Many firms think that the economy will hit bottom in 2009, and that they'll be ready when the market picks back up in 2010 and 2011. I believe this is flawed thinking.

Over the past few months, I have visited people in engineering and surveying companies that are under financial stresses the likes of which they have never experienced before. These firms are established and highly reputable. Most had more than 200 employees with 5 or 10 offices as recently as last year. The pressures they are facing are not just recessionary-they are extinctionary. Some of these companies anticipate that they may not survive if the economy doesn’t pick up in the first or second quarter. Yet many people I spoke with seemed to take their talking points from the same sources because they all had a similar mantra: “We will hit bottom in 2009, and when the market picks back up in 2010 and 2011, we will be ready.”

I believe this is flawed thinking, and I will tell you why.

  • Land development to the tune of 1,000- to 5,000-acre subdivision projects is over for the foreseeable future. If this is your main revenue source, you had better adjust your business model.
  • The lending arm that fueled the development over the past 10 years is over for the foreseeable future. There is no more easy money around to fuel this type of development.
  • There will be enough housing available for many years for people wanting their own home as they take advantage of the bank foreclosures in distressed areas. And of course, there are many design firms and developers who have stockpiled designs and approvals in anticipation of a returning market conditions. Add to that the fear some have of fluctuating gas prices driving up the cost of commuting-as a result, future homeowners will be looking for smaller urban housing solutions than in the past.
  • Commercial development has held up longer than the residential markets since that type of development typically follows residential buildup. However, even this bastion of building is showing signs of cracking. On Dec. 23, 2008, the International Council of Shopping Centers asked Treasury Secretary Paulson for help in obtaining some of the $200 billion fed money created because of the credit squeeze. Inarguably, there will be more commercial development, but it won’t be as free and easy as it was just a year or two ago.

A summary of what's in and what's out in the new economy.

The engineering economy will be altered drastically by Obama’s proposal to reinvest in America’s infrastructure-the first dramatic increase in national spending in 30 years. The economy for engineering, surveying and construction will increase substantially for public projects, but it will be tuned to infrastructure development rather than buildings. Clearly, a smart strategy for small firms would be to market themselves as sub-consultants to the primes who will win the massive contracts because even they won’t be able to do all of the work needed. Those with specialties like wetlands, hydrology, storm management and retention, hydrographic surveying, GPS, traffic, phasing, data prep, etc., can easily be used as subs. Any task item that can be easily split away from other main design functions will be an option for a subcontract. Land development firms will need to hone their core capabilities to fit in with the type of work that will be needed on these very large infrastructure projects in order to be strong sub-consultants.

I also believe there will be a new type of private development emerging that will piggyback with the public works. For instance, as a new rail corridor is developed from point A to point B, stations and terminals will be constructed. Food establishments, shopping, housing and other complementary businesses will be needed at these locations. Engineering and surveying firms will fill this niche quite nicely with existing skill sets and abilities. Funding should be available since these are bona-fide projects with a lot of historic data available for researching viability.

So the economy is not coming back, certainly not in the same form as in the past several years. Instead, a new economy will emerge-one with national scope, significance and oversight. The Era of the Engineer is about to commence in 2009. To prepare for this new era, keep a positive outlook, increase your skills and renew your contacts.

Please respond to this blog and offer your input. Disagree with me, post dissenting facts or opinions, and improve and expand on the conversation for the benefit of your colleagues in the business. Or, if you are so inclined, agree with me and offer your thoughts to take the deliberation into a new realm of thought or off on another tangent.