Engineering Services In The US Industry Report

WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 1

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

IBISWorld Industry Report 54133
Engineering Services in the US
November2010 KevinCulbert

2 AboutthisIndustry 18 International Trade 34 KeyStatistics
2 Industry Definition 19 Business Locations 34 Industry Data
2 Main Activities 34 Annual Change
2 Similar Industries 21 CompetitiveLandscape 34 Key Ratios
3 Additional Resources 21 Market Share Concentration
21 Key Success Factors 35 JargonGlossary
4 IndustryataGlance 22 Cost Structure Benchmarks
23 Basis of Competition
5 IndustryPerformance 24 Barriers to Entry
5 Executive Summary 25 Industry Globalization
6 Key External Drivers
7 Current Performance 26 MajorCompanies
9 Industry Outlook
12 Industry Life Cycle 30 OperatingConditions
30 Capital Intensity
14 ProductsMarkets 31 Technology Systems
14 Supply Chain 31 Revenue Volatility
14 Products Services 32 Regulation Policy
16 Demand Determinants 33 Industry Assistance
17 Major Markets

www.ibisworld.com|1-800-330-3772|info @ibisworld.com


AboutthisIndustry

IndustryDefinition Industry establishments apply physical preparation of feasibility studies,
laws and principles of engineering in the preparation of plans and designs,
design, development and use of machines, provision of technical services during the
materials, instruments, structures, construction or installation phase,
processes and systems. Services may inspection and evaluation of engineering
involve the provision of advice, projects, and related services.

MainActivities Theprimaryactivitiesofthisindustryare
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

Themajorproductsandservicesinthisindustryare
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

SimilarIndustries 23 ConstructionintheUS
Establishments primarily engaged in both the design and construction of buildings, highways, and other
structures or in managing construction projects.

54131 ArchitecturalServicesintheUS
Establishments mainly engaged in the provision of architectural services involving the design of buildings
and structures.

54132 LandscapeDesignPlanningServicesintheUS
Establishments mainly engaged in the provision of landscape architectural services involving the design of
streetscapes, gardens and public access areas.

54136 GeophysicalServicesintheUS
Establishments primarily engaged in gathering, interpreting, and mapping geophysical data.


AboutthisIndustry

SimilarIndustries 54137 SurveyingMappingServicesintheUS
Establishments primarily engaged in performing surveying and mapping services of the surface of the earth,
continued including the sea floor.

54142 IndustrialDesignServicesintheUS
Establishments primarily engaged in creating and developing designs and specifications that optimize the
use, value and appearance of products.

54151 ITConsultingintheUS
Establishments primarily engaged in planning and designing computer systems that integrate computer
hardware, software and communication technologies.

54162 EnvironmentalConsultingintheUS
Establishments providing advice and assistance to others on environmental issues, such as the control of
environmental contamination from pollutants, toxic substances and hazardous materials.

AdditionalResources Foradditionalinformationonthisindustry
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

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


IndustryataGlance
EngineeringServicesin2010

KeyStatistics Revenue AnnualGrowth05-10 AnnualGrowth10-15
Snapshot
$172.8bn 0.1% 3.5%
Profit Exports Businesses

$8.8bn $27.0bn 147,422
Revenue vs. employment growth Value of private non-residential
MarketShare construction
There are no 10 500
Major Players in
this industry 5 450

Billion Dollars
% change

0 400

−5 350

−10 300
Year 02 04 06 08 10 12 14 16 Year 01 03 05 07 09 11 13 15
Revenue Employment
SOURCE: WWW.IBISWORLD.COM
p. 26
Products and services segmentation (2010)

KeyExternalDrivers
7.5%
Residential building
17%
Industrial and manufacturing
projects
Valueofutilities 10% plant and process projects
construction Project management
services
Valueofprivatenon-
residentialconstruction
Downstreamdemand
frommanufacturing 10%
Miscellaneous federal
Downstreamdemand government projects 15.5%
Transportation
frommining projects
Downstreamdemand
frombuildingconstruction 12%
Municipal utility
projects

p. 6 13.5% 14.5%
Commercial, public and Other
institutional projects SOURCE: WWW.IBISWORLD.COM

IndustryStructure Life Cycle Stage Mature Regulation Level Medium
Revenue Volatility Low Technology Change High
Capital Intensity Low Barriers to Entry Medium
Industry Assistance Low Industry Globalization Low
Concentration Level Low Competition Level High

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


IndustryPerformance
ExecutiveSummary | KeyExternalDrivers | CurrentPerformance
IndustryOutlook | LifeCycleStage

