Nevada resident David Frohnen had worked eight years as a managing principal for a global engineering firm when it laid him off in 2010 to downsize. He then started his own engineering firm, Frohnen Consultants, specializing in engineering and business and financial management consulting. To supplement that, he took a job with Silver State Analytical Laboratories Inc., which provides environmental, industrial, and biological testing services. He still works there today as president/owner. Also last year, Frohnen joined forces with three other local engineers and launched 91 Degrees Engineering LLC, a company with low overhead and a flexible workforce that works job to job. Frohnen’s story is emblematic of how years of a weak economy in both Nevada and the U.S. have affected one industry: private sector engineering.
“I had to scramble to replace that revenue source from multiple other part-time endeavors,” Frohnen said. “I continue to struggle with that.
“The bottom line is that private sector engineers are working twice as hard now for about a quarter of the money they made three to four years ago.”
Paucity of Jobs
Many engineering firms in the Silver State have closed offices and slashed staff by as much as 80 percent at some point since 2007-2008. Wood Rodgers Inc., for example, has half the employees it did then. Some companies have closed their doors. In fact, membership of the state’s trade organization for engineers, the American Council of Engineering Companies of Nevada (ACEC), has decreased by about half, said Frohnen, the group’s president.
“We have to somehow turn this Nevada economy around so that we retain this pool of knowledge that we’ve built up over the years,” said Larry Carroll, membership chair of ACEC and managing principal at Poggemeyer Design Group Inc. With 11 offices nationwide, one in Reno and another in Las Vegas, Poggemeyer provides engineering, architectural and planning services, including construction management through CM Works.
About 50 to 60 percent of the state’s private sector engineers have been and remain unemployed.
“The last three to four years have been the most dramatic downturn that I’ve seen in 40 years,” said Carroll, whose firm has reduced its team along with salaries and benefits. “We try to be a mean and lean firm,” he added.
Atkins North America Inc., an international civil engineering and design consultancy with Henderson and Reno offices, too, has cut back on bonuses, pay raises, work hours and benefits and reduced overhead expenses.
“Our staff and owners are really making a significant percent less in the financial world than they were four years ago,” said Wayne Horlacher, senior division manager/vice-president at Atkins and national director of ACEC. “There are people out there who are getting by on half the salary and bonuses that they saw four to five years ago.”
Cutting rates too much could hurt the profession, Carroll said. “We have to be very careful that we don’t price ourselves out of business by pricing ourselves too low,” he added. “We can’t make this business just another commodity.”
Some jobs exist, mostly in in public works like energy, roadway and federal projects, but not a lot. Since 2007, the engineering and land surveying industry lost more than 3,000 jobs in Nevada alone, ACEC data showed.
Competition for available work is “very sharp,” Carroll said. “The people who are out there practicing today are the best of the best,” he added. “Everybody is always trying to find the magic formula in a proposal or how you pursue a project.”
Some new activity, however, is taking place, albeit minimal, for instance, on the design side in the resort corridor.
“On the private side, we’re seeing some upturn. That’s encouraging,” said Mark Gookin, president-elect of ACEC and principal engineer at Wood Rodgers Inc., a regional engineering and consulting firm with its headquarters in Sacramento, Calif. and its second largest office in Reno. It no longer has offices in Carson City and Las Vegas.
Contributing Factors
Trouble began with the downturn in the residential market, Horlacher said. Then commercial land development and construction ceased, and the recession hit. Local and state agencies too have been hard hit, with declining revenues. As a result, many cut back in various ways, reducing or nixing capital improvement projects for one, which in turn impacted the availability of work for independent engineers.
“The funding for capital projects is pretty dismal, not only on the private side but also in the public sector,” Carroll said.
In some instances, county and state officials took funds allocated for capital improvements and used them instead to reduce financial shortfalls. The Nevada legislature took the $62 million tagged for the Clean Water Coalition pipeline project, which subsequently was canceled. Design work for infrastructure projects from local agencies like the Regional Transportation Commission of Southern Nevada has nearly disappeared. When the Bureau of Land Management sells land, a portion of the proceeds goes the Secretary of the Interior for parks, trails and capital improvements, among others. Yet, the BLM hasn’t held a substantial sale (more than 5 acres) since 2009, when it auctioned 25 acres. Rather than fund transportation projects for the usual three to six years to allow for planning and implementation, the federal government for the past few years has committed only to temporary, short-term (six months) funding resolutions.
