revenue�(%)�

� Less�than�3%� 3%�to�less�than�10%� 10%�to�less�than�20%� 20%�or�more


�Products�&�Markets

Business�Locations The industry’s geographic spread generally corresponds with the distribution of economic activity and population. There is a disproportionately high representation of engineering consulting activity in major metropolitan areas, transport hubs and areas with a high concentration of heavy industry (e.g. steel, petrochemicals) and natural resources (e.g. mining, energy production).

The Southeast accounts for the largest share of industry activity. The region accounts for about 24.6% of industry establishments, which broadly equates with the Southeast’s share of US GDP and resident population 25.2% annually. In spite of this, the Southeast generates a relatively smaller share of revenue than other regions. It is estimated the relatively non-specialized nature of engineering operations in the region causes this.

The West accounts for about 19.8% of industry establishments. With 20.2% of industry revenue and 17.0% of the population, the West generates more revenue per capita than the Southeast. California alone accounts for around

13.8% of industry establishments. The state is home to several leading players in the industry, most notably Bechtel and Fluor Corporation.

The Mid-Atlantic accounts for around 13.4% of industry establishments. This falls below the Mid-Atlantic’s overall share of the US economy (18% to 18.5% annually) but corresponds closer to its share of national population and construction activity (15% to 16% annually). Several of the leading players operate from headquarters in the major urban areas within the Mid-Atlantic region (e.g., New York City, Philadelphia).

The Southwest accounts for 12.1% of industry establishments and around 13.5% of employment, which marginally outweighs the Southwest region’s share of the total US economy and construction activity (around 10% to 11% annually). It is likely the marginally higher concentration of industry activity stems from the region’s significant level of mining and energy production. Texas, the base for the petrochemical and oil industry, accounts for two-thirds of regional activity.

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Distribution of revenue vs. establishments


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Distribution of revenue vs. population


Key�Success�Factors Having contacts within key marketsFirms must establish networks and a reputation amongst the key players in each market in order to be invited to tender.

Fast adjustments made to changing regulationsFirms must understand and adapt to a changing regulatory environment.

Ability to compete on tenderSuccessful firms are capable of winning contracts through tender while ensuring adequate cash flow without

compromising long term profitability.

Ability to quickly adopt new technologyTechnological advancements (production and construction technologies) impact the capacity of firms in this industry to efficiently compete in most markets.

Access to highly skilled workforceIt is important that firms attract and retain a highly skilled workforce.

Marketing of differentiated productsFirms must be able to undertake a broad range of engineering services.

Market�Share�Concentration

This industry is characterized by many small establishments that typically confine operations to a localized regional market or to specialized niche activities. The industry displays a low concentration of ownership, with the four largest companies contributing only around 14.3% of industry revenue. Despite the low concentration of ownership, a significant proportion of revenue is derived from medium and large firms. Consequently, the 50 largest enterprises generate around 35.0% of industry revenue in an industry with nearly 140,000 firms.

The large number of small-scale firms is evident from the County Business Patterns. According to the latest figures, approximately 69.2% of industry establishments employ fewer than ten persons and 53.6% employ fewer than five people. Only 2.5% of establishments employ more than 100 persons. The industry also has a large of self-employed

professionals that do not have a payroll. These non-employing establishments represent approximately 65.6% of industry firms, or 91,300 in 2010. In spite of this, sole proprietors only generate 2.9% of industry revenue.

Competitive�LandscapeMarket�Share�Concentration�� |�� Key�Success�Factors�� |�� Cost�Structure�BenchmarksBasis�of�Competition�� |�� Barriers�to�Entry�� |�� Industry�Globalization

Level��Concentration in this industry is Low

Distribution�of�establishments�by�staff�size�(2010)�

No.�of�peopleNo.�of�

establishmentsShare�(%)

1 to 4 79,082 53.65 to 9 23,000 15.610 to 19 20,168 13.720 to 49 15,938 10.850 to 99 5,572 3.8100 to 249 2,707 1.8250 to 499 621 0.4500+ 335 0.3Total 147,422 100.0

SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS

�IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive�Landscape

Cost�Structure�Benchmarks

ProfitIn 2010, IBISWorld estimates that profit margins represent 5.1% of industry revenue. Profits have fallen from approximately 6.8% in 2008 due to the recent slump in demand. Following the US invasion in Iraq and Afghanistan, many players benefited from increased demand from the federal government. Margins also increased during the early part of the last five years, when rising energy prices worldwide caused energy companies turned to engineering firms for further development. Recently, however, margins have declined. Many clients have reduced the scale of projects or delayed projects altogether, causing revenue to decline. Consequently, many firms have taken steps to maintain profits, such as reducing employee head count. Profit margins are expected to increase as demand starts to picks up during the five years to 2015.

