Wednesday, December 17, 2008

(Sad) Sign of the Times

Last year's acquisition of Hillier Architecture by RMJM was called a merger at the time. It was an acquisition as so many of these M&A deals are. If I've written it once, I've written it a bunch of times: There is very rarely such a thing as a merger. It's called a merger to make the acquired firm feel good, but it's an acquisition.

Want proof? Check out the press release issued earlier this week by RMJM Hillier that announced "the company will now operate under the name RMJM in North America. RMJM Hiller was formed in June 2007 following the merger of RMJM and Hillier Architecture (there's that bogus 'merger' term again). The RMJM Hillier name was used only in North America while the firm, headquartered in Edinburgh, Scotland, is still known as RMJM throughout the rest of the world. The new name also coincides with a global rebranding for RMJM including a new logo and website."

The sad part of the story for me is that the announcement means the firm will no longer carry the name of Hillier Architecture founder Bob Hillier. I met Bob a few years ago at an industry event and found him to be a knowledgeable, charming fellow. Although the press release quotes Sir Fraser Morrison, CEO, Americas with RMJM as saying, "Bob Hillier has been instrumental to the success of the merger. I want to thank him for his commitment and continued involvement in the firm," the name change is clearly a public distancing from Hillier.

It's all too common these days among A/E firms that acquire other firms to bring them under the corporate umbrella of the acquiring firm, but that doesn't mean it's a good idea.


ABI Keeps Falling: Posts All-Time Low For Second Straight Month

When we wrote last month that "while some quarters believe that President-Elect Barack Obama will push an agenda of addressing America's infrastructure," that does seem to be true.

However, as we also wrote, "Fact is, it will be two more months before he even takes office and perhaps much longer than that before bills are introduced into Congress, debated, signed into law, and then funding appropriated for them."

That was reflected in today's news that the AIA's Architecture Billings Index hit its all-time low for the second straight month, again posting its lowest level since the survey began in 1995.

And, as we said last month, because the index is a leading indicator of construction activity, the ABI shows an approximate 9- to 12-month lag time between architecture billing and construction spending. This means we shouldn't expect to see much construction activity for the bulk of 2009.

The November ABI rating was 34.7, down from the 36.2 mark in October, and the 41.4 mark in September that was a six-point drop from August. Any score above 50 indicates an increase in billings, but it's been a long time since that has happened. The inquiries for new projects score was 38.3, also a historic low point.

"With mounting job losses, declines in retail sales, and travel cutbacks, the need for new commercial facilities has dropped considerably recently," said AIA Chief Economist Kermit Baker. "What's just as troubling is that the institutional sector-- schools, hospitals, and public buildings-- is also beginning to react to tighter credit conditions and a weakening economy."

Regionally, the ABI breaks down as follows: Northeast (39.5, down from 44.3 in October), South (36.8, down from 40.0 in October), Midwest (31.4, down from 37.4 in October), and West (33.5, down from 34.9 in October). Sector by sector, the ABI breaks down thusly: mixed practice (44.5, down from 45.1), institutional (40.8, down from 42.1), commercial/industrial (26.7, down from 33.6), and multi-family residential (30.0, down from 34.2).

At this point, it's really anybody's guess as to when things will turn around.


Friday, December 12, 2008

ENR won't be buying Building Design + Construction after all

Turns out that McGraw-Hill, Engineering News-Record's parent company, will not be buying Reed Business Information, Building Design + Construction. Nor will anyone else after news came out this week that Reed Elsevier has dropped discussions with potential bidders for Reed Business Information, it's business-to-business publisher.

Reports earlier in the week had private equity group Bain Capital in the lead to acquire Reed Business Information after another private equity firm dropped out of the bidding. The bids had fallen from about $2 billion to about $1 billion.

Reed Elsevier says it will consider selling Reed Business Information at some point when market conditions improve. In the meantime, Reed Business Information will be managed as a separate division within Reed Elsevier.

Reed Elsevier had announced plans to divest Reed Business Information, which also publishes Variety and Publishers Weekly, among many other trade magazines, back in February, citing a desire to exit the print industry. But tightening global credit markets have hampered the auction and eventually led to its being put on hold for the time being.


Wednesday, December 3, 2008

The photo holiday card and you

Hope everyone had a great Thanksgiving. The Thanksgiving weekend usually brings with it the arrival of the first batch of holiday cards. And while most folks take the time to write out a heartfelt message, recent years have brought with them an increasing number of generic photo cards of the sender's family...with no personalized greeting whatsoever.

Those of you reading this might be wondering, "Why is he posting a blog item about photo holiday cards on a blog devoted to the AEC industry?" Well, if your firm is like the many firms out there that crank up the holiday card machine about this time each year, keep reading.

Do you (or your marketing department) send out holiday cards each year without any sort of personalized greeting to the recipient? (Judging from the avalanche of cards I get each year from many of you, I would answer this question "yes.")

Well, if the answer is yes, shame on you. Why would you treat the holiday card any differently than any other thank-you note or communication with your clients? Why half-ass this all-too-important marketing effort?

If your answer is, "We send out too many cards to personalize each one," then you are sending out too many cards. You don't need to send out one to every person in your database.

Trust me, if you aren't currently doing business with them and haven't spoken with them in several years, your clients will be more likely to wonder why you are sending something to them when you can't even pick up the phone to see how they are doing.

Point is, make the holiday card a truly effective marketing piece. Send out fewer, target them to specific clients, and personalize the heck out of them. Then, wait for the phone to will!


Monday, December 1, 2008

Lower gas prices mean lower mileage rates

For those of you enjoying lower gas prices when you go to the pump (and who isn't), your old friend, the Internal Revenue Service, wants to spoil your fun.

The IRS is lowering some of its automobile-mileage deduction rates for 2009 to coincide with falling gas prices. The 2009 rates are slightly lower than rates for the second half of 2008, which were raised in response to the spike in gas prices. The standard rate for business use beginning in January 2009 will be 55 cents a mile, down from 58.5 cents since July.

When the mid-year deduction rate took effect earlier this year, a gallon of gas cost an average of $4.05, up nearly $1 from the beginning of 2008. Prices in recent months have fallen, however, to a national average of $1.82 a gallon.

In the past few years, the mileage reimbursement rate had risen sharply from 40.5 cents in 2005, to 44.5 cents in 2006, to 48.5 cents in 2007, to 50.5 cents in the first half of 2008 before the hike to 58.5 cents in July 2008. Yet, the 55-cent deduction rate for average gas prices of $1.82 a gallon are still much better than the 40.5-cent rate in 2005, when the average gas price was $1.75 a gallon.


Wednesday, November 26, 2008

Does a new administration mean a brighter outlook for the AEC industry?

Interesting question, to be sure. Some AEC industry experts believe that things will not improve any time soon, regardless of whether President Bush or President-elect Obama is in charge. And, clearly, the Architectural Billings Index for October being the lowest number since its inception gives credence to that argument.

Yet, it's pretty clear from the mounting number of trade industry articles that have been published since the November 4 election that many observers also believe that President-elect Obama will make infrastructure funding a priority, thus brightening the seemingly dreary prospects for the beleaguered industry.

According to a Reuters article published earlier this week, Obama told the Conference of Mayors that, "We are going to have to make sure that we are investing in roads, bridges, other infrastructure investment that lays the groundwork for long-term economic growth." In fact, according to the article, more than 4,500 infrastructure projects could begin immediately once funding shortfalls are rectified. In fact, many experts believe infrastructure projects will comprise a large part of the next economic stimulus package. The shortfalls in funding have forced officials to postpone repairing deteriorating bridges and roads for years, even though designs and permits are in place.

The stimulus plan could "absolutely change the scenario for companies that have been talking about laying people off," according to Associated General Contractors of America Chief Executive Stephen Sandherr in a Wall Street Journal article earlier this week.

Clearly, as evidenced by the daily fluctuations on Wall Street, we are in a time of great uncertainty. But there does seem to be some hope on the horizon for the AEC industry. We shall see.


Stantec keeps on wheelin' and dealin'

Anyone who wondered if Canada's economy would keep Stantec from continuing its ongoing acquisition spree can rest easy: The answer is no.

Stantec made headlines both in the United States (articles on and in its native Canada (articles on CBC News' web site and the Toronto Star, among other Canadian news outlets) for its impending purchase of Jacques Whitford, a Halifax, Nova Scotia-based environmental consulting firm.

According to various news reports, the Edmonton, Alberta-based engineering firm Stantec is offering $143 million to buy Jacques Whitford to strengthen its presence on Canada's Eastern seaboard.

The deal would double Stantec's presence in the Atlantic region and help expand the range of its services as Jacques Whitford has 1,700 employees across Canada and about 500 of them work in the Maritimes, according to CBC News.

Stantec will be meeting with employees and shareholders this week to provide them with the deal's details.

Tony Franceschini, the president and chief executive officer of Stantec, said he will be meeting with the employees and shareholders this week to provide them details of the deal. Further, Franceschini said the board of directors and the senior leadership of Jacques Whitford have already agreed to vote their shares in support of the deal. He said he expects Stantec shareholders will also support the transaction. Both he and his counterpart at Jacques Whitford believe most employees will keep their jobs if the merger happens.

Franceschini said in an article on Canada's Financial Post web site that he's going ahead with the deal because it's available now, it fits with Stantec's strategy of becoming a global design leader, and it doesn't require new credit.

"It's a bit like dating and getting married. You don't always pick the time," Franceschini said in an interview. "Whenever you buy a good firm, you are going to have to pay a fair price for it. We have the financial ability to do it, it's not going to stress our credit facilities, so why not now?"