Executive If it works, thank an engineer; if it breaks, markets negatively affected demand for
Summary blame an engineer. There is little, engineering services. This factor drove
however, an engineer could have done to down industry performance in 2009, and
stop the recent collapse in industry revenue is expected to decline by a further
revenue. Engineering is one of the largest 7.2% in 2010.
professional service markets in the United The industry currently employs about
States, generating revenue of about 995,000 people. It is fragmented, with a
$172.8 billion in 2010. It applies scientific large number of small-scale
knowledge to design structures, products establishments, which often confines
and industrial processes aimed at operations to regional markets or
servicing the economy and society. Local specialized niches. The industry is
and foreign-based consulting firms composed of about 147,000
compete in this market, along with the establishments in 2010, including 91,000
in-house engineering service operations non-employer establishments (typically
of construction contractors, small-scale sole proprietors). In the five
manufacturers and utility owners, years to 2010, establishment growth has
including private electricity generators remained relatively flat, hampered by the
and public water authorities. recent decline in demand. In 2009 and
2010, many firms reduced wages, head
counts and the number of branch offices
Improving levels of non-residential building
in order to maintain profits, which
construction will raise demand for engineering declined for many players as a result of
poor demand.
services International trade represents a
significant share of activity among the
The trend toward outsourcing larger-scale players in this industry;
engineering activities has supported the export earnings currently contribute
long-term expansion of the industry. 15.6% to industry revenue. Many of the
Technological advances in key markets, large domestic firms have secured
like telecommunications and power lucrative export contracts associated with
generation, have also fueled growth. the reconstruction of Iraq and Afghanistan
However, revenue has grown at an over the past five years, while others have
average annual rate of just 0.1% in the expanded operations into foreign markets
five years to 2010. This relatively weak through strategic acquisitions or joint-
growth reflects the effect of divergent venture alliances. Import penetration
trends in the construction and industrial accounts for approximately 3.7% of
markets. Despite solid demand domestic demand and represents the total
conditions across many infrastructure earnings repatriated by foreign-based
markets (notably the energy, transport firms from US operations.
and water supply markets), US industrial Through 2015, the industry is
production and capital expenditure have anticipated to return to growth as the
trended downward. economy recovers. Revenue is projected to
While long-term contracts allowed increase at an average annual rate of 3.5%
many engineering firms to maintain over the period to $205.2 billion,
growth as the recession began, many supported by increased demand for
companies delayed projects, causing a non-residential buildings. Profit margins
decline in engineering firms’ backlogs. The are also forecast to improve, particularly
onset of recessionary conditions and the among larger players that provide services
shortage of liquidity on global financial such as construction management.


IndustryPerformance

KeyExternalDrivers Value of utilities construction Downstream demand from
This industry provides engineering manufacturing
assessment and advisory and The Engineering Services industry
construction management services generates a significant proportion of
across the entire construction sector. In revenue from activities in the
particular, it provides services for heavy manufacturing and industrial market.
industrial construction like power plants Growth in manufacturing output
and railroads and for highway and bridge generally increases capacity utilization,
construction. Increased public sector which adds to demand for engineering
investment into fixed capital consulting services on the addition of
construction generates increased new capital stock or the configuration of
demand for engineering consulting existing stock in order to increase
services. This driver is expected to efficiency. This driver is expected to
increase over the next year. This increase over the next year.
represents a potential opportunity for
the industry. Downstream demand from mining
The industry generates a significant
Value of private non- proportion of revenue from activities in
residential construction the mining and mineral processing
This industry provides engineering market. Growth in domestic and global
assessment and advisory and demand for mining commodities
construction management services across generally increases demand for
the entire construction sector. It engineering consulting services in the
particularly provides these services for areas of improving productive efficiency,
heavy industrial construction, including exploration and new mine-site
oil and gas facilities and chemical plants. development. This driver is expected to
The recent decline in this driver has increase over the next year.
inhibited revenue growth late in the
period between 2005 and 2010. This Downstream demand from
driver is expected to decrease over the building construction
next year. This represents a potential This industry provides engineering
threat to the industry. design and construction management

Value of private non-residential construction Value of utilities construction

500 20

15
450
Billion Dollars

10
% change

400
5

350
0

300 −5
Year 01 03 05 07 09 11 13 15 Year 01 03 05 07 09 11 13



IndustryPerformance

KeyExternalDrivers services across the entire construction and industrial building construction can
continued sector, including non-residential lead to greater demand for engineering
building construction projects, such as consulting services. This driver is
large-scale office projects. Increased expected to increase during the next
investment in commercial, institutional year.