WagesThe industry primarily sells professional labor skills, and therefore total industry labor costs represent the largest cost component of industry operations. In 2010, total industry labor costs will absorb around 45.3% of industry revenue. This figure includes direct employee compensation, subcontract labor payments and wages for non-employer establishments. Approximately 2.9% of the revenue generated by this industry is from

non-employer establishments, a portion of which represents direct income earnings by the many sole proprietors operating in this industry.

In the five years to 2010, industry wages have increased to $81.9 billion, representing an average rate of 2.3% annually. This has been driven by employment growth of 0.5% per year, and increased labor rates. Industry operators also employ subcontractors for skilled labor in construction and related services. However, these costs are estimated to have declined marginally since the mid-1990s due to the trend for the larger consulting firms to directly employ labor to ensure an adequate supply of skills when tendering for contracts.

PurchasesPurchases represent the materials costs that go into creating a project. Depending on the type of contract, industry operators must pay for the costs of constructing a project. Some contracts, such as fixed-price contracts, require an operator to name a price up front, based on all costs and the desired and profit. Other contracts are cost-reimbursable, with the price varying based on costs incurred for time and materials. Purchases are estimated to represent 21.0% of industry revenue.

OtherIndustry operators incur a variety of other expenses, including rent, which accounts

Industry�Costs�and�Average�Sector�Costs■�Profi�t■�Rent■�Utilities■�Depreciation■�Other■�Wages■�Purchases

Industry�Costs�(2010)�

Average�Costs�of�all�Industries�in�sector�(2010)�

21.045.316.1

2.5

1.58.5

10.0Profit

3.2

7.243.725.83.26.8


0 100%

5.1Profit



Cost�Structure�Benchmarkscontinued

for approximately 8.5% of industry revenue. Rent includes office space, office equipment and other machines that are used by the industry. Operators also have

other office and miscellaneous expenses, such as insurance, travel costs and legal fees. These costs are estimated to be 16.1% of industry revenue.

Level�&�Trend��Competition in this industry is High and the trend is Increasing

Basis�of�Competition Competition within this industry is principally based on experience, established linkages with client organizations and reputation for quality. Specialized expertise in niche markets (e.g., nuclear power generation, oil and gas, tunneling) is an industry hallmark.

The industry’s competitive conditions are intense, particularly between small scale players in regional markets, and the competition pressures have heightened during the 2000s through the amalgamations between leading national and global engineering firms. The resultant larger scale companies have a capacity to compete across all market segments on a regional, national and international basis. The high degree of industry competition has been intensified by the entry of large scale European consultancy firms, and the constant entry and exit of small scale consultants from the industry.

Price differentiation remains an important element in competitive tendering. Price competition is the most significant factor in tendering for public sector consultancy contracts. Most state government and city administrators apply a strict code of practice which excludes consideration of other merit factors.

The leading players in this industry are increasingly forging close relationships

with global partners who can provide them with access to advanced technology, vast financial resources and international marketing capacities.

In specialized markets, a close and almost exclusive relationship often exists between consultants and the client. The engineering consulting firm will appoint former employees of the client firm as the principal consultants, therefore ensuring that the consultant possesses intimate knowledge of client requirements.

The increased globalization of this industry highlights the growing importance of economies of scale in the provision of technical and financial services on projects. The large scale firms within this industry are able to provide substantial technical and financial resources to their domestic and global network of branches and attract sufficient skilled labor to expand.

There is a growing trend for players in this industry to join a development consortium comprising financiers and construction firms for the purposes of bidding for contracts. The practice of forming consortia enable participants to spread the risks and direct costs associated with tendering for contracts, enables the participants to leverage off the strengths of the consortium partners and increases the likelihood of successful bids.



Barriers�to�Entry�checklist� Level

Competition HighConcentration LowLife Cycle Stage MatureCapital Intensity LowTechnology Change HighRegulation & Policy MediumIndustry Assistance Low


Barriers�to�Entry The technical complexity of most projects undertaken by this industry effectively restricts the entry of new competitors to those with demonstrated capacities across a range of complex projects. Many projects require a variety of tasks, including project feasibility; production line design and implementation; and design and management of construction. Scale can also pose a barrier to entry for operators that do not have the resources or capacity to complete complex projects, such as nuclear power plants or oil rigs.