The acquisition boosts Stantec's annual revenues to $1.5-billion from $1.2-billion, and its staff to 10,700, from 9,000. It will be funded from Stantec's existing credit facilities and paid for over three years.

The vote is set to take place in December and if approved, Stantec will close the transaction in early January. Stantec has 9,000 employees in 150 locations throughout North America.

A new meaning to Black Friday

As everyone knows, Black Friday is the name the retail industry uses to describe the day after Thanksgiving. The reason for the term Black Friday is it is (hopefully) the one day that retail stores can turn a profit for the entire year. However, for those affected by the downturn in the economy, Black Friday will either be a day of mourning their job loss or commiserating with those who have recently lost their jobs.

And those job losses include some heavy hitters in the SMPS marketing/business development portion of the AEC industry. Among them, former SMPS national President Peter Kienle, who was laid off last week by McKim & Creed in North Carolina, where he served as chief marketing officer, as well as veteran SMPS seminar presenter Gil Brindley, who lost his job as executive vice president with Professional Service Industries in Pittsburgh.

Sadly, this time around, the job cuts seem to be at a higher level than in previous years, when it was entry-level and recently hired folks who were let go. The thinking this time seems to be, "How can we save the most money without losing too many people?" And then companies promote from within. The problem with this is the expertise, experience, and perspective being tossed aside in the name of bottom line savings.

Kienle and Brindley told me separately that they aren't the only ones in the Charlotte and Pittsburgh areas who have lost their jobs, either. Other marketing folks at firms such as Mulkey Engineers & Consultants in Raleigh let go their marketing director about a month ago and Pennoni Associates, Inc. cut a business development position in its Pittsburgh office.

While the economy is sluggish, cutting marketing and business development folks is shortsighted. You are essentially making it certain that you will not be bringing work into the firms' coffers, thus increasing the likelihood of further layoffs in the future. It's doubly problematic for Kienle and Brindley, since Kienle was responsible for strategic planning, and Brindley, who helped seek out potential acquisition targets for PSI.

As you're eating your Thanksgiving meals this weekend, remember those folks like Kienle and Brindley who did the heavy lifting and worked the long hours, not to mention the endless hours in airports and in hotels, and are now faced with the unenviable task of trying to find a new job in this economy.


Wednesday, November 19, 2008

AIA Architecture Billings Index hits all-time low

There's no way to sugarcoat it, folks, the architecture portion of the AEC industry is in deep trouble. This morning's news that the AIA's Architecture Billings Index hit its lowest level since the survey began in 1995 is a major blow to anyone's short-term visions of a quick turnaround.

While some quarters believe that President-Elect Barack Obama will push an agenda of addressing America's infrastructure, fact is, it will be two more months before he even takes office and perhaps much longer than that before bills are introduced into Congress, debated, signed into law, and then funding appropriated for them.

And because the index is a leading indicator of construction activity, the ABI shows an approximate nine- to 12-month lag time between architecture billing and construction spending. This means that we shouldn't expect to see much construction activity for the bulk of 2009.

The October ABI rating was 36.2, down significantly from the 41.4 mark in September (any score above 50 indicates an increase in billings). The September number was a six-point drop from August, so the trends are headed in the wrong direction. The inquiries for new projects score was 39.9, also a historic low point.

“Until recently, the institutional sector had been somewhat insulated from the deteriorating conditions affecting the commercial and residential markets,” said AIA Chief Economist Kermit Baker. “Now we are seeing that governments and nonprofit agencies are having difficulties getting bonds approved to finance large scale education and healthcare facilities, furthering the weak conditions across the construction industry.”

Regionally, the ABI breaks down as follows: Northeast (44.3), South (40.0), Midwest (37.4), and West (34.9). Sector by sector, the ABI breaks down accordingly: mixed practice (45.1), institutional (42.1), commercial / industrial (33.6), and multi-family residential (34.2).

The breakdowns show that there really aren't bright spots right now for architecture firms, unfortunately. Perhaps the November election will at least spur some activity in November, which will be reflected in the December numbers.


Monday, November 10, 2008

U.S. not alone in dealing with uneven economy

We got a dispatch last week from one of our clients in Australia, who assessed the situation in his country thusly:

"It is not fear or panic here. Some firms will be faring better than others depending on their circumstance. I have not heard of huge wholesale layoffs. The Australian market is definitely not about fear or panic. We are actually happy about the labour correction. Yes, we do not have sufficient forward work, so we will also put people off to adjust."

So when you wake up tomorrow morning and think, "Am I in this alone?" remember that your brothers and sisters around the world are in the same spot.


Wednesday, November 5, 2008

Election Night good for U.S. infrastructure needs

According to two articles on, voters across the country passed a number of initiatives that will help address America's infrastructure needs.

Californians approved at least $27 billion in new borrowing, including money for schools, and $9.95 billion in funding for a high-speed train network. They also approved selling bonds to improve children's hospitals while rejecting a bond proposal for alternative-energy development. In Los Angeles County, voters approved $7 billion of debt for repairs to its largest public school system and $3.5 billion for the nation's largest system of community colleges.

Meanwhile, President-elect Barack Obama is believed to be putting spending on roads and bridges at the top of his agenda for stimulating U.S. economic growth. He promised during his campaign he would use infrastructure spending to create jobs, which would be great news for the AEC industry.

"We'll create two million jobs by rebuilding our crumbling roads, schools, and bridges," Obama said in an Oct. 13 speech in Toledo, Ohio, where he outlined his plan for reviving the economy. Obama has urged Congress to pass an economic stimulus bill immediately after the election.

House Speaker Nancy Pelosi, D-Calif., has said she wants spending on highways and other transportation infrastructure included in the next stimulus package.

Obama in February proposed an infrastructure bank to invest $60 billion in roads, bridges, and other projects over 10 years. The American Society of Civil Engineers says it would take $1.6 trillion over five years to bring U.S. infrastructure to "good" condition, excluding expansion costs.

President George W. Bush increased highway and transit spending to a record $286.5 billion over six years in the highway bill he signed into law in 2005. That was higher than the $218 billion for the previous highway bill, but was less than the $375 billion House leaders wanted to spend on the measure.


Franceschini to hand over reins at Stantec

I heard this not too long ago, but didn't get confirmation on it until I noticed this morning's post on the CEOWORLD Magazine web site. Stantec's board of directors announced earlier today that Robert (Bob) Gomes will succeed Tony Franceschini as the company's next president and CEO, effective May 15, 2009. Franceschini, who has led Stantec since 1998, will remain with the firm as a member of its board of directors.

Gomes joined Stantec in 1988, ascending through the ranks until becoming vice president of Alberta North, Stantec's largest region, in January 1999. In that role, he led all Stantec activities in the Edmonton office and in northern Alberta. In 2005, Gomes took over as senior vice president for the industrial and project management group. By the end of 2007, according to a press release issued by the firm, he had more than doubled the revenues of that group, making it one of the fastest growing practice areas within Stantec.

Franceschini, who joined Stantec, then known as Stanley, in 1978, took the $100 million firm in 1998 and through both organic growth and the acquisition of more than 50 companies, Stantec moved into new regions in the United States, Canada, and the Caribbean. Through Franceschini's leadership, the firm became publicly traded in August 2005 on the New York Stock Exchange. PSMJ named Franceschini the Outstanding CEO of the Year in the large firm category in 2005.

As the AEC industry navigated its way through the M&A boom over the past few years, Stantec adopted the philosophy of changing the names of the firms it acquired to Stantec. Other acquiring firms either left the seller's name intact or took longer to integrate the firm names, but if you buy the assets, why not leverage your firm's strengths by changing the selling firm's name? Seemed sensible to me.

On a personal note, I've met Tony and his wife on more than occasion at different industry events and had the opportunity to interview Tony on the phone for various newsletter articles over the years. The two things that strike me are his unrelenting work ethic and his love to travel. They are related. I often spoke with Tony at different airports while he was waiting to board another plane (perhaps on his way to acquiring another firm?) He was always insightful and went out of his way to get me whatever information I needed. His departure is a blow to this industry.


Friday, October 24, 2008

2008 Regional Architecture Awards Announced

The 2008 awards for architectural excellence were presented at the AIA Northwest & Pacific Region Annual Conference held in Honolulu, Hawaii earlier this month. The Northwest & Pacific Region of the AIA is the largest and most diverse of all the AIA regions; it includes Oregon, Washington, Idaho, Montana, Alaska, Hawaii, Guam, Hong Kong and Japan.

There were over 50 high quality project submittals; which is an amazing amount considering the criteria. Criterion for the awards mandates that participants must have received an award from another AIA component for this project. As a result of these high standards for entry the Region awards have become a ‘best of the best” competition. The ultimate goal of the awards program is to raise the standards of architectural design excellence by both the architectural community and the public. This year’s winners are a wide-ranging group that not only surpasses the prerequisites but raises the bar for architectural standards.

Participants can win an "Honor Award,” and an “Award of Merit” and each project is judged individually, not in comparison with any other submittal. This year the jurors gave out three Honor Awards and eight Merit awards. While the amount of awards given is at the sole discretion of the jury, this year jurors had a hard time narrowing the choices and commented on how difficult it was to select winners.

The jury for this awards program was also diverse and members range in the architecture field from a Director of Exhibitions at Yale University’s School of Architecture and Co-founder of Architecture for Humanity to a principal at large nationally recognized firm and an independent architect. Jurors also ranged in locals throughout the region including Hawaii, Oregon, and Seattle.