Current Throughout the mid-2000s, the
Engineering Services industry Share of the economy
Performance maintained a robust pace of expansion.
0.80
Its growth corresponded with strong
cyclical growth in downstream
0.75
construction markets, record levels of
investment into industrial capacity and

% of GDP
energy infrastructure, and increased 0.70
spending on public infrastructure.
However, the recession significantly 0.65
eroded investment trends in several key
markets, resulting in slower industry 0.60
growth. In fact, IBISWorld estimates that Year 01 03 05 07 09 11 13 15
industry revenue rose at an average
annual rate of only 0.1% to $172.8 billion SOURCE: WWW.IBISWORLD.COM

in the five years to 2010.
The industry’s revenue has been growth for engineering services within
subdued because of the poor economy. the manufacturing market. Furthermore,
Demand for engineering services was private fixed investment in structures
largely supported by the strong 10.2% (both residential and non-residential)
annual growth in non-residential building declined every year since 2005, including
construction over the last five years. a 20.2% fall in 2009. Weak business
Furthermore, long-term contracts signed sentiment, tight credit conditions,
by operators in the early part of the period business deleveraging and little need to
kept the industry growing through 2008, expand production and office space
despite the slowing economy. However, caused this decline in construction
this growth has also been hampered by a investment. All of these factors
variety of factors during the latter part of contributed to the industry’s poor
the period. As businesses faced tighter performance late in the decade, and are
budgets, many delayed planned projects expected to cause industry revenue to fall
or scaled back on existing ones. by 7.2% from 2009 to 2010.
Engineering firms’ backlogs dried up, and Despite these declines, demand for
the number of projects in their pipelines consulting engineering has been
also declined. Consequently, operators supported by technological
eventually felt the pinch of the economic advancements in key markets and
slowdown in 2009 and 2010, as revenue increased outsourcing of engineering
fell both years. activities to specialist firms in the past
In the five years to 2010, US industrial decade. Additionally, the growth of multi-
production declined at an annual rate of disciplined firms with greater financial
0.7%, with a decline of 9.3% in 2009 and technological resources has opened
alone. This negative pattern has stifled access to international markets.


IndustryPerformance

Weakdemanderodes Historically, the Engineering Services
industry’s profitability has displayed wide Industry revenue
profits
cyclical fluctuations. Over the long term,
10
however, cost-reduction programs, the
application of new technologies and the
5
stabilization of cash flow through long-
term contracts have enhanced

% change
profitability. Profit margins among major 0
engineering firms flourished during the
mid- to late 2000s, largely driven by −5
accelerated growth in non-residential
construction activity, particularly −10
infrastructure projects and lucrative Year 02 04 06 08 10 12 14 16
government contracts including foreign
contracts in Iraq and Afghanistan. SOURCE: WWW.IBISWORLD.COM

Recently, however, profitability has
tightened and competition has intensified Furthermore, some firms are expected
because of the weaker global economy to leave the industry altogether. During
and the winding back of contracts in the the last five years, the number of firms
Middle East. has remained relatively flat, increasing by
The fall in profitability has caused only 0.3% annually to 139,209 in 2010.
some players to scale back their Non-employer firms, accounting for
operations. Throughout 2009 and 2010, approximately 65.6% of the firms in this
firms closed branch offices and reduced industry, have been hit particularly hard
employee head count and wages to since the recession. Sole proprietors are
maintain profit margins. During the five typically limited to lower-margin projects
years to 2010, IBISWorld estimates that because of their small capacity.
the number of industry employees Unfortunately, many of these projects
increased at an average annual rate of have been delayed while investors wait
only 0.5% to 995,345 people. for signs of economic improvement.

Competitive Unlike sole proprietors, large strengthen its capacity and secure
conditions engineering firms are multi-disciplined, contracts in the government services and
multi-branch companies with the nuclear power markets. Many players
capacity to complete contracts in varying have taken similar actions to focus on
geographic areas and service markets. securing contracts in certain markets.
All of the major players in this industry The energy, power generation and
generate revenue outside the United government services markets have been
States, and all have expanded through a particularly attractive throughout the five
series of strategic acquisitions. However, years to 2010. Industry player KBR Inc.,
there are variations in the strategic formerly part of Halliburton Group, is one
objectives of the major players and how of the largest defense services contractors
they have expanded. in the industry. The company has
Some players have grown by acquiring extensive operations in the reconstruction
firms with a presence in key markets. For of Iraq and Afghanistan. However, other
example, industry player URS Corp. players have developed strategic alliances
acquired several companies to and joint venture arrangements as a way


IndustryPerformance

Competitive to grow. For instance, Bechtel Corp. and companies are able to improve their
conditions Foster Wheeler have entered into likelihood of securing contracts by
strategic alliances to expand their spreading the risk and increasing their
continued
resources. Through such arrangements, performance capabilities.

