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
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