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Rachel Kapisak Jones
It’s a challenging time for emerging professionals, but there are silver linings.

Natale Cozzolongo, AIA, graduated from Carnegie Mellon University in 2009 and entered the working world in the middle of the Great Recession.

“You kind of took whatever was available, whether it was a good fit or not,” he says. His first job was one of those bad fits. He’s not complaining; it allowed him to get his then-IDP credits and pass the AREs, which led to his current position at Kohn Pedersen Fox in New York City. But it was a far cry from the architectural hopes and dreams instilled in him during college.

“We’d ask ourselves, ‘What kind of museums are you going to design? What star architects are you going to work for?’ ” he says. “And then you’re shifting walls around in an exam room at the local doctor’s office. Not to diminish the value of that work, but it’s very out of step with what we were educated believing.”

Now, as the COVID-19 pandemic pauses wide swaths of the economy and unemployment seems guaranteed to remain in the double digits for months, emerging professionals will run into the same issues. After a historic boom period, work will be hard to come by, and many designers may start to wonder if the traditional entry points to the profession are worth maintaining.

A Need for Architects Who Think Outside the Box

Jennie Cannon West, AIA, also felt the uncertainty of the Great Recession. After graduating from Auburn University in 2008, she ended up in New Orleans, which she said was “still in the Katrina bubble” and receiving federal recovery funds that kept firms propped up. She spent several years at Eskew Dumez Ripple and then bounced around, eventually getting the chance to start a local office for a national firm.

“I got a taste of what that was like, albeit with someone else’s capital,” she says. It led to her starting her own firm, Studio West Design & Architecture, where she’s been practicing semi-solo for almost two years.

“I have one part-time employee who is about to graduate,” she says, “so in a couple of weeks we’ll be two full-timers in the office.”

Despite the ongoing pandemic, West feels confident about taking on a new employee. She hasn’t yet seen a dip in business due to COVID-19, though figuring out the logistics of each project has been exhausting.

“I spent a lot of time in the early days on the phone, finding out if my clients were comfortable proceeding,” she says.

Fortunately, West handles a good deal of development and pro forma work, which can mean wearing many different hats at once but also offering numerous services at a time when clients are looking for answers.

“I think owners want architects who can think outside the box and really work with them on projects, in lieu of the traditional ‘Here’s an idea, come back when drawings are complete,’” she says.

West knows she’s lucky; she was able to start her own firm because several clients who followed her from firm to firm asked her directly to go it alone. She has faith that those projects won’t be going anywhere, but that doesn’t mean it’s been easy.

Architecture Students Ponder an Uncertain Tomorrow

Erin Conti, AIAS, just graduated from the Illinois Institute of Technology with a master’s degree in architecture. Fortunately, she’s the incoming president of the American Institute of Architecture Students, so she doesn’t have to worry about finding work right away. At the same time, stepping into a role that represents all architecture students has given her copious insight into their concerns about the future.

“I’d say the main anxiety is, ‘What do we do after this is over?’ ” she says. “I know a lot of students who had jobs or internships lined up that have disappeared. Firms have implemented hiring freezes; interviews were suddenly canceled. How long will this go on for? What should students plan to do once they finish school?”

AIAS has created a COVID-19 resource center for students who are impacted or even just uncertain about what comes next, but no one can predict how the virus will affect our lives or the economy from day to day, let alone onth to month. For now, Conti is trying to find the silver linings, especially in the shift to online classes.

“There is something about the studio that you can’t fully replicate digitally,” she says, “but honestly th
Construction Dive
Just like their privately owned counterparts, publicly traded construction firms have scrambled in the past few weeks to react to the effects of the coronavirus pandemic.

Because they perform work in locations across the world, they have been monitoring the virus since its inception in China late last year.

Now, several are taking the unusual step of freezing or even cutting executive pay and shareholder payouts, an unusual move during what had been a positive construction outlook for 2020. In addition, one public company, Fluor Corp., has taken stockholder-related measures to protect itself from the turbulent economic environment.

Balfour Beatty announced last week that its chairman, executive directors, non-executive directors and executive committee will take a 20% reduction in their salaries. It also postponed payout of its 2019 final dividend.​ The London-based firm has struggled in recent weeks to keep its construction sites open in the United Kingdom, which has been hard hit by COVID-19.

Senior executives and board members at Dallas-based Jacobs Engineering are taking a 10% reduction in salary, in part to help support charitable initiatives including a $1 million donation to help global organizations fighting the pandemic, the company said in a statement.

Sweden-based Skanska last week announced that it would not increase fees for its board of directors and would hold off on paying a dividend so that it can carry its 2019 profit plus retained earnings forward. CEO Anders Danielsson said the board would reconsider the dividend in the fall.