Qualifications, sophisticated technical skills and expertise are prerequisites for entry to the industry. In some instances, technical equipment is custom built and purpose-designed by, or for, the operating company and is therefore a barrier to entry. A Bachelor of Engineering or Associate Diploma of Engineering is generally regarded as minimum qualifications.

Membership in professional associations, such as the New York Association of Consulting Engineers (NYACE) or the American Council of Engineering Companies (ACEC) may ease the entry of new players into this industry as such associations provide technical support on issues like professional indemnity, industrial relations, risk management and terms of engagement.

Intimate knowledge of client requirements, often stemming from a close and exclusive relationship between consultants and client, often forms a barrier to entry for new players. Similarly, operators generally need to

have prior experience in designing projects when dealing with highly specialized industries.

The trend toward the awarding of “Design and Construct” contracts, by both public and private sector clients, tends to favor the larger scale firms to the detriment of independent consultants. Many of the larger scale players in this industry have the in-house capacity to tender for prime construction contractor roles and can therefore leverage on construction activities to expand engineering design consultancy.

The trend towards forming project consortia to bid for contracts (i.e., strategic alliances comprising engineers, financiers and construction firms), is likely to limit the opportunities for new entrants to compete on these projects. The new entrants are less likely to be invited to join a consortium than existing players with established credentials and are unlikely to be able to match the financial, technical and networking strengths when tendering for contracts.

Level�&�Trend��Barriers to Entry in this industry are Medium and Increasing



Industry�Globalization

The industry has a low degree of globalization with around 20% to 25% of industry revenue generated by firms with majority foreign ownership. However, a growing share of US industry revenue is generated by projects undertaken outside America.

Most of the larger-scale firms maintain foreign-based operations. Fluor

Corporation, for example, maintains a network of offices across 25 countries. Similarly, KBR operates subsidiary branches in over 120 countries. Many large players also generate a substantial portion of their revenue overseas. For example, Bechtel generates around half of its annual revenue on projects outside the United States.

Level�&�Trend��Globalization in this industry is Low and the trend is Increasing


Trade�Globalization Going�Global:�Engineering�Services�1998-2010

Expo

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Expo

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200

150

100

50

0

200

150

100

50

0

Imports/Domestic�Demand Imports/Domestic�Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal


19982010


Other�Companies The engineering services industry is characterized by many medium- to large-scale, multi-branch firms that compete across a broad range of markets both geographically and by activity.

Fluor Corporation Estimated market share: 4.9%Founded in 1912, Fluor is a Fortune 500 company that operates as an engineering, procurement, construction, operations, maintenance and project management firm. The holding company has operations in five main business groups: oil and gas; industrial and infrastructure; global services; government services; and power. It also operates Fluor Constructors International, a unionized direct-hire service in the United States and Canada. Fluor has several subsidiary and joint venture operations, including ICA Fluor, which operates in the energy and chemical markets in Mexico and Central America. Although the company has operations around the world, the United States is Fluor’s largest market, representing about 49.1% of total revenue.

The oil and gas segment is Fluor’s biggest operating segment, accounting for 36.3% of revenue in 2010. The firm operates in the upstream oil and gas production, downstream refining and integrated petrochemical markets. The company also provides power-generation and carbon-capture through its Power

segment. The segment, which accounts for 8.9% of Fluor’s operations, designs, builds and modifies power facilities. The segment is expected to exhibit strong growth in the future as more of an emphasis is placed on clean energy.

The Industrial and Infrastructure business has gained a market advantage through the company’s size and ability to deliver large scale transportation, manufacturing, industrial and mining projects. The segment, which accounts for 33.6% of revenue, also includes revenue from telecommunications, life sciences and commercial and institutional projects. Fluor’s government and global services segments generate a combined 14.3% of company revenue. The government segment primarily works with the Department of Energy, the Department of Homeland Security and the Department of Defense. It also manages global military contracts through subsidiary Del-Jen. The global services business supplies operations and maintenance services at various plants and facilities.

