Engineering Inc. - Winter 2020 - 17

"Unfortunately, when the 2008 recession hit, the firms that
fared worst were the ones that did not consider diversifying into
other markets because it would siphon money away from their
most profitable work," Kogan says. Although it may be impossible
to know when the next downturn will occur, the current economic expansion reached 125 months in November 2019. This
far exceeds the typical economic cycle of 58 months since 1945.
A starting point for developing a long-term strategic
diversification plan is to understand where a firm is and where it
needs to be to reduce risk. That includes taking into account the
size of the firm, sectors and industries where it has expertise, and
how prepared it is to pivot when conditions change, according
to Kogan. Establishing a team or group to solicit work in an
industry does not guarantee any level of success.
"You must possess the necessary skills, expertise, and market
presence," Kogan says.
Engineering expertise, however, is not enough to succeed. A
firm must possess the business acumen, project management
skills, and cultural understanding of client demands. This means
aligning groups to address whatever combination of public
and private sectors a firm focuses on. In the private sector, this
includes industries such as health care, retail, manufacturing,
real estate, and energy.
"Ultimately, each group or team must be competitive on its
own," Kogan says.
At McKim & Creed, balancing public and private sector work
is crucial, according to Lucey. The firm's project breakdown is
roughly two-thirds private sector and one-third public sector.
It has built expertise in several areas including energy, land
planning, MEP, and surveying residential, commercial, and
industrial projects.
"We like the diversification that these markets provide. The
diversification between public and private also provides some
protection against the impact of any market correction," Lucey
says.
However, McKim & Creed has also pushed to diversify its
private sector work. For example, it has a strong presence in the
solar energy market but also in oil and gas.
Other firms have taken aim at the challenge in different ways.
For instance, HNTB has established parallel groups for public
and private sector projects-across areas such as wastewater,
transportation, and environmental.
"The requirements for each-items such as contracts,
documents, plan sets, specifications, and business practices-are
significantly different," Jackson says.
Furthermore, using the same group of employees across
public and private sector projects can increase the risk of errors,
miscommunications, and project breakdowns. One method in
which engineering firms have addressed gaps in expertise and
skill in an immediate way is to consider a strategic acquisition,
according to Kogan.
"It is incredibly challenging to build a practice area from
scratch. There can be a slow uptick in business, and the initiative
can become a drain on resources," Kogan says. A sound, strategic
acquisition creates an immediate market presence. "It builds
instant traction and allows a firm to hit the ground running," he
adds.

KEY REASONS WHY MANY FIRMS
PREFER PRIVATE SECTOR WORK
1. Innovation Matters. Many public sector projects require
significant levels of innovation. However, overall, the
private sector tends to have a greater focus on new
ideas, designs, technologies, and engineering methods.
2. Speed Counts. The pace of public projects is often
slower to lower risk. For firms that prefer a fast-paced
framework, the private sector makes more sense-and
maximizes profits.
3. Less Paperwork, Fewer Legal Hoops. Supplying
government entities with RFPs, legal documents, and
more can take weeks, even months. However in some
cases, it is possible to complete private sector paperwork
in days.
4. QBS Matters. Public sector entities generally follow
the Qualifications-Based Selection (QBS) procurement
process and then negotiate level of effort and price.
Private clients do not always follow QBS.
5. Regular and Steady Clients. In many cases, firms that
establish a relationship with a client continually land
steady work with that client. Public sector projects are
frequently a one-off.

KEY REASONS WHY MANY FIRMS
PREFER PUBLIC SECTOR WORK
1. Less Turbulence. Public sector projects tend to be less
affected by economic updrafts and downturns.
2. Prompt Payments. Government entities typically pay
on time. Litigation is infrequent and firms face fewer
nonpayment issues.
3. A Focus on the Standard of Care. Many of the
protections offered in the public sector-particularly a
focus on standard of care provisions-do not necessarily
carry over to the private arena.

In the end, Kogan believes there is no right or wrong way to
decide on public sector versus private sector work. It is crucial
to match an engineering firm's focus and capabilities with the
marketplace-and to recognize that sectors and industries
change, and a firm must change with them.
"No sector or market stays hot forever. When engineering
firms identify their target markets and diversify, they are better
prepared to ride the ups and downs successfully," Kogan says. n
Samuel Greengard is a technology writer based in West Linn, Oregon.

WINTER 2020

ENGINEERING INC.

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Engineering Inc. - Winter 2020

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