Hawaii has been and will continue to be a hotbed for opportunity into 2016. However, many local A&E firms are not currently positioned to benefit from the influx of capital that trickles into the private sector from federal AEC spending.
We’ve analyzed data from the FDPS and Deltek’s GovWin IQ database to provide some context for the A&E Growth Workshop and Deltek Vision User Group Meeting we’re hosting in Honolulu on June 23rd, 2016. In this article we’d like to share the market drivers in the region as well as discuss some AEC industry trends we’ve observed at a national scale to remain competitive in the changing market.
Analysis of AEC Procurement in Hawaii
According to the U.S. Census Interim Projections Report, Hawaii’s population is expected to grow to 1.5 million people (+250K) by 2030. Recent growth has been widespread across the islands. The state of Hawaii has seen modest growth related to construction and construction jobs in the first quarter of 2016. Government contracts related to construction decreased by 22.2% as compared to Q1 2015. However, there has been a steady increase in AEC related jobs within the state, as the state seems poised for growth moving forward.
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In Hawaii, the state government is the sole spender on higher education, at $190M. Health Care related spending is split between county and state governments. Transportation infrastructure is primarily spent at the city level, with $210M at city level and $110 at state level. Public utility spending is sparse at state level, as it comes from cities as well ($100M).
The state of Hawaii has seen modest growth related to construction and construction jobs in the first quarter of 2016. Government contracts related to construction decreased by 22.2% as compared to Q1 2015. However, there has been a steady increase in AEC related jobs within the state, as the state seems poised for growth moving forward.
Federal AEC Contract Spending Historical Perspective
The Hawaiian public sector market has seen a few tough years in terms of federal AEC spending, with the peak in FY 2010. That spending peak was a result of the 2008 economic crisis, which led to Economic Stimulus legislation which injected money into federal and S&L AEC projects, like infrastructure investments. Since FY 2010, we’ve had the Budget Control Act enacted in 2011, which resulted in decreased federal contract spending overall, but particularly in the AEC market.
Fiscal Year 2013 brought sequestration and decreased agency spending, and as you can see – that was the low point for federal AEC spending. There was a return to growth in FY14 – albeit moderate – and what we saw was a pent up demand for infrastructure investments that have been delayed or deferred for budget reasons.
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Overall, Hawaii had the nineteenth highest level of federal AEC spending in fiscal 2015 with the Departments of the Army and the Navy spending the most at $1.3B and $1.2B, respectively. The total reported regional federal AEC spending in Hawaii since FY 2012 was $3.05B. The top recipients of federal spending were:
- Fort Shafter total: $663M
- Pearl Harbor: $595M
- Marine Corps Base Hawaii: $414M
- Schofield Barracks: $262M
- Honolulu: $258M
Major projects include a $69.7M contract to NAN-Samsung, LLC for a project at Wheeler Army Airfield in Oahu. This represented 16% of the Army’s FY 2014 spending in the region. Another significant Army contract was $45.4M in reported obligations to AECOM Technology Corporation for USACE IDIQ contracts in support of its Medical Repair and Renewal Program at Tripler Army Medical Center in Honolulu. One of the Navy’s top contracts was an award to Watts Contrack A JV for the design of an aircraft staging area for Marine Corp Base Hawaii Kaneohe with reported obligations at $57.8M. An additional $2.8M was spent in 2015.
RSVP for the A&E Growth Workshop in Honolulu on June 23rd, 2016
How Can Hawaiian A&E Firms Remain Competitive?
While the tally that matters the most is the bottom line, A&E firms still need to pay close attention to other business fundamentals such as project management, business development and talent management. Improving performance in these areas will likely lead directly to improved financial results. Looking across the responses to 100+ questions in the 37th Deltek Clarity A&E Industry Study, here is a snapshot of what those four high impact areas of A&E look like today:
Increasing Competition, Decreasing Relationship Building Time
Firms remain challenged by growing competition in the marketplace and lack of time to nurture client relationships. Formal, documented, proven processes can help to bolster the business development function.
Dip in Core Project Management Metrics
There has been a downward trend in the number of projects being reported as on or under budget. Contributing factors include Inexperienced project managers, competing priorities and poorly executed project management procedures. Firms are seeking to address inexperience and PM procedures through improved training and establishment of best practices.
The War for Talent is Heating Up
The availability of good candidates in the marketplace is today’s top acquisition challenge. Firms are having trouble identifying good candidates, engaging with them and attracting them. Talent acquisition is also by far the most expensive business process firms support with 7 in 10 companies ranking it in their top three. On the back end, 68% of firms have no formal succession plan (or the plan applies to only a few people) to replace departing senior leaders who are on the verge of retirement or who choose to the leave the organization. As a result, succession & career development planning came in as a top talent challenge.
Financial Metrics Continue to Stabilize
Most of the financial performance figures at A&E firms held steady year over year, pointing to an overall stabilization in firms’ financial performance. Operating profit on net revenue, total payroll multiplier, net labor multiplier, utilization rate and other key metrics were essentially flat. And firms’ top three challenges were the same as in previous years, with Increasing Profitability noted as the top challenge. While those figures and challenges held level, average net revenue per employee climbed for the fifth year in a row, reaching nearly $140k. There was also an increase in total employee cost, which rose in all categories to an average $91k from $88k last year. While issues like turnover and succession planning normally sit squarely in the HR field, firms indicated they are seeing challenges in these areas impacting both top-line revenue performance and bottom-line results.
Key Takeaways and Projections Hawaii’s A&E Market for 2016
FY 2016 is going to be a big year for Hawaiian A&E firms. Major election years contain 100’s of local ballot measures (city, county and districts). Typically, the general budget does not include major AEC projects. Most grants for AEC projects fall into the special district category for port projects.
Hawaii State government spends 15% more than the national average on AEC. The lack of school districts and special district spending on AEC has led to heavy education spending at the state level. Funding will largely come from capital improvement plans and bonds in addition to the general budget and grants. Transportation will absolutely remain a force in spending in 2016.
Will your firm be in a position to take advantage of this growth? Now is the time to make proactive decisions and make strategic investments for your firm. You need to people, processes and technology to help you get there.
Join BCS ProSoft and Deltek on June 23rd, 2016 for a Complimentary A&E Growth Workshop
About BCS ProSoft
BCS ProSoft is a leading provider of ERP, CRM, HRMS and document management software solutions and as well as professional services in implementation, strategy, consulting, project management, staffing, and operations. Combining years of experience and specialized skills across the A&E, Distribution, Healthcare, Manufacturing, Professional Services, and Rental industries – BCS ProSoft works at the intersection of people, processes and technology to help clients improve performance and create sustainable value for their stakeholders. Headquartered in San Antonio, TX and regional offices in Houston, Denver, and Honolulu, we help more than 1,500 clients improve the way they manage their business.
