Colorado’s engineering firms are standing on unsteady ground.
Hit by a housing crisis, a credit crunch and a state budget that needs millions of federal dollars to shore up transportation and housing funding, Colorado engineers are resorting to pay cuts and layoffs to survive.
Construction layoffs have dominated headlines for their sheer size, but the pain also has spread to the engineers who parcel, prepare and design sites for houses and office buildings. Payrolls in architectural, engineering and related services last year dropped 7.1 percent below the previous year and have slipped for 17 straight months, according to the U.S. Bureau of Labor Statistics.
Golden-based design-build firm KL&A Inc. has avoided firing any employees outright, but it had to cut salaries 20 percent and shaved about 15 employees through attrition, said chief financial officer Brant Lahnert.
Lahnert estimated his firm has cut fees by more than 30 percent over the past two years. Prices are so competitive among design-build firms that he predicted more companies will shutter within the next year.
“Owners are seeing blood in the water,” he said. “I believe we’re in a market that’s not really sustainable for the construction industry.”
KL&A is adapting by diversifying its business, bidding for niche projects that it might not have sought two years ago. The company won a contract to design the temporary shoring to support steel framing for the Florida Marlins’ new stadium, for instance, while other contractors work on the venue itself.
Credit restrictions recommended by the federal government in the wake of the 2008 subprime mortgage crisis provide engineering firms another headache.
“Years ago, it seemed like financing was a given, but now financing is not always secure, and we’ve been doing a lot of projects at-risk,” said Jerry Brock, a structural engineer with KL&A.
It’s not that the residential and commercial properties being built are not good investments, Brock said, but banks are too wary to leverage many sound projects.
Engineering firms that are succeeding said their subcontracting operations, aided by federal stimulus funds and housing credits, have upheld the rest of their business.
“Most are struggling,” said Ron McOmber, chief executive of the Denver-based engineering and materials-testing firm CTL Thompson Inc. “What I hear from most architecture and engineering firms is that they’re hungry.”
Gary Thomas, a principal at Martin/Martin Inc. of Lakewood, put it more bluntly.
“We’re dying,” he said. “A lot of my competition’s gone now.”
Too many developers refuse to start building or have stalled half-built projects because of the high barriers banks are putting on financing, Thomas said, citing at least 20 projects his own firm could design were credit not so tight.
To make things worse, projects funded by the American Recovery and Reinvestment Act seldom use external design companies, meaning little stimulus money has trickled down to companies such as Thomas’. The funds were intended to save or create jobs, so labor-intensive jobs such as road repair took precedent over processes that require extensive design work.
“It didn’t come out in the form of new design work for the profession,” Thomas said. “CDOT can design (projects) to be shovel ready in a matter of 30 days . . . so a lot of the interchanges that take months or years to design aren’t getting done.”
Colorado Department of Transportation spokeswoman Stacey Stegman said stimulus money almost entirely funded projects that were already designed before the recession or were drawn up quickly within the state agency.
“It mostly went to workers on the ground, the contractors,” she said of the funding.
Shifting resources to healthier industries is easier for large companies with deep workforces. Douglas County-based CH2M Hill largely attributed a $14.3 million profit during the first quarter of 2010 to its projects in booming countries such as Brazil and its nuclear-cleanup work for the federal government.
The company has not been immune to the recession, however. Its energy segment recorded a loss for the quarter, and the company cut overhead to make its design-build segment profitable.
“We’re only as good as our clients,” said spokesman John Corsi, ” and many of our clients are municipal governments.”
Drew FitzGerald: 303-954-1381 or dfitzgerald@denverpost.com
