On March 9, 2004, CEOs from Nevada’s leading engineering firms gathered at a breakfast roundtable meeting at the Four Seasons Hotel in Las Vegas. The moderator was Connie Brennan, publisher and CEO of Nevada Business Journal. This was the first time engineers had been brought together to discuss the challenges of their profession, and their freewheeling discussion included: recruiting and retaining employees; maintaining professionalism; and structuring fees to maintain a healthy bottom line for their companies. Following is a condensed version of their comments.
Pete Blakely: Blakely Johnson & Ghusn, Inc. does structural engineering, architecture and civil engineering. Our main office is in Reno and we also have a small office in Henderson. Our biggest problem is finding talent and then retaining them. We really struggle with compensation methods and rewarding the stars without jeopardizing the whole team environment.
John Walker: Aztec Engineering is a 180-person firm. Our headquarters are in Arizona and we have a 30-person office in Las Vegas. We offer services in transportation, land development, surveying and environmental engineering. I believe we have the same problems as many of these firms. Southern Nevada has more business than it’s had in years, and one major challenge is compensation. The salaries seem to be just absolutely phenomenal, and I don’t know when it’s going to stop. Probably when the development stops here in the Valley, and who knows when that will be?
Michael Pullen: At Nevada By Design, we do civil engineering and offsites, and specialize in utility coordination and design, as well as demolition. We have a staff of 24 people, and we’re a home-grown firm. We have no problems. (General laughter).
Dennis Waibel: Carter & Burgess has 130 people in Nevada, together with our related entity, C&B Nevada, Inc. We practice in architecture, surveying, civil engineering, transportation and structural, so we’re a full-service firm. We all not only face a salary push across the country, but, also as engineers, we lag behind doctors and other professionals in our fee structures. That’s been a big issue for all of us, as we continue to compete on fee structures. We all have higher-level people we need to compensate and take care of, but the problem is how to get our fees up so we’re netting enough to take care of these people.
Kathy Smith: VPoint has over 50 employees in Nevada. Our main office is in Las Vegas and we have an office in Reno that we started about six years ago, which is totally public works and deals with water and wastewater projects. We also act as the city engineering firm for the City of Fallon. We also do work in Pahrump, Victorville and Apple Valley, and we keep spreading because of client demand. I agree with Dennis. What really concerns me about our business is that we’re all busy, we’re all trying to get quality people and retain them, but we’re taking the professionalism out of our profession. Engineering services are getting to be just another a commodity. You don’t see attorneys dropping their fees when demand is up for their services. We’re not very smart people when it comes to our profession. We’re constantly facing someone who says, “We can get it cheaper over there,” so we start lowering our price. We need to get together as an industry and say, “No more. They’re going to treat us like professionals, and we’re going to get the fees we deserve.” Not only are we paying higher salaries, we’re paying higher costs for health insurance and other kinds of insurance. We need to make sure we can make some money at the end of the day.
Edward Taney: Taney Engineering is a 42- to-45 person firm. We started back in October of 2000, and our forté has always been single-family detached homes. I would reiterate the biggest challenge by far is maintaining talent. Obviously, it’s very much an employees’ market now. But to compound that, if you invest the necessary time into employees to get them trained properly to a point where you can turn a profit, they may go to another company to make a few more bucks. You also have the problem of the price structure we have to live by because of the market.
Victor Neufeld: Stantec Consulting provides various disciplines, including urban land, surveying, as well as public works, landscape, architecture, planning and development. We employ 4,000 people in 40 different offices in the United States and throughout Canada, including Las Vegas and Reno. I just started in January in the Las Vegas office, but in my 20 years of engineering experience in various firms, a lot of these problems are common all over. What’s unique in the Las Vegas market is the phenomenal growth rate here. What that does is make the problem of recruiting and retention worse. We can certainly recruit staff by offering people $200,000 a year, but that’s just going to blow us out of the water. An issue affecting firms across the country is that insurance fees have skyrocketed over the last couple of years.