The company is currently working on a variety of large projects. In 2008, it was awarded a contract to design and construct the Greater Gabbard Offshore Wind Farm in the United Kingdom for $1.8 billion. The project will be the world’s largest offshore wind farm. However, the project’s profitability has

�Major�CompaniesThere�are�no�Major�Players�in�this�industry�� |�� Other�Companies

Fluor�Corporation�–�fi�nancial�performance

YearRevenue�

($ million) (% change)Net�Income�

($ million) (% change) Employees

2005 13,161.1 N/C 222.3 N/C 34,8362006 14,078.5 7.0 258.2 16.1 37,5602007 16,691.0 18.6 528.0 104.5 41,2602008 22,325.9 33.8 716.1 35.6 42,1192009 21,990.3 -1.5 684.9 -4.4 36,1522010* 21,083.6 -4.1 462.0 -32.5 N/A

*IBISWorld�estimateSOURCE: ANNUAL REPORT AND IBISWORLD


Major�Companies

Other�Companiescontinued

been hampered by a dispute relating to its specifications.

Between 2005 and 2008, Fluor experienced strong growth. The company benefited from escalating demand for energy worldwide, causing a sharp increase in revenue. In 2009 and 2010, however, the company has seen a decline in demand. The company’s backlog has declined and the scales of some projects have been reduced by clients eager to maintain costs. In 2010, the firm’s revenue is expected to decline 4.1% during the year as a result of weakness in its oil and gas segment. In spite of this factor, Fluor is expected to grow 9.9% annually in the five years to 2010, due to strong growth during the early part of the last five years.

URS CorporationEstimated market share: 4.7%Headquartered in San Francisco, URS Corporation is one of America’s largest engineering design and construction firms. URS operates in the power, infrastructure, government, industrial and commercial markets. The firm’s projects range from oil and gas pipelines to mining and manufacturing operations. Like many major players, URS offers fully integrated engineering services so it can manage all stages of a project. In January 2010, the company restructured its business into three divisions:

infrastructure and environment (formerly the URS Division); federal services (formerly the EG&G Division); and energy and construction (formerly the Washington Division).

In the five years to 2010, URS has recorded strong revenue growth, averaging 17.8% annually. The company has primarily expanded through strategic acquisitions, including its purchase of Washington Group International in 2007. The addition of the Washington Group’s revenue contributed to a drastic increase in revenue of 87.4% in 2008. In September 2010, the company acquired Scott Wilson, a UK-based infrastructure engineering and design firm. Unfortunately for URS, the additional revenue provided by the acquisition will not be able to fully mitigate the decline in demand the company has otherwise experienced in 2010. IBISWorld estimates that the company’s revenue will fall 4.8% further in 2010 as clients wait for sure signs of economic recovery to invest in new facilities.

In 2009, URS revenue declined 8.3% to $9.2 billion. The decline in revenue was primarily caused by a decrease in demand for the Energy and Construction segment, whose revenue fell 17.2% over the previous year. About 91.4% of revenue, or $8.5 billion, was generated in the United States during the year. The decline was a departure from 2008, when

URS�Corporation�–�fi�nancial�performance

YearRevenue�



2005 3,890.3 N/C 82.5 N/C 29,2002006 4,222.9 8.5 113.0 37.0 29,3002007 5,383.0 27.5 132.2 17.0 56,0002008 10,086.3 87.4 219.8 66.3 50,0002009 9,249.1 -8.3 269.1 22.4 45,0002010* 8,808.7 -4.8 260.6 -3.2 46,500



Major�Companies


revenue across all segments increased following the acquisition of Washington Group International.

URS has a diversified portfolio of end-markets, including a significant government market. In 2009, federal contracts accounted for 45.0% of URS’s revenue. Major URS government projects include chemical weapons destruction for the US Army, maintenance contracts for the Air Force and Navy and nuclear operations in the UK. Recent major projects include: the I-64 highway reconstruction project in St. Louis, Missouri, and design evaluations for the 1,600 acre Western Mill Creek Combined Sewer System in St. Louis. In 2009, URS picked up a contract with Michigan Department of Transport for design-build projects funded by the federal government’s economic stimulus program.

Bechtel CorporationEstimated market share: 3.5%The San Francisco-based Bechtel Group is one of America’s largest engineering and construction services companies. Bechtel’s focus has been large complex projects, particularly in energy, natural resources and infrastructure. Founded in 1898 by Warren Bechtel, the private firm has been run by family members for four generations.