Demandcrasheswith The onset of the recession hurt demand completion of some projects in the
economy for engineering services. The recession market are expected to decline in 2010.
severely affected government budgetary The Obama administration’s fiscal
finances, private company balance sheets stimulus package allocates substantial
and household spending. Instability in additional funding to transport
the financial markets and a decline in infrastructure, including roads, bridges
economic confidence severely limited the and rails. While this funding will boost
availability of investment funds. Local demand for engineering services, much
governments found it difficult to raise of it is allocated to shovel-ready projects
funds through the issue of municipal that are small-scale and can proceed
bonds, leaving a hole in funding for within a short 120-day time frame.
capital works projects. However, federal funding through
The magnitude of the recent economic defense or infrastructure programs is an
slowdown and the lack of liquidity on important driver for this industry. Some
global financial markets forced cutbacks consultants have benefited from ongoing
to existing infrastructure and building investment in highway construction
projects. Many projects that were already through multi-year funding
in the planning and bidding stages have arrangements. Others have been able to
been put on hold. Construction activity mitigate losses through work on
on power-generating facilities peaked in conservation and development projects,
2009, since these long-term projects following the collapse in demand in the
cannot be stopped midstream, but the non-residential construction market.

Industry In the five years to 2015, industry revenue
is forecast to increase at an average Revenue vs. exports
Outlook annual rate of 3.5% to $205.2 billion. The
60
industry will endure further contraction
in the short term, as engineering firms 50

struggle to increase the number of 40
projects in their backlog. However,
% change

30
demand conditions will strengthen from
20
2012, boosted by a resurgence in private
fixed capital investment, increased 10

industrial production and growing 0
business sentiment. −10
Improving economic conditions will Year 02 04 06 08 10 12 14 16
support demand for project design, Revenue Exports
construction management and SOURCE: WWW.IBISWORLD.COM

procurement. The value of non-
residential building construction is projected to increase by an average of


IndustryPerformance

IndustryOutlook 3.7% annually over the next five years.
continued Similarly, private fixed investment in The economic rebound will

structures is projected to increase at an
average annual rate of 11.6%. Growth in
raise demand for industry
exports is also expected to boost demand services in project design
for the industry beginning in 2012, and management
supported by the gradual recovery in
investment into infrastructure projects in
the Middle East, the Pacific Rim and industry revenue will likely show a
South American regions. marginal decline as firms continue to use
The industry is anticipated to return temporary labor agreements. This decline
to solid profit performance during the will be especially true for companies that
five years to 2015, driven by rising provide services in remote locations,
demand. The profit margins of large- particularly on export contracts, which
scale engineering firms will widen as rely more heavily on subcontracted labor
they continue to provide more multi- than direct employment.
disciplined services and leverage their The process of industry globalization
financial and technical resources. In over the past decade, coupled with
turn, growth in profit margins will advances in communication and IT, will
increase the number of players operating likely result in the major international
in the industry. Many of the sole players sourcing an increasing
proprietors that left the industry because proportion of professional labor
of poor operating conditions will return requirements from lower-cost countries.
as demand increases. In the five years to The majority of domestic engineering
2015, the number of firms operating in firms already have resources outside the
this industry is expected to increase at an United States, including access to
average rate of 1.2% annually to 147,531. suitably qualified personnel in lower-
Similarly, employee compensation will cost countries like Mexico, South Africa
grow at an annual rate of 3.3% over the and India.
next five years, reflecting average annual During the five years to 2015, more
growth of 1.2% in industry employment. firms are expected to use these personnel
Nevertheless, wages as a proportion of remotely on US-based design projects.

Short-termpain The industry’s performance is expected Furthermore, many businesses will be
beforegain to continue to deteriorate in the short wary of committing to large projects
term before an upswing emerges in 2012. before sustained signs of recovery. These
The downward trend in demand for factors will ultimately cause a shortage in
engineering services during 2011 is a the number of projects in firms’ pipelines,
lagged effect from the recession on inhibiting early recovery.
business investment and industrial Industry revenue is forecast to decline
production. The deferral of private by 1.8% to $169.6 billion in 2011, with the
investment into electric power, energy likelihood of further restructuring
and mass transport infrastructure between domestic consulting firms. The
projects will continue to subdue the ongoing instability on the US equity
non-building construction market. markets will likely expose some firms to


IndustryPerformance

Short-termpain liquidity shortfalls. However, as the increase the number of projects they have
beforegain domestic economy continues to improve planned for the remainder of the five
in the short term, firms will be able to years to 2015.
continued

Growthstrengthens Demand conditions for consulting
from2013 engineering services are forecast to Demand for engineering

improve across all key downstream
markets toward 2013. Continued growth
services will rise abroad,
in the private fixed investment of particularly in South
structures will provide the platform for America and East Asia
industry expansion. The solid pace of
industry expansion will also be supported
by the return of investment into electric design and process management services
power infrastructure and communications on the planning and installation of
markets, which experienced many delays industrial equipment, and asset
in projects over the last five years. management services for maintenance
Several other factors will boost and operation of existing plants. Demand
industry demand during the five years to for engineering services will also be
2015. While most of the growth in boosted by demand for work on energy
industrial production will be recovery projects outside the United States
during the five years to 2015, industrial (notably in South America, the Middle
production is expected to meet the East and East Asia). However, export
pre-recession levels. Private fixed capital earnings from activity in Iraq and
expenditure is also expected to grow, Afghanistan are projected to drastically
driving up demand for engineering decrease during the five years to 2015.