Nigel Miller: Kleinfelder does geotechnical, environmental and technical inspections, and we have about 60 people in Las Vegas and 40 in Reno. Our biggest challenge, along with recruiting, is developing the idea that what we do is a lot more than just technical. The service we provide for our clients is as important, if not more important, than just taking care of technical procedures. Communication and client relationships should be emphasized more.
Greg DeSart: GES provides environmental services in Nevada. We also have a sister company called Eagle Drilling. Since gold prices went down, we have just one office in Nevada, with 45 people in Las Vegas. We do technical engineering, environmental assessments and drilling. Regarding recruiting and retention problems, as a geotechnical consultant, we’re highly regulated by local governments. They require different certifications, and each entity will want a different certification for the same exact test, so we’re faced with having to get our people multiple certifications in multiple jurisdictions. Once we get them trained, they get recruited by somebody else. We’re trying to work with our staff to develop a career path for each employee and we’ve also started in-house apprenticeship programs and that type of thing.
Larry Carroll: Poggemeyer Design Group has been around for 36 years. Our practice is basically civil, structural, architectural, planning and surveying. We have offices in Las Vegas and Reno, along the West Coast and Midwest. We have a total staff of about 236 people, with 51 of those in Las Vegas. I would agree with everybody else that recruitment and retaining is a tough thing, and has been for the last 15 or 20 years here. What it boils down to is that we just don’t have the bodies we need here.
Sam Palmer: Terracon Consulting Engineers has Nevada offices in Reno and Las Vegas, with a combined staff of about 85. Nationwide, we’re about 1,600 folks in over 50 offices. We specialize in geotechnical engineering, environmental engineering and materials engineering. Every month when we total our financial statements, we realize that insurance issues have attacked our bottom line, in particular regarding construction defects. Hopefully, the legislative action taken last year will bring some glimmer of light in insurance costs. But probably the most critical issues right now for our bottom line are salaries and fee structures.
Tom Harris: Harris Consulting Engineers is a mechanical and electrical engineering firm, with one office that has been in Las Vegas for about 20 years. We’ve actually had a very stable staff for the last three years, and I’m not finding a real problem with recruiting, but I think the difference for me is I’ve set up some networks, and I’ve been getting people out of the Midwest for about 10 years, so I always seem to have a ready stream of people we can draw from. We also don’t see as much salary pressure as you (civil engineers) have seen.
Jim Davis: Martin & Martin does civil engineering. Our firm, nationally, is a structural engineering firm with about 450 employees. Most of our offices are in the West. Here, locally, we have two offices, one civil and one structural. I’ve found it’s extremely difficult to compete against some of the governmental agencies with the benefits packages they provide. I’ve lost several people to Clark County Regional Transportation District. Just about any agency in town finds its way to some of our people. It’s extremely difficult after recruiting and training people to lose them to competitors, and over the years we’ve been very lucky in being able to retain people, but that’s not true any more. There’s a real shortage of people in the Valley and nationally.
Larry Nelson: L.R. Nelson Consulting Engineers opened in 1987 and we employ about eight people. We do civil, structural and surveying. I can’t add anything to what’s been said. However, we complain about not being able to retain employees, but there’s not one person here who hasn’t tried to steal some other guy’s employees. Right now, the firms that are not here are probably calling our offices and trying to steal our employees while we’re gone. So, it’s a difficult battle that we helped create ourselves. Also, I agree with Kathy about professionalism. There is a joke that the only good engineer in town is the one you haven’t used yet. That doesn’t say much for our standards of professionalism. There are engineers who will say anything they can to get a job, or say they can provide something in two months, and four months later they haven’t done anything. There are many factors that can make us look bad. We need to increase the quality of our work.
Recruiting Issues
Connie Brennan (Nevada Business Journal): Recruiting seems to be a major challenge for everyone. Is it just engineers, or are there shortages at other levels? Are you recruiting out of colleges now? Is the university system doing a good job of providing the educated workforce you need?