Jurors for the competition were: Peter Q. Bohlin, FAIA, partner of Bohlin Cywinski Jackson; Cameron Sinclair, Executive Director and Co-founder of Architecture for Humanity; Dean Sakamoto, Director of Exhibitions at Yale University’s School of Architecture; John M. Hara, FAIA, independent practice devoted to design that continues to re-define Hawaiian architectural traditions; and Johnpaul Jones, FAIA, founding partner of the Seattle-based Jones and Jones Architects and Landscape Architects.

Wednesday, October 22, 2008

The bottom drops out of the ABI

Gas prices may have fallen in the past few weeks, and the stock market may be showing signs of a turnaround, but those indicators are not reflected in the American Institute of Architects' Architecture Billings Index (ABI).

The ABI fell sharply in September, dropping more than six points.

As a leading economic indicator of construction activity, the ABI shows an approximate 9- to 12-month lag time between architecture billings and construction spending.

The AIA reported the September ABI rating was 41.4, down sharply from the 47.6 mark in August (any score above 50 indicates an increase in billings). The inquiries for new projects score was 51.0. This is also the first time in 2008 that the institutional sector has fallen below the 50 mark.

"With all of the anxiety and uncertainty in the credit market, the conditions are likely to get worse before they get better," said AIA Chief Economist Kermit Baker. "Many architects are reporting that clients are delaying or canceling projects as a result of problems with project financing."

That last statement from Baker is worse than the numbers themselves would indicate. When clients delay or cancel projects, that leaves architecture firms who have allocated resources to a project in the unenviable position of having to find something for their architects and project teams to do. Then it's down to the lesser of two evils: either let them go or risk having them sit around the office with nothing to do. Letting employees go is painful, but necessary to maintain a good balance sheet. Keeping them to look like the "good guy" only sets you up for a bigger fall later if things don't turn around.

The August ABI rating was 47.6, July was 46.8, and June was 46.1, so after three straight months of slight improvements, September's number represents a drastic dip.

The September ABI breaks down by sector as follows: Mixed practice (45.9, up from 44.8 in August); institutional (45.6, down from 52.2 in August and 53.6 in July), commercial/industrial (42.1, down from 47.5 in August and 48.8 in July), and multi-family residential (40.3, down from 44.8 in August and 45.6 in July).


Wednesday, October 15, 2008

Balance action and restraint in tough times

Business accounting management consultant AMS ( is advising its clients to balance action with the need for restraint in responding to the current crisis that is roiling financial markets. Here are some good ideas from AMS on how to do this:

Step up monitoring of receivables. Cash will be king in tight economic times. You want to be sure that customers are paying according to their agreements with you.

Reassess revenues. Often, 20% of customers can generate 80% of your revenue. Update your revenue profile to determine who is driving most of your revenues today. Then, check in with those customers to learn how the crisis may affect their ability to continue to be customers.

Develop contingency plans. The time to think about what to do under different scenarios is now. For example: How do you alter operations if revenues drop by 10%, 15%, 20%? What investments in the business are absolutely vital to continue?

Communicate with all stakeholders. Tell clients if you expect to change the way you deliver your services. Let suppliers know if you need to slow down your regular orders—and reassure them of your ability to pay so they will work closely with you. Keep investors fully apprised of any material change in operations and what those changes could mean for them. Above all, don’t neglect your employees; they will continue to be your most valuable resource in responding to change.

Don’t overreact. If you have put in place accounting and financial management systems that deliver timely and accurate information, make sure all the process flows are working. If you aren’t getting the information you need to make decisions, you’ll need to make adjustments.


Wednesday, October 8, 2008

When the study becomes the project

After nine years, New York State has completed a study of the possible alternatives for repair/upgrade/replacement of the Tappan Zee Bridge over the Hudson River.

This is just the completion of the study of the possible alternatives. It does not pick the preferred alternative or accomplish any of the actual design or construction needed to upgrade this aging bridge

This is apparently what our society now is satisfied with for performance.

Compare this to the seven years it took New York to design/permit and construct the New York Thruway.

Over even more striking is the performance of our military engineers in WWII where Tinian Island was developed with six 8,000 foot runways, housing for 50,000, a deep water harbor for supplies, two 1,000 bed hospitals and thirty miles of roads. All of this was done in seven months, with Japanese sniper fire as a job site safety issue.

Studies of several state DOTs indicate they spend an average of seven years to get a project to the start of construction from inception.

This is what apparently passes for progress today. Studies - not actual projects - are the main item we produce.

This is a mixed blessing for firms in our industry.

The increase in planning and studies is all work by done by our professional services, so we benefit from anything that increases studies and delays actual design and construction.

However, the public as a whole suffers by not having that new infrastructure, and when we finally get done studying it, inflation has made the cost far higher.

Clearly we as a society have decided we would rather think about infrastructure than build it. Taking years to study alternatives is not progress in improving the built environment.

Bill Fanning
Director of Research

Tuesday, October 7, 2008

Beware the Cash Flow Manager!

PSMJ Founder Frank Stasiowski often reminds us that firms do not die from lack of profits, rather they die from lack of cash. This warning is taking on a whole new significance these days for people running A/E firms. Frank is suggesting that his A/E firm clients use a Sources and Uses of Cash statement instead of a P&L statement to help them through cash-strapped times. Anyone who wants to learn more about how a Sources and Uses of Cash statement works, drop a line to my colleague Kim Pazera here at PSMJ (

PSMJ consultant Mike Ellegood warns us that certain cash flow management tactics are simply toxic to the trust-based business relationships that are the principal source of most A/E firms' project opportunities. For example, Mike warns against holding accounts payable to the maximum extent allowed by law to increase your operating capital at the expense of vendors, sub-consultants and others. In this economy, if the prime is in trouble with cash so are the subs and vendors. In an environment based on trust “cash flow management” this tactic undermines the confidence that one firm places in another and in extreme cases can force a firm out of business.

Mike offers some real life anecdotes:

  • Southern California during the 90’s. A small but highly regarded minority-owned geotechnical firm was working on all of the large transportation infrastructure projects, the transit system, commuter rail, the Alameda Corridor rail freight line, etc. They were subs to all of the big firms, Parsons, Jacobs, DMJM, and so forth. While they had a huge backlog and did excellent work they could not sustain themselves because of cash flow. The financial managers of these big firms held onto their cash and almost drove this small firm into receivership.
  • Phoenix Sky Harbor Airport, present day. A prime design consultant working on a major airport project wasn’t paying minority subs promptly. Cash flow became a problem for the subs, they in turn complained to the airport and the airport management was forced to insert themselves into the process. This won no prizes for the prime.
There are countless stories like the two above but the bottom line is that A/E firm are in the business of intellectual capital, you are not buying or selling “stuff” - thus there must be a higher level of trust between your client and you and you and your vendors and subs than there would be if you were buying pencils or computers. A singular element of this trust is that bills will be paid promptly.


Apparently you can help solve the current credit crisis

One of the provisions in the recent TARP (more commonly referred to as the Wall Street bailout package) legislation is a new provision enabling you as an employer to pay certain qualified benefits to encourage your staff to bicycle to work.

You can pay up to $300 per year (total) based on the number of “qualified months” (to be defined) an employee uses their bicycle to commute to and from work. This amount will be considered as a tax-free commuter benefit to the employee.

For those firms with government contracts, the commuter benefit costs are allowable costs under FAR contracting rules, so you depending on your percentage of government contracts, the government will reimburse you for this cost, plus pay you an increased fee (profit) based on your higher costs.

Apparently, this provision was one of the key add-ons to the bill to obtain passage in the House. It was not included in the version defeated by the House, and was added by the Senate to the version that finally passed both the House and the Senate.

Since Congress has not yet begun to address the funding crises in Transportation, perhaps this provision is a precursor to a new transportation environment where bicycles are the main source of transportation alternatives available.

The TARP legislation does renew some alternative energy credits, so expect alternate energy to help pull us out of our slump.

We looked for other provisions in TARP to try to find other areas where we could contribute to a better economy, but we don’t think our profession can be of much assistance in most of the other provisions. Frankly, the tax exemptions for makers of children’s arrows or manufacturers of Rum just do not seem to be areas where our profession can be helpful.

Your country is apparently depending on you to solve the credit crisis by promoting more bicycle commuting.

Bill Fanning

What were the "Experts" thinking?

As the credit crises progresses, some of the “hardship” stories tell a story far different from the perception. Some of these problems are simply a failure of supposedly responsible individuals not following long established and fundamental financing practices.

One of the basic rules in financing any purchase is that you match the length of the financing to the usable life of the assets. This is the principle that you pay for something as you use it. The simplest example is car financing. If you expect to use the car over a four year period, you get four year note so that as you use the car, you are paying for it.

It appears some borrowers (and likely their supposedly professional advisors) ignored this basic concept, and the results are not pretty.

Some counties are already in financial distress because they didn’t follow this basic concept.

For example, Jefferson County Alabama (Birmingham) expanded and modernized their water and sewer system with a large investment in their system. Instead of financing this the traditional way, with long term bonds (so the bonds would paid off over the life of the assets built) they financed 50% of the construction costs with short-term (30 day) commercial paper. When this market declined and interest rates spiked in this market, the county has been pushed to brink of bankruptcy since they are unable to refinance the thirty day debt.

Other counties, such as Suffolk in New York have run into the same situation.