IndustryPerformance
LifeCycleStage Industry 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

30 Maturity QualityGrowth
%Growthofprofit/GDP

KeyFeaturesofaMatureIndustry
Company High growth in economic
consolidation; importance; weaker companies Revenue grows at same pace as economy

level of economic close down; developed Company numbers stabilize; MA stage
importance stable technology and markets Established technology processes
25
Total market acceptance of product brand
Rationalization of low margin products brands

20

15
QuantityGrowth
Many new companies;
minor growth in economic
importance; substantial
10 technology change

5 Engineering
Services
GeophysicalServices
LawFirms
0 RailTransportation
Shake-out LandscapeDesign
PlanningServices

ArchitecturalServices
Shake-out

–5

Decline PotentialHiddenGems TimeWasters
Crash or Grow? Future Industries Hobby Industries
–10
–10 –5 0 5 10 15 20 25 30
%Growthofestablishments


IndustryPerformance

IndustryLifeCycle During the early 2000s, the industry In the five years to 2010, the number
experienced strong growth as operators of enterprises operating in this industry
expanded into new markets, including remained relatively flat, increasing by an
T
his industry environmental management and average of only 0.3% annually. In 2009
is Mature monitoring and planning services. and 2010, IBISWorld expects that the
Furthermore, the prospects for securing number of players actually declined as a
government contracts increased when result of poor operating conditions.
the US entered Iraq and Afghanistan. While non-employers have been
However, the industry has since entered particularly vulnerable to the recession,
a mature phase of its life cycle. Industry larger players have not been immune to
growth has slowed to be roughly on par the decline in demand. Major players,
with the overall economy, a factor that is such as KBR and URS, have taken the
expected to continue during the five opportunity to acquire medium-sized
years to 2015. In the 10 years to 2010, firms, a factor that has contributed to
IBISWorld estimates that the industry’s slow enterprise growth.
contribution to the overall economy will The industry’s relatively low level of
increase at an average annual rate of revenue volatility is indicative of the mix
2.3%, compared with GDP growth of of end markets: public and private sector;
2.0% during the same period. Recently, construction and maintenance; mining
many companies reduced the scope of and energy; industrial and transport.
their engineering projects as the However, those markets have gone
economy began to decline. During the largely unchanged over the past decade.
five years to 2015, businesses are While exports are expected to grow
expected to increase spending on these during the five years to 2015, the majority
projects once again, but at a moderated of this industry is composed of small
pace compared to what was seen the regional players that will not reap the
early 2000s. benefits of overseas expansion.


ProductsMarkets

SupplyChain | ProductsServices | DemandDeterminants
MajorMarkets | InternationalTrade | BusinessLocations

SupplyChain KEYBUYINGINDUSTRIES
21 MiningintheUS
Engineering firms help design, manage and develop mines and mining operations.
22 UtilitiesintheUS
Engineers provide design and management services for power, gas and water infrastructure.
23 ConstructionintheUS
This industry helps design and manage construction projects.
48211 RailTransportationintheUS
Engineers help develop traditional railroads as well as high speed trains systems.
92 PublicAdministrationintheUS
Engineering firms provide the government with a variety of services, such as defense systems.

KEYSELLINGINDUSTRIES
23 ConstructionintheUS
The construction sector supplies construction services to consultants acting as project
managers.
52 FinanceandInsuranceintheUS
This sector provides firms with a variety of services, including banking, project financing and
professional indemnity insurance.
54 Professional,ScientificandTechnicalServicesintheUS
This sector supplies specialized services on a consulting basis. These include: architectural
services, surveying, landscape architecture, building inspection services and drafting.
54111 LawFirmsintheUS
Law firms supply legal advice and representation.
54121a AccountingTaxPreparationServicesintheUS
This industry provides accounting services, bookkeeping and accounts management.

ProductsServices Products and services segmentation (2010)
7.5%
Residential
building
17%
10% projects
Industrial and manufacturing
plant and process projects
Project
management
services

10%
Miscellaneous federal
government projects
15.5%
Transportation
projects

12%
Municipal
utility projects

14.5%
13.5% Other
Total $172.8bn Commercial, public and
institutional projects SOURCE: WWW.IBISWORLD.COM