Waibel: Our national marketing director sent me a copy of a survey someone had done of engineers and architects, and right now there’s a 17 percent shortage of engineers coming out of the university system based on demand, and it’s going to get worse. So it’s not just local availability – it’s the fact that there aren’t a lot of engineers studying in this profession anymore. That shift probably occurred in the telecom boom, when anybody with any math aptitude went over to the tech side or pulled out of the engineering curriculum to go where they could make a fast buck. So it’s not just a local problem.
Neufeld: I agree with you. Not only are there 17 percent fewer graduates, but at the other end, more and more engineers are heading for retirement, so that compounds it.
Nelson: And how many of our clients are also taking our engineers? Five years ago we didn’t see as many engineers going over to the development side, but now we’re seeing that in every format.
Smith: I’m glad Larry brought that up, because it’s absolutely true. You never used to see development companies hire this many engineers. They’re hiring engineers to manage engineers, so that’s taking from our market.
Taney: They can afford to pay $150,000 salaries, because by the time they get to the final phase of a large project, they’re sitting on a lot of equity. They make their profit by simply gearing up the price of homes as they go. Whereas, because of the obvious problems we have with competition, we’re limited on how much we get per lot or per structure.
Walker: Our Phoenix office tells us the salaries we pay our staff are about 20 percent higher than theirs, just because of supply and demand. If a guy starts working for Company A for $20 an hour, when he moves to Company B he’ll make $21 an hour, and so on, up and up.
Palmer: They’re also pulling from our engineering technical staff. They put them on jobs as superintendents, almost in an engineering role.
Nelson: It’s not just the engineers themselves – it’s across the board. Some CAD operators are now making more than engineers. In retaining people, it becomes one of our responsibilities to provide the best work atmosphere and benefits packages we can afford. Sometimes, pressures at the top can be passed down to our employees, so we have to watch that as well. If we want to raise the bar professionally, we have to raise it personally.
Smith: Connie, to answer your questions, we’re always training graduates. Just because you get a degree, doesn’t mean you’re ready to take on a project. It could be several years before they are up to that level. So we all need project manager personnel, which I think we’re still stealing from each other. I started advertising in Hawaii, Denver and Wyoming to get some of those people in places that used to have a good economy, and don’t have such a good economy now. The hard part is luring them to Las Vegas. Some of them are willing to come, but we still have the stigma that it’s not really a good community to live in.
Davis: Well, that stigma isn’t helped much by that advertising campaign that says, “What happens in Vegas stays in Vegas,” and that whole image.
Smith: Exactly.
DeSart: Some of them come here because they think it’s really busy and they can make a ton of money, which is not conducive to hiring long-term players. Once they get here, they think, “The company down the street will pay me a ton of money plus 10 percent,” and they’re gone. We need people who are more stable and family-oriented, and they are not easy to find.
Harris: I have recruited people from out of state and found they’ve been really stable. But, maybe people in mechanical and electrical are different.
Neufeld: Most of the people around the table are civil engineers. Do you think it’s different for your specialty?
Harris: The last time I suffered from a real recruiting issue was in the 1990s with the telecom boom. Since that time, we’ve had very little turnover and very little problem finding team people. I’ve had more and more people coming out here from the Midwest looking for jobs, and I’ve had good experiences recruiting from colleges. So I’m not seeing the same kind of problems you guys are seeing.
Smith: There’s also a key difference between Northern and Southern Nevada. In the northern part of the state, the workforce is much more loyal. It’s a totally different environment than this town, but I have never quite figured out why.
Waibel: As Greg pointed out, if you don’t have a career path within your own organization, people are going to go somewhere else. Employees need a chance to be promoted from within and to grow. When there’s no other place for them to advance, they may focus on getting more money, but typically, money is the last reason they leave. On the other hand, in the survey profession, money is the first reason they leave – for 50 cents an hour more.