We wonder what the “expert advisors” were thinking to structure this type of financing. Even on the lender side, someone should have seen this obvious mismatch of financing to the life of the assets.

Perhaps more than we know, the “financial experts” were the ones that were actually clueless.

Many firms screen project opportunities to be sure the owner has financing. Should you also be screening to see if the financing is not viable, rather than just available.

Bill Fanning
Director of Research

Monday, September 29, 2008

Do you know your A-B-Cs?

I saw an e-mail the other day from a principal of an A/E firm that contained an egregious spelling error. I won't repeat it here, since it was widely distributed, but let's just say that the e-mail did the sender no favors. It infuriates me to no end to see this. Maybe it's because I'm a professional writer/editor who, if nothing else, takes the five seconds necessary to spell-check all outbound communications. But it's not difficult, people. This blog has a spell-check feature. My Microsoft Outlook has a spell-check feature. My Microsoft Word has a spell-check feature. To not use it EVERY time is lazy at best, unprofessional at worst.

Oh, and for those of you who like to take shots at the marketing department and question the ROI you get from it, let me remind you that this came from a principal. You know, the guy who signs the paychecks for that marketing department. If the principal can't spell correctly, it's sort of unfair (sadly, not unexpected, however) for the same principal to put the marketing department under the microscope.


Tuesday, September 23, 2008

Schoor DePalma founder pleads guilty to federal corruption charges

Howard Schoor, who helped found the prominent engineering firm Schoor DePalma in 1969, told a U.S. District Court judge Monday that he paid two Ocean Township, New Jersey sewerage authority officials $15,000 in 2000 and 2001, according to the Newark Star-Ledger.

"I am guilty," the 69-year-old engineer said during a hearing in federal court in Newark, New Jersey.

Schoor said the payments were a reward for the officials' supporting efforts by the firm, then known as Schoor DePalma, to win contracts with the agency. The firm has been involved in high-profile projects throughout New Jersey and has donated millions of dollars to the campaigns of numerous state politicians, according to the Star-Ledger article.

Schoor stepped down as CEO of the firm in 1992, according to the article. He began selling his shares in 1996 and then started working as a consultant for the firm. Schoor left the firm in 2005 and was indicted in 2006. The firm changed its name to CMX in September 2007.

According to Schoor's attorney, he "accepts responsibility" for his crime, but stressed the payments were solicited by the two officials. "The government and Mr. Schoor agree that all services were performed by Schoor DePalma in a 'professional and proper manner," said Schoor's attorney, Justin Walder, in a statement, quoting language he negotiated with prosecutors for the plea agreement.

Schoor could face between 8 and 14 months in prison under federal sentencing guidelines, Assistant U.S. Attorney James Nobile said, according to the article.

CMX issued a statement saying the firm was "disappointed and saddened" by Schoor's guilty plea because "he was clearly an important figure in the founding of Schoor DePalma." But the statement added that "it is important to note that this action in no way involves CMX," according to the Star-Ledger article.

The firm and its employees have donated nearly $3 million to New Jersey politicians and political parties at the state and county levels over the past quarter-century, mostly to Democrats, according to the article. It ceased giving donations several years ago amid criticism of pay-to-play, the practice of awarding government contracts to campaign contributors, and the corruption investigation into Schoor.

The firm's government clients--which account for about half of its work-- have included the New Jersey Turnpike Authority, the Port Authority of New York and New Jersey, and more than five dozen local governments. CMX says it is the region's premier engineering firm, with more than 1,000 employees in 25 offices from New York to Mexico.


CH2M Hill announces CEO succession

Big news out of Denver last week with the announcement that Chairman and CEO Ralph Peterson will step down as CEO effective January 1, 2009. Lee McIntire, who is currently the firm's president and chief operating officer, will become the firm's CEO at that time.

Peterson, who has served as CEO since 1991 and has been employed with CH2M Hill since 1965, will continue to serve as the firm's chairman through the completion of his current term, and will retire in October 2009.

During Peterson's tenure as CEO, the firm has grown from just over $400 million in revenues to $5.8 billion, according to a press release announcing the transition. Peterson was the 148th person hired in a firm that now has more than 25,000 employees and was named this year by Fortune magazine as one of the 100 Best Companies to Work For.

McIntire, who joined CH2M Hill in 2006 as president and CEO has more than 30 years of experience in the engineering and construction industry.


Friday, September 19, 2008

Sad news to report

I hate to end the week on a down note, but I just found out that Stephen Kliment passed away. Kliment, the former editor in chief of Architectural Record, died on September 10 while visiting Germany. According to an obituary posted on the Architectural Record web site, his wife said Kliment died of cancer.

Kliment worked as a magazine and book editor, an architect, and a teacher. He also served as a judge for the Best of Show competition at the Society for Marketing Professional Services' annual Build Business conference on multiple occasions.

I met him at the SMPS conference in New York in 2004, where I was judging the Best of Show entries for the first time (he had done it before that on multiple occasions) and we bonded immediately. He was not shy about offering a contrasting opinion on a marketing piece that the other judges in the room liked. But he was always charming and personable, with his forever tousled hair and dry British accent (he was born in the former Czechoslovakia and grew up in England, emigrating to the United States in 1950, according to the Architectural Record obituary).

Kliment was friends both with PSMJ founder Frank Stasiowski and ZweigWhite founder Mark Zweig. In fact, I don't know of a single person who didn't like and respect Kliment. He was a tireless advocate for the value of marketing and the importance of writing (he was editorial director for the New York chapter of the AIA's Oculus magazine, editor of the Principal's Report newsletter, and author of multiple editions of Writing for Design Professionals). He was editor of Architectural Record from 1990 to 1996.

I could go on, but the Architectural Record obit does a good job of explaining the diverse career and great impact Kliment had on the AEC industry. Check it out and then feel free to e-mail me your thoughts and remembrances of a great man. We'll post them here early next week.


AIA Architecture Billings Index improves slightly, but remains negative

The American Institute of Architects' Architecture Billings Index (ABI) posted its third consecutive month of improved activity, but still represented the seventh consecutive month with negative scores, indicating that the economic outlook for U.S. architecture firms remains dire.

As a leading economic indicator of construction activity, the ABI shows an approximate 9- to 12-month lag time between architecture billings and construction spending.

The AIA reported the August ABI rating was 47.6, up slightly from the 46.8 mark in July (any score above 50 indicates an increase in billings) and the 46.1 mark in June. The inquiries for new projects score was 52.4, down from 54.6 in July, but still up from 51.8 in June and 46.5 in May.

"The recent figures over the last quarter are no real surprise given the overall state of the economy," said AIA Chief Economist Kermit Baker. "The news for industries affected by the construction industry is that looking back 12 to 18 months, the numbers were extremely healthy. That means many of those projects are currently in or entering the construction phase so there should still be demand for labor and building materials, and later on interiors, computer equipment and the like."

The ABI breaks down by sector as follows: Institutional construction (52.2, down from 53.6 in July), commercial/industrial projects (47.5, down from 48.8 in July), mixed practice (44.8, down from 45.6 in July).

Clearly, things remain bleak for the AEC industry as we enter the fourth quarter of 2008. The uncertainty surrounding the presidential election and the U.S. economy only makes things more unsteady.


More on the Cardno-TBE deal

Just wanted to make a quick point that the acquisition of TBE Group by Australian-based Cardno Limited (the press release called it a merger, but let's call a spade a spade here) is a continuation of Cardno's expansion into the United States.

I had lunch with Cardno USA President Michael Renshaw last year at a conference on (surprise, surprise) mergers and acquisitions. He told me that he likes to look for US-based firms that can add to his company's profile.

I found him to be very engaging and personable, chatting up others at the table with a smoothness and ease that made it very easy for me to see how successful he's been at acquiring and integrating US-based firms to his foreign profile. Reminds me a lot of Malcolm Paul at WSP Group in that way. I wrote a lengthy profile on Paul about a year ago and he talked about how he liked a diverse worldwide portfolio to insulate his company from economic struggles in any one country.

Likewise, the TBE acquisition means about one-third of Cardno's 3,400 employees will work in the United States. And because TBE has seen annual growth of about 14% per year for the past 10 years, it's likely that TBE got a good price in the deal, even though the U.S. economy has not necessarily been favorable for firms working in infrastructure like TBE. Expect that to change, however, next year as it is likely that priorities will shift toward fixing America's infrastructure with the new presidency, regardless of whom wins the November election. This will only improve Cardno's ability to generate a healthy return on its investment.


Wednesday, September 17, 2008

TBE Group merges with Aussie firm Cardno Limited

PSMJ's Mergers & Acquisitions Division has learned that Florida based TBE Group announced it has joined forces with Australian-based Cardno Limited in a merger that took effect Sept 15, 2008.

The merger with Cardno means that TBE, a 450-person engineering, environment and planning firm becomes a key part of an international industry leader with a combined resource base of 3,400 staff working on projects in more than 60 countries.

Patrick Beyer, President of TBE explained that the benefits of the merger include providing clients with a wider range of services and locations, providing staff with additional opportunities for career development, and to accelerate the growth of TBE across the US and overseas.

TBE has achieved approximately 14% percent annual revenue growth for the last 10 years and has also expanded into Canada, the United Kingdom and Asia in recent years.

TBE brings to Cardno a core competency in coordination of major infrastructure projects - particularly in the areas of utility mapping, utilities coordination, right-of-way acquisition and relocation, transportation engineering, construction engineering, and civil and environmental engineering. Recent projects include construction of the new I-35 Mississippi River Bridge in Minnesota and the Metro Parkway - State Route 739 project in Florida.