ProductsMarkets

ProductsServices The principal activities of this industry 13.5% of industry revenue. This segment
continued include design services on construction, provides renovation and design services
the physical environment and industrial for new buildings, including schools,
processes. However, given the breadth of parks and retail space. Renovation
markets that demand engineering in one accounts for a third of this segment’s
form or another, industry operators revenue; however, such projects are
provide a wide variety of services. expected to see an increase in demand as
Furthermore, many operators have more businesses are likely to refrain from
started providing a multitude of value- enduring the costs of new construction in
added services in order to be more an uncertain economy.
competitive.
Municipal utility projects
Industrial and manufacturing projects Municipal utility projects represent
Accounting for approximately 17.0% of approximately 12.0% of industry revenue.
industry revenue, the industry’s largest This includes the design of landfills and
product segment is industrial and water collection and treatment facilities.
manufacturing plant and process It also includes other municipal utility
projects. This segment includes the projects, such as local power stations.
provision of design services on industrial Water collection, distribution, treatment
processes, equipment and product and disposal projects generate the
development. It also includes associated majority of this segment’s revenue at
services, such as asset management, approximately 59.8% of municipal
monitoring and the operation of project’s total. Following the recession,
industrial processes. These services are many cities have been strapped for cash
important for companies involved in and have reduced spending on everything
mining, refining, power generation and but necessary system upgrades.
manufacturing operations. Consequently, this segment is estimated
to have seen a recent decline in demand.
Transportation projects
Transportation projects are estimated to Residential building projects
represent 15.5% of industry revenue. The Residential building projects account for
segment accounts for all projects that are an estimated 7.5% of industry revenue.
related to transportation, including mass This segment accounts for high rises,
transit systems, airports and highway apartments, condos and homes. Like the
and roadway projects. Highway and commercial, public and institutional
roadway projects make up the vast projects segment, residential building
majority of transportation project services can be divided between new
revenue at approximately 86.5%. The projects and renovations. New buildings
segment largely relies on federal and represent the majority of this segment,
state budgets for growth. Recently, the generating approximately 84.6% of
transportation segment has grown, revenue from residential projects. Given
largely due to an increase in federal the recent decline in business and
spending on infrastructure projects to consumer sentiment, residential projects
reduce unemployment. have declined since the recession.

Commercial, public and Other
institutional projects Industry operators also provide a variety
Commercial, public and institutional of other services, including
building projects generate approximately environmental services and project


ProductsMarkets

ProductsServices management. Environmental services reporting and controlling of all resources
continued supplied by this industry involve a broad in a project to meet time, cost and
range of activities, such as urban design; quality objectives.
recreation and traffic planning; Similarly, construction management
environmental impact assessment; involves the management and
community consultation; geographic coordination of independent contractors,
and landscape architecture; along with planning, scheduling and cost
contaminated site management and reporting, site supervision and quality
natural resource management. assurance administration.
Project management services, which Industry operators also provide the
account for approximately 10.0% of federal government with services, such
industry revenue, include the provision as overseas defense structures. Military
of pre-design services such as feasibility spending on engineering services
studies and environmental impact increased dramatically during the early
statements. It also involves the to mid-2000s when the US entered Iraq
planning, scheduling, monitoring, and Afghanistan.

Demand The principal demand determinant for product design and services to
Determinants engineering services is the level of architectural and drafting activities.
investment into infrastructure and Demand for this industry can also be
non-residential building construction stimulated by one-off occurrences, such
projects. However, the industry is also as natural disasters (e.g. Hurricane
heavily influenced by trends in Katrina), terrorist attacks (e.g. the
downstream markets, particularly September 2001 attacks on the World
investment into equipment and Trade Center and the Pentagon), and
processes in the manufacturing, energy from US involvement in military action
and transportation markets. Many of the (e.g. the war in Iraq).
industry’s downstream markets rely on Projects in response to natural
the level of general economic activity, disasters typically include the provision
such as commercial building projects. of specialist engineering services in risk
Consequently, the performance of the assessment, project design, logistics and
wider economy can have serious effects procurement management, and
on industry demand. Similarly, many construction project management.
firms recently experienced a boom in Government investment in infrastructure
performance due to a spike in the price programs can also affect demand.
of oil. Other key determinants of industry
The share of industry revenue derived demand are performance of industries
from the design of industrial processes with high levels of complex capital
and equipment has gradually contracted equipment and structures (e.g. mining,
since the mid-1990s. This has primarily manufacturing and transport); increased
been associated with the scaling back of outsourcing of public sector activities to
industrial production to the US economy. the private sector and the privatization of
On the other hand, the share of revenue public sector assets in the areas of
derived from environmental design electricity generation and rail transport;
projects has trended upward. Other and investment into industrial
important areas of industry operation production capacity and the introduction
include marine design, manufacturing of technologically advanced processes.