“That left big holes in staff and funding of programs that were really long-term programs that the engineering community had been counting on and gearing up staff for,” Frohnen said.
Some local agencies are keeping work in-house rather than farming it out, to preserve their own staffs and budgets. In some cases, agencies are so shorthanded they can’t do what needs to be done administratively to get projects started despite the funding being available and already earmarked.
“It’s extremely frustrating,” Gookin said.
Unease on the part of investors also seems to be keeping the development and construction industries from picking back up more quickly.
“I think there’s a tremendous amount of private money that would like to do things, but there is some uncertainty about where they’re going to put that money to get a return,” Carroll said.
Leaner & Meaner
Independent engineers are doing whatever they can to survive these economic times.
“I think you have to be an astute businessman to make it through today,” Carroll said. “It’s not just on the marketing side but it’s also how you run your business and your relationships with banking.”
Pursuing work outside the state, in multiple locations, where economic conditions are better—Texas, North Dakota, Canada and the Middle East, for example—and/or bringing work into Nevada are two common strategies. Some Atkins’ employees have been tackling an airport project in Jeddah, Saudi Arabia.
“When things slow down here, we tried to find work for our people elsewhere with the hope we can keep them here in this office,” Horlacher said.
Nevada is losing its talented engineers to other geographic locales.
“It’s tough for our students to get up to speed, it’s tough for the firms to maintain that and it’s tough on the public because it loses quality. It’s a challenge,” said Sam Palmer, vice-president of ACEC and executive vice-president and western operating group manager at Terracon Consultants Inc., an engineering group with offices in Las Vegas and Reno.
Many firms continue to reduce work hours when necessary and share work within an office more liberally to keep people busy. When projects come in, they aren’t hiring anyone full-time but rather, on a part-time temporary basis, if at all.
“Part of it is a confidence thing,” Gookin added. “I think if there was some additional legislation that provided infrastructure improvement, we would feel comfortable doing some of that. We don’t want to make a commitment and then have to lay them off.”
Some companies have expanded into additional service areas. The division Horlacher manages at Atkins primarily does engineering work related to transportation, but due to a scarcity of those jobs, it’s branched out into park trails and related areas.
Recently the Clark County Water Reclamation District in Las Vegas accepted Statement of Qualifications submissions. Whereas in years past it would receive about 30, this time it got about 200, many from firms that generally don’t do water reclamation work.
“People are stretching what they’re doing beyond what they’re really capable of, working outside their expertise,” Palmer said. “That’s actually a violation of our code of conduct.”
Consolidations, acquisitions of smaller firms by larger ones and alliances, even among competitors, are happening locally in the industry as well. For instance, in October 2010, the international engineering and design company, Atkins North America Inc., acquired the national engineering, architecture and construction corporation, PBS&J.
Much Needed Relief
In 2011, the state legislature passed Senate Bill 268, designed to give Nevada-based engineering firms preference over out-of-state ones in the selection process when they compete for public works projects here at home. The law, however, hasn’t been implemented yet. Once it is, it should help the state’s engineers some.
“I’d say there’s a 50/50 chance we’re going to get this implemented soon, and definitely in 2013 there will be another bill to clean up some of the details of implementation,” Frohnen said.
Part of the federal Tax Prevention and Reconciliation Act of 2005 required federal, state and local governments with total expenditures of at least $100 million to withhold 3 percent of certain payments to contractors and other vendors who do business with the government to safeguard against possible business tax evasion. It was to go into effect Jan. 1, 2011 but was delayed until Jan. 1, 2012. In mid-November, however, the Senate voted unanimously to repeal the mandate and at the time Nevada Business Magazine went to press, the House of Representatives was expected to clear a related amended bill.
“The thought is that right now taking more money out of the private sector economy from engineers and contractors is not the right thing to do,” Frohnen said. “This repeal protects the limited cash flow of small businesses and will allow them to more affordably hire people going forward.”
Also beneficial is for engineers to collaborate with economic development and other organizations to instill confidence in investors about putting their money into Nevada projects, explain the cost of new construction is about one-third what it was three years ago and reassure them the state boasts many top-notch engineers.
“All of us here in the Nevada engineering community, even though we may be competitors, have to be reunited when we’re trying to rebuild this economy and have a unified voice when we talk to our local, state and federal officials about increasing funding for capital improvement projects,” Carroll said.