Cardno brings to TBE a broader range of civil and structural engineering, international development assistance, environmental, project management and planning services across many countries including Australia, New Zealand, United States, United Kingdom, Indonesia, Kenya, Sri Lanka, China and United Arab Emirates.

With the addition of TBE, staff reporting to Cardno’s U.S. operations now comprise 1,150 staff across 39 offices and a further four branch offices in the United Kingdom, Belgium and Canada. Cardno’s other U.S. businesses include WRG Design, Emerging Markets Group and XP Software.

President of Cardno USA, Michael Renshaw, said TBE offers tremendous potential to cross-sell capabilities with Cardno’s existing US based businesses and also with its operations in other countries and continues Cardno’s strategy of diversifying its skills base and markets.

TBE’s key management will become Cardno shareholders and remain active in the company. Pat Beyer the founder of TBE will remain as President.

For more information, go to

Monday, September 15, 2008

Early impressions of PSMJ Quarterly Economic Indicator Survey

Looking at the third quarter Quarterly Economic Indicator Survey at the midpoint of the month(150 responses) here is my key read on our profession:

  • The usual areas are still going strong - health care, education, environmental, water/wastewater, energy/utilities. Water has slowed a bit, but is still strongly positive. Even Telecom is now positive and it was a drag on this sector the past couple of years.
  • The housing market is still in its steep rate of decline, we have not slowed the descent as yet. I think we are still over a year out from any decent work in this sector.
  • Commercial for both developers and owners has declined further since the last quarter. Clearly this sector is headed for a marked slow down over the next year.
  • Transportation has taken a surprising downturn. There are an increasing number of states that are stopping projects due to higher construction costs and the effects of lower gas tax revenues on programs. Last week's drain of the federal trust fund didn't help the mood, either. I think we will be down in this sector until someone decides how funds are going to be increased (then it will take off like a rocket).
  • Overall, we are negative in backlogs, and also in revenue growth quarter over quarter. Proposals have also turned negative overall.

Not much change, but what change there is is not positive, so I think we will see slower economic activity in our sector over the next year at least.

Bill Fanning, PSMJ Director of Research

Friday, September 12, 2008

Federal Highway Fund Crisis Averted!

Stop the presses! (I just can't let the opportunity to use an old movie line go by)

House and Senate passed refinancing, President will sign tomorrow, crises over! No contractors or A/Es will be deprived of timely payment, other than through the usual lack of administrative speed of the DOTs.

Bill Fanning

Thursday, September 11, 2008

US DOT slows highway payments

Ken Simonson, Chief Economist at The Associated General Contractors of America reports this week that the federal Highway Trust Fund would not have enough money to make full payments to states for highway construction expenditures they had already incurred and submitted for reimbursement. DOT Secretary Mary Peters called on Congress to immediately pass a bill transferring $8 billion from the general fund. When the House passed such a bill in July, the White House had issued a veto threat. The New York Times reported on Sept. 6 that DOT “expects to have enough money to make all payments to the states for the second week of September but enough for only about 64% of the payments the third week, said Brian Turmail, an agency spokesman. Then, with a regular infusion of two weeks’ worth of gasoline-tax revenue from the Treasury, [DOT] will have enough money to make 88% of its payments in the fourth week of September—except that it will have to first make up payments it could not meet earlier in the month. Thus, as states wind down the busy summer construction season, their transportation officials can anticipate longer and longer delays in getting payments from Washington, Mr. Turmail said. State transportation officials expressed alarm. The money shortage will have ‘grave repercussions for the states, for hundreds of thousands of workers in the construction industry and the driving public,’ said John Horsley, executive director of the American Association of State Highway and Transportation Officials. Some AGC chapters reported that their state DOTs have already delayed contract awards.

State revenue shortfalls are leading some states to cut highway construction and other spending. The Washington Post reported this week, “Maryland transportation officials plan to announce today the deferral of about $1.1 billion in transportation [projects] in a $10.5 billion capital plan for the next six years. The announcement…is prompted by lagging revenues in a separate fund for transportation projects. Two of those revenue sources, the gas and titling taxes, have slowed considerably because of higher gas prices and slumping car sales.” In addition, “Budget Secretary T. Eloise Foster said she plans to recommend at least $250 million in spending cuts next month” to the Board of Public Works. “Just weeks after more than half of the states closed shortfalls in their 2009 budgets totaling $48 billion, the budgets in 13 of those states have fallen out of balance again,” the Center on Budget and Policy Priorities reported on Monday. “In the six of these 13 states that have made specific estimates, the new gaps total $4.4 billion, or 4% of their budgets….The 13 states facing new, mid-year shortfalls for fiscal year 2009 (which began on July 1 in most states) are Arizona, Connecticut, Florida, Georgia, Illinois, Massachusetts, Nevada, New Hampshire, New York, Ohio, South Carolina, Vermont, and Virginia.”

PSMJ Research Director Bill Fanning told me this week that the FHWA program pays bills due to states on a first in-first out basis, but only up to the amount of the cash balance in the trust fund.

This means delays in payments to contractors and A/Es will be a snowball slowdown as FHWA cumulatively delays from $0 to the $8 billion shortage.

We should begin to hear about this from A/Es about the end of November as the slowdown becomes noticeable. And the contractors (who have bigger bills) will start screaming long before the A/Es.

Fanning went on to say that Congress could fix the problem with the $8 billion transfer internally within DOT, but counting on Congress to do anything responsible is probably wishful thinking.


Friday, September 5, 2008

Do you know a seagull manager? Are you one yourself?

The online resource defines seagull management as a management style whereby a manager “flies in, poops on you and then flies away again”.

Seagull managers typically give criticism and direction in equal quantities often without any real understanding of what the job entails. Then before you can object or ask what they really want, they have something more urgent to do. The experience of having a seagull manager is not positive. The best thing that can be said is that they are typically there not very often and you can largely get on with the job by yourself.

Seagull management happens when the manager doesn’t really know that much and fears being exposed by questions or debate. They consequently grab the talking stick and do not stop until they can excuse themselves and leave. It is possible that they really are busy, but what they miss is the importance of person-management. They are likely to be strongly task-based and consider the 'soft stuff' as fluffy and unnecessary. Their approach is thus highly transactional, based on the simple premise 'do as I say and you'll continue to get paid'.

What you need to do about seagull managers depends largely on your job. If you can work independently, then the best approach is to listen patiently then ignore them. As long as you are delivering value, they may not actually be too concerned about how you get there. Unlike the micromanager, they are not that interested in control over you.

If, however, their approach is damaging to your career and health, then you need to address the issue. Book a meeting with them (if you can) to discuss your work. Write down what your objectives are and what you are doing and give it to them. They may ignore it but this will give you tacit ammunition if you need it later. If things are particularly bad, this is a definite case for assertiveness (which is probably good anyway). Talk to them about what they are doing and the effect they are having. Worst case, look for another position with a better manager who knows how to lead.

A novel approach is to deliberately 'chase' them with complex detail for which they have 'no time'. As they retreat or waffle, offer a simpler alternative that is easy for them to accept. You can also always reframe what they said, casting it into a more sensible light.

Because the most important thing in the seagull manager's life is the seagull manager, if you can deliver results, then they may well leave you to your own devices or give moderate support. Deliver regular short messages that show you are making good progress. Also work to make them look good to the rest of the organization (despite temptations to the contrary!). If they think you are acting contrary to their interests, they will just fly by more often and poop on you even more.

If you are a manager, then seagull management is something to avoid. It is a trap that will alienate and demotivate your staff. If there are wiser people above you, then they also will find out what is happening and your advancement will halt or regress.

The real lesson here is to sustain a good relationship with your people. Respect them and communicate regularly and with integrity. And don’t forget to listen.


Thursday, September 4, 2008

How to Factor Gas Prices in Recruiting and Retention

The online recruiting community reports that employers offering transportation subsidies, telecommuting options, and virtual office arrangements may be wooing the best and the brightest candidates right now, even without the highest salaries and biggest relocation budgets in the marketplace.

Today it isn’t unusual to find employees spending $5,000 a year just in gas to commute. Many firms are using telecommuting to increase the pool of prospective candidates. If you have a policy like this, you may be able to offer less salary because the employee will no longer need to absorb the daily commute cost. also reports that even firm management who commute 30 miles or more to work are turning over at higher rates because of high gas prices and it will only get worse when the job market and the economy rebound. Fuel prices are also affecting the cost of relocation. Candidates are scrutinizing the cost of living in prospective urban areas and more are either turning down offers or negotiating for higher salaries. Firms too, are responding differently – many now require relocating managers to sign repayment agreements, obligating them to repay the relocation costs if they quit before completing one year of employment. You need to factor these realities into your management recruitment and retention strategy.


Sunday, August 31, 2008

Welcome Enforcement

The Federal Transit Administration (FTA) recently required a local transit authority to return over $900,000 in federal grant funds that were used to pay an A/E firm for the design of a new facility.

The Lackawanna County (NY) Transit Authority must return the full federal grant applied to the hiring of an A/E firm to perform design services for a proposed intermodal transportation center.

The reason for this action? The local authority did not comply with applicable federal laws and regulations in the selection and contracting with this A/E. Failure to follow required Brooks Act procurement caused the design services to be not eligible for federal funding under the “common grant rule”, which forms one of the baseline grant rules applicable to recipients of federal funds.

Federal Grant rules, as specified by various laws and regulations make it very clear that if federal funds are used in the procurement of A/E services, federal law, including QBS (Brooks Act) and contracting and payments (FAR) must follow federal rules.