ProductsMarkets

MajorMarkets Major market segmentation (2010)

15%
Government

47.5%
Construction
17.5% companies
Utilities, mining and
industrial companies

20%
Energy and

Total $172.8bn
gas companies

Construction companies projects under this segment often. During
This industry generates the majority of the five years to 2010, this segment
its revenue directly from the construction increased as a proportion of industry
sector of the economy. Construction demand as the price of oil increased
companies use engineering services for dramatically. While revenue growth has
pre-design work and the asset and project since subsided, this segment is expected
management function of building to increase during the five years to 2015
construction. In general, construction as more research is conducted on new
companies represent the wider economy. fuels and energy technology.
For example, a construction firm might
build a mall for a developer and an office Utilities, mining and
building for a company, but use the same industrial companies
engineering firm to design both. Some This segment uses engineers to develop
portions of this segment, such as firms machinery and systems required by
specializing in residential construction, utilities, mining and industrial
saw drastic declines following the companies. Engineers develop
recession; however, its overall diversity everything from mines and landfills to
mitigated losses. machinery and water treatment facilities.
Firms in the industry are also used to
Energy and gas companies minimize environmental impact. While
Energy and gas companies use local governments run many utility
engineering firms to develop refineries, companies, the increasing use of
oil rigs and pipelines. The segment also privatization has caused this segment to
uses engineers to maintain compliance grow over the past decade.
with environmental regulations. This
segment is highly specialized and often The government
requires an extensive knowledge of Several of the leading engineering
chemicals to prevent potentially services firms, such as URS Corp.,
dangerous explosions. Furthermore, generate around half their revenue from
many of this segment’s projects require a public sector contracts. The government
firm with a relatively large capacity; uses engineering firms for a variety of
consequently, smaller players do not get activities, including public infrastructure


ProductsMarkets

MajorMarkets projects and defense work. Engineering needed to design solutions in Iraq and
continued firms also provide the government with Afghanistan. While revenue from many
urban planning, public transport and of those projects has fallen, a recent
environmental cleaning. During the early emphasis on infrastructure programs has
2000s, there was an increase in demand increased the segment’s proportion of the
from the government as engineers were industry once again.

InternationalTrade International trade represents a
significant share of activity among the Industry trade balance
larger scale companies. Several of the
45
LevelTrend leading firms (e.g., KBR, Bechtel, and
Exports in the
Fluor Corporation), maintain permanent
30
industry are operations outside the US and often

Billion Dollars
Medium and generate the majority of their annual
revenue from foreign-based activities. 15
Increasing
Similarly, global players such as the
Imports in the French-based Egis Groupe compete 0
industry are ow
L against US firms for a share of the
domestic engineering consulting market.
andIncreasing −15
It is difficult to identify the consulting Year 02 04 06 08 10 12 14 16
engineering services component of this Exports Imports Balance
industry’s export earnings and import SOURCE: WWW.IBISWORLD.COM

consumption. Major players typically
contract a wide range of engineering and average 2.2% per annum over the five
non-engineering services, including years to 2010. During the mid-2000s,
construction, manufacturing processes exports increased due to US involvement
and logistics operations. Among several in Afghanistan and Iraq. Export growth
of the largest consultant engineering has fallen, however, largely due to the
firms, export earnings account for 25% downturn of the global economy in the
to 30% of annual revenue. The past two years.
industry’s total export earnings Total revenue by foreign-based firms
(including revenue from engineering in the US market is estimated to account
consulting and other services) have $5.6 billion of total domestic demand in
grown from around 7.6% of industry 2010. In the five years to 2010, import
revenue in the 2000, to around 14.9%, or penetration has grown by approximately
$27.0 billion in 2010. 3.7% per annum.
The export earnings component of this The 10 largest US-based engineering
foreign revenue principally represents firms currently rank among the top 25
the profits repatriated to the US parent international design firms. All the major
from foreign subsidiaries, as much of the players in this industry figured
total revenue earned on foreign contracts prominently among the major players
is paid in operating costs in the country on the global market with URS Corp,
where the consultancy is undertaken AECOM, ABB Lummus Global, Fluor
(e.g., wages and materials). Industry Corp, and Kellogg Brown Roots
export earnings have grown by an ranking within the top 10 firms globally.


ProductsMarkets

BusinessLocations2010

West
AK
0.4 New
England
ME
Mid- 0.3

Great Atlantic 1 2
Lakes NY 3
WA MT ND 4.0
5 4
2.3 0.1 MN
Rocky
0.2 1.1
WI
OR Mountains SD
0.2
Plains 0.9 MI
4.0
PA
4.3
6
7
0.8 ID IA OH 9 8
0.6 WY 2.6
0.1
NE
0.3
IL IN WV VA
3.0 1.0 4.6

West NV
0.3 0.2
KY
UT MO
0.6 NC
1.2
0.5 CO KS 1.7 1.9
3.6 1.4 TN
SC
Southeast
2.0
CA 2.1
15.1
OK AR GA
0.9 0.2 AL 2.4
AZ MS 1.4
1.4 NM
0.6 Southwest 0.4