Bechtel operates six business units: civil infrastructure; communications; mining and metals; oil, gas and chemicals; power; and US government services. The segments provide a variety of services, from the development of railroads and mines to gas pipelines and military defense. The oil, gas and chemical business unit and the government services business, called Bechtel National, are the company’s leading revenue producers. The firm has contracts with the US Department of Energy, Department of Defense, Environmental Protection Agency and NASA.

Bechtel has been a part of some very famous construction projects. Within the United States, Bechtel’s major projects have included the Hoover Dam and Boston’s Central Artery/Tunnel (also known as the Big Dig), which was a joint venture with Parsons Brinckerhoff that cost $14.6 billion. Internationally, Bechtel projects have included the Trans-Alaska pipeline and the 32-mile, $15 billion Channel Tunnel, which connects England and France under the English Channel.

In 2009, Bechtel announced the partnering of American Municipal Power-Ohio and Bechtel Power Corporation to construct a $3.2 billion coal-fired electric generation facility in southern Ohio. It also won a contract for

Bechtel�Corporation�–�fi�nancial�performance

YearRevenue�

($ million) (% change) Employees (% change)

2005 18,100 N/C 40,000 N/C2006 20,500 13.3 40,000 0.02007 27,000 31.7 42,500 6.32008 31,400 16.3 47,000 10.62009 30,800 -1.9 49,000 4.32010* 26,180 -15.0 N/A N/C



Major�Companies


a solar electricity system for BrightSource Energy in California. In spite of these new projects, revenue declined 1.9% in 2009 due to a decline of projects in the company’s pipeline. Throughout the five years to 2010, Bechtel has increasingly sought international contracts in an effort to diversify geographically. More than half of the company’s revenue is generated outside North America. In the five years to 2010, IBISWorld estimates that Bechtel’s revenue will increase at an average annual rate of 7.7%, in spite of declines in 2009 and 2010. Revenue is expected to fall in 2010 after the company’s backlog fell about 42.0% in 2009.

KBR Inc.Estimated market share: 1.2%Founded as Brown and Root in 1919, KBR has more than 90 years of experience in civil, industrial, marine, power and commercial engineering and construction. A one-time subsidiary of the Halliburton Company, KBR was spun off in 2007. Since the spin off, KBR has restructured its business into six units: government and infrastructure, upstream, services, downstream, technology and ventures. It has also expanded through acquisitions. In 2008, KBR acquired three companies, including the $550 purchase of BE&K Inc., a privately held engineering, construction and maintenance services firm. More recently, the company

acquired all of the common stock of Houston-based Energo Engineering for $16 million in cash.

KBR is perhaps best known as a service provider for the government. The firm is the world’s largest defense contractor, the largest contractor for the US Army and among the top 10 contractors for the US Department of Defense. KBR received large government contracts for operations in Iraq and Afghanistan. In 2004, the company generated nearly $12 billion in revenue, due largely to such contracts. KBR’s overall revenue has since declined as these contracts have expired; in 2010, IBISWorld estimates that the company’s revenue will fall 15.8% as a result of reduced government contracts. Consequently, the company’s revenue has increased just 0.1% annually in the five years to 2010. However, contracts in the Middle East still account for a large portion of KBR’s revenue. Iraq alone accounted for 35.0% of the company’s revenue in 2009, compared to the 21.1% of revenue from the United States.

KBR also operates in the energy and chemicals markets designing and constructing energy and petrochemical projects. KBR predominantly works in the upstream gas monetization market, having participated in the design and construction of more than half of the operating LNG capacity built over the last 30 years.

KBR�Inc.�–�fi�nancial�performance

YearRevenue�



2005 10,146.0 N/C 240 N/C 57,0002006 9,633.0 -5.1 168 -30.0 56,0002007 8,745.0 -9.2 302 79.8 52,0002008 11,581.0 32.4 319 5.6 57,0002009 12,105.0 4.5 290 -9.1 51,0002010* 10,192.4 -15.8 325 12.1 N/A



Capital�Intensity The industry primarily provides professional engineering design, assessment and management services. Therefore, the industry is highly labor intensive and has a very low level of capital intensity. Industry capital expenditure represents around 2.5% of annual industry revenue. Capital expenditures primarily include computer hardware and software technology, which is a necessary requirement for even the smallest player in the industry.