This action is long overdue, and hopefully will be the start of a trend that ends with all recipients of federal funds following the established best practices incorporated in federal procurement of A/E services.

Fair and open procurement, and fair contract terms for A/E firms have for many been often been a challenge at the state and local level.

Hopefully this “message” of the risks of not following fair contracting processes will spread to many other agencies with questionable contracting practices.

In this instance, FTA asked for the money back from the local transit authority, without any penalty or refund from the A/E.

Bill Fanning
Director of Research

Thursday, August 28, 2008

HOK Sport Venue Event splits from parent

The managers of Kansas City-based HOK Sport Venue Event, the world's leading sports architecture firm, and the board of its St. Louis-based parent company, HOK Group Inc., have agreed to a transfer in ownership of HOK Sport Venue Event to the leaders of that practice, according to a Kansas City Business Journal article published Thursday.

Financial terms were not disclosed, according to the article, which said that HOK Group shareholders approved the transaction at a meeting on Thursday. Subject to final terms, the buyout is expected to be complete by the end of 2008.

The article states that the deal also calls for HOK Sport Venue Event, a wholly owned subsidiary of HOK Group since 2000, to launch a new corporate name and brand after becoming an independent company.

An employee-owned firm with 26 regional offices on four continents, HOK Group posted $631 million in revenue last year up 32 percent from $479 million in 2006, according to the article. HOK Sport reported $154 million in 2007 billings, up 22 percent from $126 million in 2006.

According to a press release announcing the split, the buyout will not affect clients or projects, and both practices will continue to collaborate on projects where their combined expertise will benefit the client and the project.


Update: ENR to buy Building Design + Construction?

Last month, we wrote that McGraw-Hill (which publishes Engineering News-Record and Architectural Record, among many other publications) is interested in buying Reed Business Information (which publishes Building Design + Construction, among many other publications).

According to a Folio magazine article published earlier today, Reed Elsevier is said to have allowed first-round bidders for RBI to resubmit their bids last week. The re-submission, which was not officially the second round, was allowed because certain bidders "felt they were not provided with enough information" on RBI during the first round, according to a Reuters report.

The Folio magazine article said that it was not clear what that information was, nor which group resubmitted bids. A Reed Elsevier spokesperson could not be reached for comment. According to the Reuters report, the new bids came in "slightly lower" than the first round.

The Folio article quotes a New York investment banking firm partner as saying that allowing resubmitted bids is a bit "unusual."

At this point, McGraw-Hill remains in the game, but it will have to make its way through several heavy hitters to close the deal.

UBS, the bank that's organizing the RBI sale, has invited more than 10 groups, including McGraw-Hill and private equity firm Bain Capital, to submit second round offers, according to the Folio article.

Reed Elsevier expects to divest itself of RBI in the second half of 2008, according to the article. The value of the first round bids was said to have ranged between $1.87 billion and $2.33 billion.


Roll with the changes

When times are tough, such as they are right now for some of you in the AEC industry, there's a mentality that often creeps up among firm leaders that "we need to get back to doing what got us here."

Sounds like a good idea on the surface, but you have to keep up with the times. What got you from a $1 million firm to a $10 million firm will not get you from $10 million to $100 million. Doesn't work that way. Sure, there are some basic principles that work no matter what size your firm or how long you've been in business (pay bills when they come in, get invoices out when the work is done, never stop marketing), but things change and you have to change with them or you will be left behind.

Take, for instance, the concept of marketing.

For the purposes of this discussion, let's assume you are a 55-year-old male CEO of a 200-person architecture firm. Now, if you want to market your clients the way your firm marketed itself when you were named CEO at 45, I've got a big bucket of cold water waiting to hit you in the face with a reality check. You can't do it.

Marketing is marketing, though, right? You are promoting your firm, building your brand, and developing relationships (which sort of blends into business development, but let's leave that aside for now), so why wouldn't the same marketing approach that you used 10 years ago work today?

Where do I start?

Fax machines are basically irrelevant at this point for marketing. Studies have shown that less than 5% of firms actively use fax machines for marketing efforts these days.

Even the seeming holy grail of e-mail (distributed immediately, costs virtually nothing) has been handicapped through overuse and hyperactive spam filtering. To make e-mail marketing work these days, it has to be part of an arsenal of marketing tools, not the only one.

There's still face-to-face marketing, which will always work, but the increasing demands on our time (not to mention the ramped-up pressure to validate your existence by bringing in more work through more proposal submittals and the growing trend of using the marketing department to help the HR department recruit employees) make it harder to get in front of clients. Plus, that's sort of a business development function.

Of course, technology has helped us all get more done in less time, but that's the fundamental reason why doing what worked for you and your firm in the past does not work today. The generational gap between you and your audience is greater than ever if you are over the age of 50.

Do the words BlackBerry, iPhone, LinkedIn and Facebook mean anything to you? That's how people are communicating these days, and effective marketers are adopting these tools and using them to their advantage. Everyone knows what a BlackBerry can do, and iPhones offer that functionality and the personal conveniences we've all come to enjoy in an iPod.

But what about LinkedIn and Facebook? Are you familiar with these tools?

Facebook has essentially replaced MySpace as the social networking site of choice for people under the age of 40. And people are communicating there both day and night. They might be doing it right now in your office, unless you have an aggressive spam filter that blocks it.

LinkedIn, however, has become pretty much the business networking site of choice in the United States today. You can do everything from download someone's contact information to your PDA (click the "download vCard" button on the bottom of the page) to post questions about issues affecting you and your business.

Trust me, people are doing this. My brother-in-law, who works in public relations, posts questions a few times a week and I just got off the phone this morning with an associate principal of marketing and business development at a Florida engineering firm who posts questions to help her with her new role in the human resources department.

You can also update colleagues on what you are working on, post your resume (great for job-hunters and employers alike), and extend your network by finding out who your contacts have added as contacts. You can also join groups of professionals with similar interests (i.e., who attended the same college or are members of the same trade association).

Anyway, the point of all this is there are constantly evolving means of communication and what was popular 10-15 years ago is not relevant anymore, so to think you can run your business the same way today that you did in the mid 1990s is similarly irrelevant.

I'd love to hear your thoughts. Drop me a line or give me a call.


Wednesday, August 27, 2008

Las Vegas architectural firm shutters its doors

The realities of the economic marketplace are causing Las Vegas, Nevada-based Trevi Architectural to close on Friday, according to an article in the Las Vegas Review-Journal.

The firm has provided custom fountains, statuary, sculptures, columns and moldings to resorts including Wynn Las Vegas, Wynn Macau, The Venetian, and Caesars Palace, but company founder Scott Acton told the newspaper that a combination of factors led the to the business' closing, including a series of unpaid bills and a decision by the company's new owners not to put any more cash into the business.

Most of the company's 147 workers were fired Monday, Acton told the newspaper. He would not say how much work is outstanding, but the article said he is trying to get orders moved to other companies. "I don't want to see any one of my customers get hurt," said Acton, who was named Nevada small businessperson of the year by the Small Business Administration in 2005.

Private equity firm Ampersand Ventures bought Trevi Manufacturing on Sept. 17, 2007, changing the name to Trevi Architectural, according to the article. According to Acton, Ampersand decided recently not to put more money into the business.

The company did double its sale volume after the transaction, but when a few vendors refused to pay outstanding bills, Trevi got into a "sticky situation," as Acton described it to the newspaper. A pair of lawsuits have been filed since May by the firm in Clark County District Court claiming unpaid bills totaling nearly $108,000.

When the newspaper called Ampersand's office in Wellesley, Massachusetts, the story claims an employee said, "We don't talk to the press."

According to the article, Ampersand was founded in 1988 as a spinoff of PaineWebber.

Acton's work is part of the Las Vegas backdrop. His work includes the three-tiered fountain in front of The Venetian, the pirate ships at Treasure Island, and the cove moldings behind light fixtures at Caesars Palace, according to the article.

Acton told the newspaper he is not sure what he will do next, but said he is thinking of restarting the business.


Convention bad for business?

Interesting article in today's Denver Post about how this week's Democratic National Convention is negatively impacting businesses near the Pepsi Center that is host to the event.

Many businesses have either shut down or significantly scaled back operations this week. Among them is Staller & Henry Inc., a landscape architecture firm. "Our phones are ringing about 10 percent of what they normally do," said Adam Anderson, who works for the firm.

Another firm having problems is eBlueprint, which prints and manages reprographics for architecture firms and is located within the blockaded perimeter surrounding the Pepsi Center. According to the article, company drivers and couriers are having trouble getting in and out to make blueprint deliveries. A second eBlueprint office in Aurora has not been affected, which is keeping the company afloat this week. "If it wasn't for our other store, we would have nothing," said an employee.

Interesting to see the downside of what appears on television to be a celebration of Barack Obama's nomination as the Democratic candidate for president.


Tuesday, August 26, 2008

Serial acquirers keep on acquiring

In case you missed it, URS Corp. and Jacobs Engineering Group Inc. announced three acquisitions in the past week.

Two firms, three acquisitions?

Yes, you read that correctly as URS, the 50,000-person engineering, construction, and technical services firm based in San Francisco, bought LopezGarcia Group Inc., a 250-person infrastructure firm based in Dallas, Texas., and acquired most of the assets of Tryck Nyman Hayes Inc., a 60-person engineering, landscape architecture, and surveying firm based in Anchorage, Alaska.

