“We have to keep the staff working” is the phrase I hear from many in the engineering community. The statement lends itself to questions of exactly how to do that. Larry Courtney wrote an insightful newsletter for us this month discussing the importance of good company leaders to guide firms through these times. If you haven’t read it…it is a MUST read!
Along these lines of “feeding” staff and how to do that, I read an article that brought this and our LinkedIn discussion on firms lowering their fees back to debate:
The Pennsylvania Turnpike Authority received bids to replace two 51 year old bridges on their Northwest Extension (I-476) in the Pocono mountains. About “3.2km (2 miles) of new approach road work is needed plus removal of the the 1957 spans.” It is reported that the work was costed at $127M in 2007.
Fast forward to this past week, 2009…the top 4 bids ranged from $102M to $113M, with the winning bidder coming in at under $110M. Tollroads News did an interesting article on this notable reduction in fees. It was suggested that there are several explanations for the $17M reduction in cost. Drop in material cost and utilization of pre-stressed concrete beams for steel could contribute to the lower bid. BUT it could be due in part to the increased competition for work. Firms are willing to cut fees, seemingly significantly, to win work.
Here is the debated topic of reducing professional fees to bring work in the door and keep existing staff billable. While the majority of comments from our discussion board are slanted toward civil engineering firms NOT reducing fees, there are some firm owners who have other ideas. One owner tells us: “As an owner who wishes to keep his best assets, his staff, I am using my negotiating skills to get the price I can in a tough market, while making sure I get the appointment. Sometimes the profit element will suffer. The customers who you have a long term relationship with will remember this later.”
This is a tough discussion. When the market picks back up, and it will…do you think you or your engineering firm will be able to get your fees raised? But do you have a choice not to lower your fees with staff to “feed?” With the Turnpike example, we now see that small privately held firms, as well as the large public firms, are all struggling to keep profitability up while maintaining the staff workload. Are clients going to choose their consultants based on fee and not expertise or excellence? Do you really believe that all engineering firms are basically the same, provide the same quality and should be selected on whom is the cheapest? This is the same argued topic that recruiters – headhunters- search firms have had in regards to their fees for decades! Ready for discussion #2! Let us know!