Over the past decade, the adoption of new technologies, notably computer-aided design (CAD) facilities, has significantly enhanced labor productivity. Large-scale firms have invested heavily into a wide range of design, measurement and monitoring

equipment. However, the specialist nature of personnel remains the hallmark of successful firms and the preponderance

�Operating�ConditionsCapital�Intensity�� |�� Technology�&�Systems�� |�� Revenue�VolatilityRegulation�&�Policy�� |�� Industry�Assistance

Tools�of�the�Trade:�Growth�Strategies�for�Success


Labo

r�Int

ensi

veCapital�Intensive

Change�in�Share�of�the�Economy

New�Age�Economy

Recreation,�Personal�Services,�Health�and�Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional�Service�Economy

Wholesale�and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old�Economy

Agriculture�and�Manufacturing.�Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment�Economy

Information,�Communications,�Mining,�Finance�and�Real�Estate.�To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Architectural�ServicesLandscape�Design�&�Planning�Services

Rail�TransportationLaw�Firms Geophysical�Services


Capital intensity

0.5

0.0

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0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Engineering Services

Professional, Scientific and

Technical Services

Economy

Level��The level of capital intensity required is Low


Operating�Conditions

Revenue�Volatility The spread of demand across downstream markets and activities moderates volatility.

Stability reflects the mix of activity across the public and private sectors and the construction, transportation and

industrial markets. Export revenue helps stabilize the industry from local market fluctuations. Long-term contractual arrangements for plant operations and maintenance also help moderate volatility.

Technology&�Systems

Technology has become an increasingly important part of firms’ operations. Consequently, industry players look to secure a reputation for technical capacity and superiority. Most of the downstream industries for engineering services are dependent on a high degree of technological input (e.g. petrochemicals, IT, heavy industrial infrastructure and manufacturing). Clients in these industries typically select engineering consultants on their ability to deliver advanced solutions.

Computer-aided design (CAD) has been a key area of technological advancement in engineering activities. The development of increasingly accurate 3-D modeling technology has allowed more complex systems. Furthermore,

computer modeling provides a cost-effective method of project assessment. Firms also use satellite surveying and geophysics analysis to aid in projects.

The principal objective of investment into new technology is to increase labor productivity, thereby resulting in decreased labor costs and increased profitability. New technology also enhances a firm’s capacity to compete for contracts across geographically dispersed markets and to expand the range of services offered.

A significant portion of this industry derives its revenue from the installation and design of IT networks. Changes in this rapidly developing area of commerce underpin medium term growth in this industry.

Capital�Intensitycontinued

of highly paid principals, professionals and technical staff further skews the labor intensity component of production.

It is likely that the balance between capital and labor intensities will gradually change over time. The widespread adoption of a flat management style of operation in many firms, coupled with the increased use of advanced modeling and communications

technology has enabled firms to operate across wide geographic markets and better utilize existing personnel.

Employee compensation and industry depreciation currently account for 45.3% and 2.5% of industry revenue, respectively. For 2010, IBISWorld estimates that for every dollar spent on equipment, about $18.12 is spent on labor, indicating a low level of capital intensity.

Level��The level of Technology Change is High

Level��The level of Volatility is Low



Regulation�&�Policy The industry operates in a highly regulated environment which involves all tiers of government. Strict planning guidelines, mechanical, civil and construction standards govern most aspects of industry activity and engineering consultants must meet both contracted and coded specifications. Compliance with state licensing, building codes, pollution controls and occupational, health and safety regulations generally add to the underlying cost of operating in this industry but in the long term may reduce a firm’s exposure to litigation associated with structural design and mechanical faults and may lower insurance premiums.

Given the substantial level of public sector contracts for which this industry tenders, many of the participants in this

industry hold international accreditation standards to gain access to the tendering process. This accreditation includes the standard ISO 9001:1994 and specific ISO accreditation for specialized applications (e.g. environmental and waste management).

In an effort to regulate industry activity, consultants are increasingly required to be members of state-based professional associations affiliated with national bodies. The American Council of Engineering Companies (ACEC, formerly the American Consulting Engineers Council) has membership of 5,100 firms across all US states. Qualifications such as a Bachelor of Engineering or Associate Diploma of Engineering are regarded as minimum qualifications to undertake consulting practices in this industry.

Revenue�Volatilitycontinued

Level�&�Trend��The level of Regulation is Medium and the trend is Increasing


Volatility�vs�Growth

Reve

nue�

vola

tility

*�(%

)�

1000

100

10

1

0.1

Five�year�annualized�revenue�growth�(%)�–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue�Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.