Meanwhile, Jacobs Engineering Group announced earlier today that it has acquired a maintenance, construction, and service works contractor in England that will significantly increase its presence in Europe. The Pasadena, California-based Jacobs bought L.E.S. Engineering Limited, a Grimsby, United Kingdom company that specializes in mechanical, instrumentation, and electrical installations in the utilities industry.

According to a press release announcing the LopezGarcia deal, Gary Jandegian, president of the URS division of URS, said that the state of Texas issues a lot of government bonds— $11.1 billion worth in the first quarter of this year— which are used to pay for the type of infrastructure projects LopezGarcia works on.

Wendy Lopez, the co-founder and CEO of LopezGarcia, one of Dallas' most recognizable engineering firms, will remain with the firm as leader of its Texas initiative with a title of vice president, according to the Dallas Business Journal. LopezGarcia and URS would not disclose financial terms, but Lopez is quoted in the article as saying it was an all-cash deal. She also said that URS approached the firm about a possible merger about a year ago.

For those of you who have never had the pleasure of meeting Wendy Lopez, let me say that she is one of the most dynamic and opinionated people I have ever met. Among A/E firm leaders, she would be at or near the top of any list of people who pull no punches when you talk with them. A straight shooter in the truest sense of that phrase, I have always enjoyed talking to Lopez. While the acquisition is good news for her, it's a sad day for the industry when someone who grew her firm from a one-person operation 20 years ago to the firm it is today is no longer in charge.

MWH and Hatch Mott MacDonald also announced acquisitions in the past week as well; MWH acquiring a hydrogeological consulting firm based in Lima, Peru and Hatch Mott MacDonald acquiring a small transportation planning firm in California.

While you may have read elsewhere that the M&A trend is slowing, that's not entirely true. What is happening is that strategic buyers are taking more time vetting potential deals and are less reluctant to walk away from the table at any point in the process. So you may be hearing about less deals, but the deals that are announced now have a better chance of sticking.


Wednesday, August 20, 2008

AIA Architecture Billings Index shows decrease in billings for sixth straight month

The American Institute of Architects' Architecture Billings Index (ABI) posted its highest score since January, but the numbers announced earlier today represented the sixth consecutive month with negative scores, indicating that the economic outlook for U.S. architecture firms remains bleak.

As a leading economic indicator of construction activity, the ABI shows an approximate 9- to 12-month lag time between architecture billings and construction spending.

The AIA reported the July ABI rating was 46.8, up slightly from the 46.1 mark in June (any score above 50 indicates an increase in billings.) The inquiries for new projects score was 54.6, up from 51.8 in June and 46.5 in May.

"Financing for new projects continues to be a problem," said AIA Chief Economist Kermit Baker. "Many projects are being reconsidered due to construction cost increases. And while there are a good number of projects still in the queue, owners are taking longer to proceed to the next phase of the design process."

The ABI breaks down by sector as follows: Institutional construction (53.6, up from 51.6 in June, indicating a continued increase in the amount of work on government buildings, schools, and hospitals), commercial/industrial projects (48.8, up from 45.8 in June and 39.7 in May), mixed practice (45.6, up from 44.1 in June).

Interestingly, while the ABI remains in a slump, many large, publicly traded AEC firms posted positive quarterly results in their most recent filings. And M&A activity shows no signs of letting up. Yet, some firms continue to reduce their workforce through layoffs and attrition.

It's hard to draw any real conclusions from all this other than the fact that the AEC industry is not immune to the stops and starts of the U.S. economy at large. To learn more about the industry outlook for the rest of 2008 and 2009, check out the September issue of PSMJ.


Tuesday, August 19, 2008

Shift the focus away from cost on K-12 projects

Here in Massachusetts, the K-12 market has become a lightning rod for controversy. Prodigious cost overruns on certain high-profile school projects have left the local K-12 design community with some significant challenges and some outstanding opportunities.

First, let’s discuss the challenges. Boston’s Big Dig is the national poster child for what can happen when there is shoddy oversight on publicly-funded projects. As a result, Massachusetts communities get very upset when a city or town government proposes additional tax increases to cover cost overruns on school building projects. The Commonwealth is going to be chained to the corpse of the Big Dig for another generation – people here have no patience for being linked to another, more local money pit.

Another challenge is that State Treasurer Timothy Cahill leads up a new pilot program designed to rein in the costs of these school projects. A political science major, Cahill owned a small business for five years before becoming a professional politician in 1987. The principal foci of Cahill's pilot program are to identify “examples of frugality that should be replicated across the state” and "eliminate one-upmanship [between communities], which at times has prompted a spate of field houses, swimming pools, and other expensive perks". Cahill explains, "Standardization will take the envy factor out of the process." Lovely. Who else is picturing Soviet-style blockhouses?

The local design community has spoken out about how unrealistic this cookie-cutter approach is. John Nunnari, public policy director for the Boston Society of Architects, has said the state could reap better savings by developing standards for building materials and allowing construction contractors to join in the local design process. He is right, of course.

Now for the opportunities. Who better than the design community to educate local stakeholders on how to complete a project that ultimately will meet all their needs and save them money in the long run? When a community school superintendent says of the Commonwealth’s pilot program, “"I think it's a good concept. It's almost the same thing you would do when building a house. The architect sends you to visit houses they already designed and you pick the one you like." There is a clear need to inform the stakeholders about what’s possible.

Designers can also learn from the successful projects being touted by the Commonwealth – just shift the focus from the low cost to the actual reasons why the project works. James Jordan, a partner at Ai3 Architects, designer of Whitman-Hanson High School does a great job with this. Jordan explains that “the construction contractor and school district asked for few changes during construction, keeping the project on budget and on time. Everything went smoothly. That's a testament to a lot of planning and investigation up front by all involved.”

I am sure this is happening in every community in North America. Does anyone have a story they’d like to share?


Thursday, August 14, 2008

Solid hiring advice in any industry

For the past 20 years, my wife has worked for a firm that provides financial software products to the structured finance industry. It’s a great story – a couple of MIT guys working out of modest digs in 1985 are in 2008 the undisputed leaders in the cashflow modeling industry – managing a firm of over 100 people on three continents.

So what’s their secret? I’ll let a long-time employee tell it:

When we hire people, we try to bring in candidates that have some connection to the company – a friend, former co-worker, colleague in a client firm, etc. – and see if they are what we are looking for. A few years ago, I had a friend-of-a-friend who was an assistant to a fixed income money manager before he was laid off so I had him come in for an interview. Our hiring manager told me that he totally bombed on the problem solving questions so they didn't bring him back for a second round.

The candidate called me a couple weeks later for a postmortem but was completely baffled about why the fact that he couldn't answer a question about how to efficiently weight 9 pennies had anything to do with whether he was a good bond analyst or not. I tried to explain that our philosophy in hiring is that we're looking for good generic problem solvers and finance knowledge coming in the door isn't important. I knew that he still didn't get it when we hung up and the next couple times I talked to our mutual friend, she pressed me on it and couldn't get her to understand that one of the keys to our long-term success over the years has been our hiring process. We haven't hired that much dead wood and while we've probably passed on a lot of people who ultimately would have turned into great employees, we've minimized the number of people on board who are useless. She didn't get it and still doesn't.

Makes sense to me, what do you think?


Wednesday, August 13, 2008

Get me the (free) 411

I heard a story today on National Public Radio about a handful of companies that are infiltrating the multibillion-dollar 411 market. As we all know, the phone companies today make a fortune on 411 calls (a service, by the way, that used to be free).

These new directory assistance companies don’t charge users a fee. Rather, they charge advertisers to run short ads through the information retrieval process. Companies employing this model have been profitable almost instantly – and they themselves don’t advertise, their business is generated 100% by word-of-mouth advertising and repeat users.

What are the lessons here for A/E firms? The phone company teaches us that if we offer a non-technical value-added service to clients (e.g., facilitating a permitting process, getting public acceptance of a project, etc.) we should be charging for it.

These upstart directory assistance outfits are showing us that even a monopolistic service like 411 can be infiltrated – if you come at the issue at the proper angle. It’s not impossible to gain traction on a sheer cliff if you have the right tools (and attitude). The other lesson is don’t discount the power and reach of word-of-mouth marketing. Remember, these upstarts are making money because people who use the service are happy and come back. They are growing because other people are talking about them.

For AT&T’s part, they are not worried. An AT&T executive quoted in the story said “lots of people will still pay for our 411 service”. Perhaps, but not as many and probably for not as long as he thinks.


Tuesday, August 12, 2008

Denver revisited

A couple of points of clarification on one of our posts last week from the Society for Marketing Professional Services Build Business conference in Denver:

The remarks about former SMPS national president Ron Garikes did not come from current president Donna Corlew. They were part of Bruce Lea's acceptance speech for the Marketing Achievement Award. Kenny Diehl, a former SMPS national president and vice president of Smith Seckman Reid in Nashville, is a good friend of Garikes and Lea and accepted on Lea's behalf. (Lea's mother is ill and he needed to be with her, which is why he did not attend the conference last week.)

Also, as for the SMPS alliance with PSMA, what changed is the management structure. The SMPS board offered to manage PSMA nearly a decade ago when that organization was going through hard times. Earlier this year, the SMPS board decided it needed its full staff focused on SMPS, its chapters, and its members as the A/E industry faces an uncertain economy. "SMPS looks forward to opportunities to team with PSMA/AEBL on programs and initiatives as both groups move forward," Corlew told us Tuesday afternoon, adding that she believes PSMA/AEBL will not be part of next year's SMPS Build Business conference in Las Vegas, but instead plans to offer its own event in 2009.

