May 1, 2009

Navigating the Economy: Architects Weather Ebb and Flow of Projects
Firms seek alternatives to projects that are slowed up or on-hold

by Tracy Ostroff
Contributing Editor

Summary: Tight credit and a cagey market have combined to push many projects into limbo, forcing tricky decisions about staffing, project management, and spending. Firm principals say they handle the suspended activity with strategies such as staying visible with clients, outsourcing overhead personnel, bolstering active markets and looking for new ones to crack, and reevaluating with clients the scope of projects to make sure they are commensurate with current economic realities.

How do you . . . move through the market slowdown?

Principals and project managers, mired in challenging choices, are finding ways to stay ahead of the curve. The following are general suggestions and ways in which firms principals deal with projects and sectors put on pause.

Making hard choices and bridging projects: staffing
Execute contracts. Lord Aeck & Sargent has hired staff on contract. They are confident they will be able to extend end dates if work picks up or reduce the number of contractors if work is still slowed down, says Principal Tony Aeck, FAIA, about the firm, which has offices in Atlanta, Ann Arbor, Mich., and Chapel Hill, N.C.

Reduce overhead personnel through staff reductions. Lord Aeck & Sargent is outsourcing some of these jobs to third-party providers. For example, a labor law firm is now handling H1B Visas. Aeck says the firm made the decision to cut a disproportionate share of overhead staff during minor staff reductions versus design personnel because they felt they would be better poised to hit the ground running when projects show signs of life and when new work ramps up. He also notes that the strategy positions his firm to provide capacity to support contracting and subcontracting activity when the market rebounds.

Make hard staffing choices that protect the practice and employees. Staff cuts are never easy, notes Alan Feltoon, AIA, vice president and managing principal of Leo A Daly 's Washington, D.C., office, who advises firms with these considerations to "cut deep, cut fast, and to take decisive action." Having owned his own firm of about 25 people until he joined Leo A Daly in 2008, and knowing how difficult it is to let people go, particularly in smaller practices with an entrepreneurial spirit, he commiserates. "They like to believe they can buck the trend and keep going." Then there is the second guessing about whether the slowdown is real or a blip on the radar. Architects-and he includes himself in this description-are "glass is half full kind of people," making it seem difficult for them to recognize when the moment is at hand. Firms often spend about six months contemplating, he says, and by then business conditions are often poorer, making it worse for the employees that remain and for the health of the practice in general. "Everyone is skittish in this market. Just like with our clients, it's important to have a one-on-one relationship with staff." No one on Feltoon's staff has been cut, and they even received raises in 2008.

Vicissitudes of practice: new opportunities
Pursue new markets. Aeck says his firm has been fortunate overall as they navigate the “vicissitudes of practice,” and has even seen an up tick in work in sectors that had previously not been as active, and which are now off-setting other studios. For example, the practice is working on about a dozen applications for grants for sponsored research. The firm is compensated for providing expertise. The downside, Aeck notes, is that it takes the firm’s most expert people and puts them on projects that are often an all-encompassing rush. Still, Aeck acknowledges it’s a “high-class problem to have. Paying work is better than no work.”

Seek work from public/private ventures, or PPVs. Institutional clients, unable to secure enough money for projects through state legislatures and other government appropriations, are giving ground leases to their foundations, which are then selling bonds to raise money to build the facilitates that will recoup costs through potential funding streams such as fees and sports events, Aeck explains. The downside is that the firm is designing for facilities and clients that are all speculative until the bond sells. He says the firm is “monitoring the bond market quite closely.”

Design new responses to economic turmoil. The stodgy economy has created changes in owners’ plans and needs. Aeck and Feltoon say their firms have been asked to redo completed work for programs that no longer had the funding to support their ambitions. On a couple of large projects, Aeck reports, owners have tried to get them started in every possible way. “We go through a lot of scenario planning, and negotiate fees to do that.”

Staff projects according to real needs: Feltoon says once he saw the market slowing up, particularly for overseas projects in the third quarter of 2008, he started to shift people to keep them busy. Feltoon praises Leo A Daly, for its considered and thoughtful decision-making for its 30 U.S. and overseas offices. In the D.C. office, which also serves as the headquarters for the firm’s international operations, Feltoon saw some of the early warnings of the slow down with clients who paid like clockwork holding on to their checks. At that point he slowed up jobs and moved designers to active projects. “With the breadth of diversity of the markets we’re in, the effect of the slowdown has been pretty minor,” Feltoon reports.

Mobilize/demobilize architects. Aeck notes issues arise when staff ramp up for projects only to have the brakes put on their already sizeable investment of time and effort. Aeck notes that contractors often have provisions that allow them to bill for mobilizing and demobilizing services, but architects are not comfortable with charging for time spent. With better agreements, perhaps, there may be more of an opportunity to fill in a retainer, Aeck says.

Resolve staffing tied to stalled projects. The issue of what to do with designers who have been contractually assigned to a project if it does go off-line becomes tricky. “What do we do with a team who wants to do another project for the client? It creates a dilemma.” Aeck surmises that it would require a conversation with the client and that the firm would work through it.

Taking a different tact: thinking smaller
Embrace smaller-scale projects. Alice Dodson, principal of Alice Dodson, Architect, primarily a residential practice based on sustainable design in Ashville, N.C., says her workload is down 50 percent. She says about three-quarters of her remaining clients have scaled down their projects or are seeking designs for smaller-size, more energy-efficient homes. At the same time, she has a client who sends a card every six months to say hello. “I just got one the other day and added it to the file,” Dodson says.

Part of the marketing effort these days is the return of the role of the architect as a trusted advisor.

Closer to home: value added
Get educated. Dodson says she plans to spend time learning, studying online, and by sitting for the LEED examination. She is also spending more time, “working the marketing material and Web site.”

Team up: Feltoon says Leo A Daly is searching out opportunities, like those on fedbizopps, even working to facilitate teams to bid for new projects that are required to be developer led. “We get on a strong team we can be part of.” He says the firm’s longevity is a marketing tool in this business environment.

Market in new areas: DLR Group Managing Principal and AIA Large Firm Roundtable Chair Bryce Pearsall, FAIA, says his firm is marketing harder and is making sure they stay in touch with clients who have put projects on hold. Like Feltoon and Aeck, he is optimistic. “It is not all doom and gloom.” His firm is spending time marketing new areas of the practice, exploring practice issues they may not have had time to think about in more pressure-filled environments, and putting time and resources into research and development, such as examining the way the firm handles and executes design projects.

Understand the high-touch service business. Part of the marketing effort these days, perhaps, Feltoon notes, is greater visibility of firm management on projects, and the return of the role of the architect as a trusted advisor. Feltoon says he is spending more time with clients, and is by his nature pretty much available all the time, particularly as his schedule relates to the international practice: he is “addicted to text.” He also sees his time as a value added for clients who want to seek out something extra for their money. His presence denotes that he is not just a figure head, but a business manager who provides a valuable service. Feltoon says he recently participated in an all-day charrette, where he was able to make decisions in real time that helped move the project forward. “The value added is how we differentiate ourselves from our competitors.”

End on the upbeat
Feltoon, like all the other principals, says he is “optimistic and very hopeful” about the state of the profession, and talks in terms of “when” and not “if.” He says while architects need to be realistic about current conditions of the speculative credit and oil markets, he sees signs of life in the third quarter in international contracts and better news for 2010.


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