TX LA
1.6 FL
10.2 4.7

West
HI
0.4 AdditionalStates(as marked on map) Revenue(%)

1 VT 2 NH 3 MA 4 RI Lessthan3%
0.1 0.3 4.4 0.3 3%tolessthan10%
10%tolessthan20%
5 CT 6 NJ 7 DE 8 MD 9 DC
1.0 3.2 0.3 4.4 0.4
20%ormore



ProductsMarkets

BusinessLocations The industry’s geographic spread 13.8% of industry establishments. The
generally corresponds with the state is home to several leading players in
distribution of economic activity and the industry, most notably Bechtel and
population. There is a disproportionately Fluor Corporation.
high representation of engineering The Mid-Atlantic accounts for around
consulting activity in major 13.4% of industry establishments. This
metropolitan areas, transport hubs and falls below the Mid-Atlantic’s overall
areas with a high concentration of heavy share of the US economy (18% to 18.5%
industry (e.g. steel, petrochemicals) and annually) but corresponds closer to its
natural resources (e.g. mining, energy share of national population and
production). construction activity (15% to 16%
The Southeast accounts for the largest annually). Several of the leading players
share of industry activity. The region operate from headquarters in the major
accounts for about 24.6% of industry urban areas within the Mid-Atlantic
establishments, which broadly equates region (e.g., New York City, Philadelphia).
with the Southeast’s share of US GDP and The Southwest accounts for 12.1% of
resident population 25.2% annually. In industry establishments and around
spite of this, the Southeast generates a 13.5% of employment, which marginally
relatively smaller share of revenue than outweighs the Southwest region’s share of
other regions. It is estimated the relatively the total US economy and construction
non-specialized nature of engineering activity (around 10% to 11% annually). It
operations in the region causes this. is likely the marginally higher
The West accounts for about 19.8% of concentration of industry activity stems
industry establishments. With 20.2% of from the region’s significant level of
industry revenue and 17.0% of the mining and energy production. Texas, the
population, the West generates more base for the petrochemical and oil
revenue per capita than the Southeast. industry, accounts for two-thirds of
California alone accounts for around regional activity.

Distribution of revenue vs. population Distribution of revenue vs. establishments

30 30

20 20
Percentage

Percentage

10 10

0 0
West

Great Lakes

Mid-Atlantic

New England

Plains

Rocky Mountains

Southeast

Southwest

West

Great Lakes

Mid-Atlantic

New England

Plains

Rocky Mountains

Southeast

Southwest

Revenue Revenue
Population Establishments


CompetitiveLandscape
MarketShareConcentration | KeySuccessFactors | CostStructureBenchmarks
BasisofCompetition | BarrierstoEntry | IndustryGlobalization

MarketShare This industry is characterized by many
Concentration small establishments that typically Distributionofestablishmentsby
confine operations to a localized regional
staffsize(2010)
market or to specialized niche activities.
Level No.of Share
The industry displays a low concentration
Concentration in
of ownership, with the four largest No.ofpeople establishments (%)
this industry is Low companies contributing only around 1 to 4 79,082 53.6
14.3% of industry revenue. Despite the 5 to 9 23,000 15.6
low concentration of ownership, a 10 to 19 20,168 13.7
significant proportion of revenue is 20 to 49 15,938 10.8
derived from medium and large firms. 50 to 99 5,572 3.8
Consequently, the 50 largest enterprises 100 to 249 2,707 1.8
generate around 35.0% of industry 250 to 499 621 0.4
revenue in an industry with nearly 500+ 335 0.3
140,000 firms. Total 147,422 100.0
The large number of small-scale firms
is evident from the County Business SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS

Patterns. According to the latest figures,
approximately 69.2% of industry professionals that do not have a payroll.
establishments employ fewer than ten These non-employing establishments
persons and 53.6% employ fewer than represent approximately 65.6% of
five people. Only 2.5% of establishments industry firms, or 91,300 in 2010. In
employ more than 100 persons. The spite of this, sole proprietors only
industry also has a large of self-employed generate 2.9% of industry revenue.

KeySuccessFactors Having contacts within key markets compromising long term profitability.
Firms must establish networks and a
reputation amongst the key players in Ability to quickly adopt new technology
I
BISWorld identifies
each market in order to be invited to Technological advancements (production
250 Key Success tender. and construction technologies) impact
Factors for a the capacity of firms in this industry to
business. The most Fast adjustments made to efficiently compete in most markets.
important for this changing regulations
industry are: Firms must understand and adapt to a Access to highly skilled workforce
changing regulatory environment. It is important that firms attract and
retain a highly skilled workforce.
Ability to compete on tender
Successful firms are capable of winning Marketing of differentiated products
contracts through tender while ensuring Firms must be able to undertake a broad
adequate cash flow without range of engineering services.

Engineering Services In The US Industry Report

Engineering Services In The US Industry Report

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