Finally, Corlew's heel got stuck in the stage not during the Marketing Communications Awards distribution, but during the presentation of the 2008 Class of Fellows.

We apologize for the confusion. Maybe it was the altitude?


Friday, August 8, 2008

Live from Denver: Are you kidding me?

Finally, we sat in on this afternoon's panel of industry magazine editors. The panel, which consisted of Building Design and Construction's Rob Cassidy, Architectural Record's Jane Kolleeny, Architecture magazine's Ned Cramer, and Engineering News-Record's Jan Tuchman, talked about what they looked for in deciding what to publish. For the most part, everything was fine, but there were a few things that stood out.

* Cassidy took a shot at both AIA and the Associated General Contractors of America (AGC) in talking about the rise of sustainable design. "It's pretty remarkable that we had to have a group of largely environmentalists push the movement along," said Cassidy, who described it as "appalling. This should have happened from the industry itself, not an outside force pushing it. Really, a lot more responsibility needs to be taken by this industry to deal with these issues."

Cassidy is right, but it's surprising to hear him be so aggressive toward two of the largest trade associations in the AEC industry.

* Later on, I found it somewhere between fascinating and appalling myself when Cassidy told attendees not to call him with potential story ideas. Not to be outdone, Tuchman told everyone not to send her an e-mail with the subject line of "press release" or to send her any attachments to e-mails. "I'm not going to open it on my handheld and if I save it, I won't remember to look at it when I get back to the office." Tuchman went on to say that she doesn't want to get phone calls from people asking if she received their press release. Kolleeny said that if she receives e-mails with project photos attached, McGraw-Hill's limited server space forces her to delete the e-mails immediately without opening them.

Are you kidding me? McGraw-Hill is a giant company. They really can't find the storage capacity to receive e-mails. And she really can't download the photos and delete them?

But, wait, it gets better. Kolleeny advised attendees to educate themselves before sending something to a magazine or calling them seeking placement. This is good advice, but she wouldn't leave it alone. "We have really good PR people who call us and say, 'We'll be on our way.' I love that. I know it will be something we want."

Sounds to me like she's advocating that AEC industry marketers shouldn't bother becoming PR savvy. Instead, they should just hire a PR firm to do it for them. When it's necessary to do so, I would agree, but there are plenty of talented marketers who know how to run the firm's PR efforts. Well, from the sound of it, she doesn't want to hear from you.

What message does that send to an audience of marketing professionals whose lifeblood depends on the visibility that these magazines can offer them? Don't bother us. We're too busy to open your e-mails, take your phone calls, or read what you send us.

Don't believe me? Check this out. "Send me an e-mail letting me know you are sending me something in print. I will put it in my calendar to look for a package tomorrow," Cassidy said.

Are these people really this lazy?


Live from Denver: Day Two

Hello again from rainy Denver. We're about to head over to the big networking event at the Hard Rock Cafe, but we wanted to wrap up the 2008 Society for Marketing Professional Services Build Business national conference. Here's a quick look at last night's Awards Gala and today's happenings:

* For the first time in my five trips to Build Business, last night's Awards Gala went off without even a hiccup. (Well, there might have been a slight mishap, but more on that in a minute.) The evening got off to a great start when everyone made their way inside the ballroom a few minutes ahead of the 7 p.m. start time. It was very impressive to see how quickly the evening moved along. People were quiet and respectful for a change, perhaps due to the decision of conference organizers not to serve alcohol for the first half-hour of the gala. It was also a nice touch to honor the SMPS founders who started the organization 35 years ago during the AIA national conference in Kansas City.

* It was sad to hear that former SMPS national president Ron Garikes is not doing well. SMPS National President Donna Corlew became visibly choked up when mentioning Garikes' name during the Gala. Garikes, who is suffering from an advanced form of ALS, has many friends within SMPS and countless numbers of people who he has helped in some way. Every year at Build Business, you can be assured to hear many attendees share Garikes war stories. Unfortunately, we can't print any of them here!

* Surprised to hear this afternoon that the alliance between the Professional Services Management Association (PSMA) and SMPS is no more. PSMA is getting a new name, AEBL, and will no longer be affiliated with SMPS going forward. PSMA's membership, comprised of AEC firm leaders, has declined in recent years, which led to the partnership with SMPS and Build Business becoming a joint conference. Not sure what will happen going forward.

* OK, we promised you that there may have been a mishap during last night's Awards Gala, and here's the story. When Corlew was on stage handing out the 2008 Marketing Communications Awards, her heel got stuck in a small space where the risers should have come together, but did not. Unfortunately, the hem of her dress was wedged underneath the heel of the shoe, forcing the ever-graceful Corlew to quickly reach down, free her heel and the dress, and proceed as if nothing had happened. Of course, there were several hundred people looking on, so we all know better. But Corlew, as always, handled it like a pro!


Thursday, August 7, 2008

Live from Denver: The M&A dilemma

Had an interesting chat this morning with an executive vice president from a very well-known A/E firm whose job it is to find possible acquisition targets and bring them to the president/CEO for the greenlight to close the deal. He says that while he has brought many deals to the table, his firm has not closed any deals in 2008.

One of the problems facing many possible buyers, as the EVP told me, is that buyers see firm valuations dropping and are waiting for them to hit the floor before making an offer. Meanwhile, sellers also see those valuations dropping and want to get out now before their potential sale price drops even further from the record highs of the past few years.

It's an interesting dilemma to be sure. How are you solving it? Let us know.

We're off to the spotlight event of the conference, the Marketing Communications Awards Gala, so it's unlikely there will be any more posts today, but be sure to check back frequently tomorrow.


Live from Denver: Economic Outlook

After Johansson's keynote, we listened to the first half of the "Economic Outlook and Hot Markets" breakout session. The highlight for us was hearing the numbers and statistics from McGraw-Hill Construction's Rusty Sherwood. Sherwood's presentation of McGraw-Hill Construction data on the AEC industry was clearly the reason many of those filled the room, as when he was done, people started leaving slowly. He shared tons of data that we still need to process, but here are some takeaway points:

"It's a bit premature to sell everything, join a cult, and wait for the end," Sherwood said, alluding to the notion that the United States is mired in the throes of economic despair. In fact, Sherwood there are pockets of encouraging news in the AEC industry that "don't make news like they should." The U.S. is not in a recession, which is defined by two straight quarters of negative growth.

Oil and fossil fuel prices are up, and while the dollar has softened, it has picked up in the last few days against the euro. "We've moved from trying to stimulate the economy by access to capital to concern about inflation. We're in a bit of a stalemate," Sherwood said.

The 2008 federal budget is okay, but the United States is carrying a "pretty significant deficit." He added that the United States has so many pent-up infrastructure needs that, regardless of who wins the presidential election in November, the needs "will be addressed."

That's good news for the AEC industry, as is the fact that there are pockets of single-family housing activity in Texas and parts of the Southeast, although the market is one-half the size of its 2005 peak, Sherwood said. Non-residential construction (hotels, manufacturing, institutional facilities) is another bright spot. Hotels are up 12% from 2007, although he projects it slowing in 2009. The manufacturing sector has improved 45% from 2007 thanks to increased energy needs. The education (higher education) and health care markets have shown steady modest growth. The non-building market (infrastructure and power transmission, most notably) is up 3% from 2007.

The bad news is, of course, the residential real estate market, but the non-residential market (office and retail are both in decline) is also struggling. Sherwood said that while the office market is down only 1% from 2007, "2009 looks bad." He added that 2009 could be the start of the turnaround in the single-family residential market in certain geographic markets.

The biggest issue facing the domestic built environment is access to conventional capital, according to Sherwood. "If you want to follow markets, follow the capital."

In the big picture, the total 2008 construction market is $557.8 million, which is a 12.4% decline from 2007. Interestingly, even though China is the fastest-growing market, through 2010, the United States will remain number one in total construction spending in the world.

If the United States enters into a recession, Sherwood said that McGraw-Hill research indicates that the commercial building market suffers the most. The change in the institutional market is "slight and lagged" because "funding measures don't necessarily run in pace with a recession."

Because much has been made of the increase in foreign investment in the United States, Sherwood faced a question from the audience about how real the perception is. "Right now, the United States is a buy. Large multinational firms with a global presence are enjoying this. You definitely have new players trying to come into this market, but the problem they are having is finding people to do the work."

Interesting stuff indeed.


Live from Denver: The Medici Effect

Interesting presentation this morning from opening keynote speaker and best-selling author Frans Johansson (The Medici Effect). We only caught the last portion of Johansson's talk, "The Medici Effect: Groundbreaking Innovation at the Intersection of Disciplines and Cultures," but we liked what we heard.

Among Johansson's points:
  • "Diverse teams outperform homogeneous teams quickly." Johansson said that if you work in another industry or come from another culture, you will perform better faster.
  • "Try as many ideas as you can." To illustrate this, Johansson shared the well-known fact that Google employees are allowed to spend 20% of their time (the equivalent of one day a week) on any idea they want as long as it relates to Google. "Many of them go nowhere, but if it does take hold, Google funds it."
  • "We adjust our behavior based on the risk around it." He said that if you are driving somewhere and the find road wet and slippery, you slow down. But when the road is dry, you speed up again. "Your risk is the same because you adjust your behavior toward it."

Johansson's point was that diversity of any kind will help you find unexpected connections, thus improving your marketing and business development prospects. The talk was very well-received and many attendees picked up a copy of his book after the presentation.


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