Industry�Assistance Import tariffs are not applicable to this industry (no tariffs on trade in services). Government procurement guidelines generally favor a higher level of US content on publicly funded projects.

For example, the allocation of contracts for the reconstruction of Iraq and Afghanistan has favored the contractors coming from the countries which participated in the coalition forces during the Iraq war, particularly

US and British-based companies. Industry operators also receive indirect assistance through infrastructure projects that are financed by the government.

Many firms have benefited from increased infrastructure spending as a result of the Recovery and Reinvestment Act of 2009. In March 2009, $27.5 billion of funding was made available for highway investment through September 2010.

Level�&�Trend��The level of Industry Assistance is Low and the trend is Steady


�Key�StatisticsRevenue�

($m)

Industry�Value�Added�

($m)Establish-

ments Enterprises EmploymentExports�

($b)Imports�

($b)Wages�($m)

Domestic�Demand

Nonbuilding�Construction�

($b)2001 148,236.2 76,365.2 144,943 136,720 950,871 10.8 4.2 66,878 141,636.2 208.42002 146,980.5 74,148.9 143,373 134,312 904,004 11.1 4.0 63,860.2 139,880.5 206.12003 145,073.7 80,064.0 148,596 139,651 929,925 16.6 3.9 68,168.0 132,373.7 201.52004 159,200.3 84,331.7 152,026 142,578 955,466 22.1 3.8 71,436.4 140,900.3 194.32005 171,653.2 85,324.9 146,639 137,107 972,546 24.2 4.7 73,137.5 152,153.2 201.52006 180,384.8 91,442.7 150,885 140,562 1,027,284 26.8 4.7 78,455.0 158,284.8 220.42007 187,715.2 100,068.1 151,269 142,374 1,064,761 27.8 5.8 84,487.8 165,715.2 252.42008 194,992.6 105,959.0 152,204 143,319 1,070,596 28.5 5.9 87,824.6 172,392.6 273.22009 186,267.5 99,858.0 149,632 141,563 1,020,671 27.3 5.6 84,211.6 164,567.5 280.02010 172,791.0 91,406.4 147,422 139,209 995,344 27.0 5.6 78,274.3 151,391.0 273.42011 169,624.0 89,239.2 147,103 138,401 994,126 26.5 5.7 77,195.9 148,824.0 276.42012 178,044.0 93,775.8 149,235 140,655 1,007,088 27.6 5.9 80,956.6 156,344.0 281.32013 190,029.0 99,955.3 152,180 143,282 1,023,033 29.5 6.0 86,083.1 166,529.0 291.32014 199,821.0 104,706.2 155,967 146,669 1,042,814 31.6 6.2 89,719.6 174,421.0 302.32015 205,189.0 107,334.4 156,973 147,531 1,056,321 33.4 6.3 91,945.2 178,089.0 317.8Sector�Rank 3/35 4/35 6/35 7/35 4/35 1/4 1/4 3/35 1/4 N/AEconomy�Rank 38/692 19/692 44/691 44/688 29/692 10/239 68/234 12/691 8/234 N/A

IVA/Revenue�(%)

Imports/�Demand�

(%)Exports/Revenue�

(%)

Revenue�per�Employee�

($’000)Wages/Revenue�

(%)Employees�

per�Est.Average�Wage�

($)

Share�of�the�Economy�

(%)2001 51.52 2.97 7.29 155.90 45.12 6.56 70,333.41 0.672002 50.45 2.86 7.55 162.59 43.45 6.31 70,641.50 0.642003 55.19 2.95 11.44 156.01 46.99 6.26 73,304.84 0.682004 52.97 2.70 13.88 166.62 44.87 6.28 74,766.03 0.692005 49.71 3.09 14.10 176.50 42.61 6.63 75,202.10 0.682006 50.69 2.97 14.86 175.59 43.49 6.81 76,371.29 0.702007 53.31 3.50 14.81 176.30 45.01 7.04 79,349.07 0.752008 54.34 3.42 14.62 182.13 45.04 7.03 82,033.37 0.802009 53.61 3.40 14.66 182.50 45.21 6.82 82,506.12 0.772010 52.90 3.70 15.63 173.60 45.30 6.75 78,640.45 0.692011 52.61 3.83 15.62 170.63 45.51 6.76 77,652.03 0.652012 52.67 3.77 15.50 176.79 45.47 6.75 80,386.82 0.672013 52.60 3.60 15.52 185.75 45.30 6.72 84,144.99 0.692014 52.40 3.55 15.81 191.62 44.90 6.69 86,036.05 0.712015 52.31 3.54 16.28 194.25 44.81 6.73 87,042.86 0.70Sector�Rank 16/35 2/4 1/4 9/35 11/35 11/35 3/35 4/35Economy�Rank 148/692 185/234 108/239 401/692 48/691 461/691 61/691 19/692

Figures are inflation-adjusted 2010 dollars. Rank refers to 2010 data.