The Bottom Line
Brennan: Kathy’s comments about pricing surprised me. With the market the way it is and as busy as you all are, it seems to me that you could pretty much demand your own prices.
Carroll: In the public sector, the choice of a firm depends more on qualifications, but in the private sector, it is very competitive. Clients are basically shopping prices, and that’s the main area we need to discuss. It’s just like shopping a commodity, instead of choosing a professional. Even other professionals have a habit of price-shopping for their engineering services.
Smith: You don’t see builders lowering the prices on a house. I mean, we’re not very smart in what we’re doing. We’re very good engineers, but we’re not very good business people if we fail to take advantage of what’s happening in the market.
Blakely: If you’re going to be a commodity, you’re going to go out and do exactly what other competitors are doing, and you’re going to think price. You need to find a way to differentiate yourself from your competitors and build a reputation. However, in the housing tract market, it’s going to be difficult, because there isn’t that much different you can do.
Neufeld: I think you’re right.
Nelson: I don’t agree. I think it’s gone to a performance-based market. It comes back to the quality of service you give. On the first project you do for a new client, you may lower your fees just to get the job, but we try not to play that game, because I don’t want to go back on the second job and say, “Okay. Now, it’s time to raise the prices.”
Blakely: Quality service is a way to differentiate. Eighty or 90 percent of our business comes from return clients. If they’re satisfied with our previous service, we don’t need to compete on price. We tell them the fee, and that’s it.
Nelson: I don’t think most engineering firms know if they’re making money or not. They’re paying their bills and kind of getting by, but they don’t know what it costs to run their business. They don’t know what a multiplier is or how much they really need to charge in order to compete and get more work and still be making money.
Neufeld: You have to take care of yourself and pay attention to the value of the business. Whether we like it or not, some of our business is moving into the competitive commodity market. There are a few firms that are actually going offshore to the Philippines for their survey work. So maybe what we have to do is say, “No,” to a deal if we just don’t think we’re getting compensated enough.
Walker: We’re all stupid if we’re cutting our fees when we’re in control of a limited resource. We should be raising our fees, because we have increased costs. If I cut my fees, I can’t be profitable anymore and I’ll be out on the street.
Smith: I’m lucky. I don’t have to work for clients anymore who say, “We need you to come down on the price.” We’re finally to the point where we don’t need to do that, but there are a lot of firms trying to break into the market that will. Clients will go to them because of price. They’ll eventually come back, but it’s just a process, and that’s what’s keeping the fees down.
Nelson: They’re doing the things we did 15 years ago.
Smith: Yes, when we were trying to build a business.
Carroll: As engineers and architects, we struggle to get a 2.5 or 3 multiplier, and you have accountants and attorneys getting 6, 7 or 8.. A basic problem we have is just trying to justify our fees. Maybe we need to look at value-based fees. If the contractor who’s building the project saves the client a million dollars, he may put a clause in the contract to get a percentage of that. Engineers and architects rarely do anything like that. It’s something we should definitely take a look at.
Waibel: PSMJ (Resources) had an article on multipliers. They went back to 1978, and back then, you could get a 3.4 or 3.5 multiplier. We all had about a 3 percent profit margin that allowed us to do extras for the client, give them more services or allow credits for things they weren’t happy with. We were still managing to make a good fee, and the client was happy because we were giving him little extras here and there. Now we have all reduced our multipliers and we have no margin anymore to give that client service. The clients know it, and basically, they’re just grinding us down. We’re all sharpening our pencils more and more and more.
Nelson: One of the other things we’ve done is buy software that costs a lot of money, and what used to take us a whole day now takes only 40 minutes due to automation. We’re not charging what that job is worth to the client, or figuring in the cost of our investment in the software. Instead, we’re charging only what it costs us per hour for the person doing the work. The value to the client is the same, whether it takes us a day to do it or half an hour, but we now charge less.