Revenue�(%)

Industry�Value�Added�

(%)

Establish-ments�

(%)Enterprises�

(%)Employment�

(%)Exports�

(%)Imports�

(%)Wages�

(%)

Domestic�Demand�

(%)

Nonbuilding�Construction�

(%)2002 -0.8 -2.9 -1.1 -1.8 -4.9 2.8 -4.8 -4.5 -1.2 -1.12003 -1.3 8.0 3.6 4.0 2.9 49.5 -2.5 6.7 -5.4 -2.22004 9.7 5.3 2.3 2.1 2.7 33.1 -2.6 4.8 6.4 -3.62005 7.8 1.2 -3.5 -3.8 1.8 9.5 23.7 2.4 8.0 3.72006 5.1 7.2 2.9 2.5 5.6 10.7 0.0 7.3 4.0 9.42007 4.1 9.4 0.3 1.3 3.6 3.7 23.4 7.7 4.7 14.52008 3.9 5.9 0.6 0.7 0.5 2.5 1.7 3.9 4.0 8.22009 -4.5 -5.8 -1.7 -1.2 -4.7 -4.2 -5.1 -4.1 -4.5 2.52010 -7.2 -8.5 -1.5 -1.7 -2.5 -1.1 0.0 -7.1 -8.0 -2.42011 -1.8 -2.4 -0.2 -0.6 -0.1 -1.9 1.8 -1.4 -1.7 1.12012 5.0 5.1 1.4 1.6 1.3 4.2 3.5 4.9 5.1 1.82013 6.7 6.6 2.0 1.9 1.6 6.9 1.7 6.3 6.5 3.62014 5.2 4.8 2.5 2.4 1.9 7.1 3.3 4.2 4.7 3.82015 2.7 2.5 0.6 0.6 1.3 5.7 1.6 2.5 2.1 5.1Sector�Rank 35/35 34/35 32/35 31/35 31/35 2/4 2/4 35/35 4/4 N/AEconomy�Rank 663/692 663/692 458/691 462/688 571/692 182/239 154/234 665/691 225/234 N/A

Annual�Change

Key�Ratios

Industry�Data



Jargon�&�Glossary

BARRIERS�TO�ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LABOR�INTENSITY An indicator of how much capital is used in production as opposed to labor. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3 – $8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

DOMESTIC�DEMAND The use of goods and services within the US; the sum of imports and domestic production minus exports.

EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPORTS The total sales and transfers of goods produced by an industry that are exported.

IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY�CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDUSTRY�REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY�VALUE�ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTERNATIONAL�TRADE The level is determined by: Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; High is over 20%. Imports/Domestic Demand: Low is 0 –5%; Medium is 5 –35%; and High is over 35%.

LIFE�CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOYING�ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees of the establishment.

Industry�Jargon

IBISWorld�Glossary

CHEMICAL�ENGINEERING Engineering that is focused on the design, construction and operation of plants and processes for producing acids, dyes, drugs, plastics and synthetic materials.

CIVIL�ENGINEERING Engineering that is focused on the planning, designing, construction and maintenance of infrastructure, including highways and bridges, dams and irrigation, and mass-transit facilities.

COMPUTER-AIDED�DESIGN�(CAD)� The use of computer technology to aid the design and drafting of a part or product using software tools that can create two-dimensional drawings or three-dimensional models.

ELECTRICAL�ENGINEERING Engineering that is focused on electricity, including power generation and transmission, electronics, computers and communications.

INDUSTRIAL�ENGINEERING Engineering that is focused on managing efficient production, involving the design of production methods, plant analysis, the application of labor and materials, and the control of inventory.

MECHANICAL�ENGINEERING Engineering that is focused on machines, engines and processes, involving the design and operation of heat utilization applied in boilers, engines, air conditioning and refrigeration.

NON-EMPLOYER�ESTABLISHMENT A sole proprietor or partnership with no payroll employees.

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