Tim Hynes, head of North American research for Debtwire, said many large corporations — such as Disney and United Airlines — are taking the same approach, cutting back on salaries for executives and board members as part of their reaction to the current market turmoil. While it's highly unusual to cut executive pay in what was a booming economy, other scenarios in the past that have led to salary cuts are material earnings misses, a failed company sale or a failed acquisition, Hynes said.

Fluor's poison pill
In a related move, Fluor Corp. leaders announced last week that the company has adopted a limited duration stockholder rights agreement to protect itself against a potential hostile takeover. The move will ensure that stockholders receive fair and equal treatment in the event of any potential takeover through the end of this year, according to a company statement.

The agreement, also known as a “poison pill” provision, will not prevent a takeover, but will encourage any individual or group seeking to acquire the company to negotiate with the board prior to attempting a takeover. The rights will be exercisable only if a person or group acquires 10% or more of the company’s outstanding common stock.

"This limited duration rights agreement will protect stockholders from efforts to capitalize on recent market volatility as a result of the COVID-19 pandemic,” said Alan Boeckmann, Fluor’s executive chairman, in a statement.

Other U.S. corporations have also announced rights agreements in recent days, including Spirit Airlines and Williams Cos., an energy infrastructure firm. In mid-March, activist investor Carl Icahn increased his stake in Occidental Petroleum Corp to almost 10% in a fight to take control of the oil producer, according to the Wall Street Journal.

Changing conditions
At the company’s video-streamed general meeting last week attended by only a limited number of people, Skanska’s Danielsson said the company is continuously reviewing its operations because conditions are changing from day to day.

“During the spread of the coronavirus, many questions have been raised about market and demand and it remains to be seen how we will be affected in a long-term perspective,” he said.

Balfour Beatty said in a statement last week that it cannot forecast the crisis’ impact on the firm’s 2020 outlook and will “provide further updates on its trading performance as and when appropriate."

While work is stalled or shut down on many projects, some public contractors have pivoted to work on pandemic-related projects. Jacobs’ CEO Steve Demetriou said in a statement this week that several of its federal and local government contracts are being refocused on COVID-19 response activities, including:
  • FEMA and U.S. A
Pixabay
Survey respondents reported falling prices for five out of the 12 components within the materials and equipment sub-index.

Construction costs increased once again in March, according to IHS Markit (NYSE: INFO) and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 50.2, a figure barely above the neutral mark. The last time the headline index registered an almost flat pricing was in November 2016. After 40 months, the materials and equipment index came in at 49.4, indicating falling prices. The sub-contractor labor index showed continued price increases, with an index reading of 52.0.

Survey respondents reported falling prices for five out of the 12 components within the materials and equipment sub-index. These included ocean freight (Asia to U.S. and Europe to U.S.), fabricated structural steel, carbon steel pipe, copper-based wire and cable. Prices for five categories rose while prices for two categories (alloy steel pipe and exchangers) remained the same. Index figures for all categories dropped relative to February, indicating that a greater proportion of the respondents are observing lower prices. The sharpest drops were reported for ocean freight.

“Ocean freight has taken a notable hit with the onset of coronavirus,” said Deni Koenhemsi, senior economist with IHS Markit. “As China tried to contain COVID-19, industrial production contracted substantially, and the transportation of goods nearly came to a halt. In the first two months of 2020, U.S. imports from Asia dropped 6.2 percent year-over-year, and imports from China were down 15.5 percent. Although the number of blank sailings is beginning to taper off-meaning we will see higher imports from China to United States-the rapid spread of the virus in Europe and North America could cause the downward trend to continue.”

The sub-index for current subcontractor labor costs came in at 52.0 for March. For the United States, labor cost remained flat in the Northeast, Midwest and West, but increased in the South. For Canada, the labor cost index was flat in western Canada but rose for eastern Canada.

The six-month headline expectations for future construction costs index reflected increasing prices for the 43rd consecutive month, registering 58.2, a sharp decline from February’s reading of 67.6. The six-month materials and equipment expectations index came in at 57.6 this month, down from 68.0 last month. Prices for all materials, equipment and freight are expected to rise with the exception of carbon steel pipe and exchangers, which are expected to see flat pricing. Expectations for sub-contractor labor slipped to 59.7 in March. All regions of the U.S. are expected to see higher labor costs; labor costs in Canada are expected to stay flat.

In the survey comments, respondents noted lower demand conditions due to the coronavirus.

ENR
Tracking developing industry impacts as COVID-19 forces closures and interrupts global business.

Coronavirus has struck a heavy blow against the world economy as it forces countries into lockdown with "closed for business" signs, hollows out the tourism, travel and hospitality sectors, turns out the lights on business gatherings and events, sends employees home to work and drives the stock market into a dizzying tumble.

ENR has collected below its ongoing reporting, analysis and commentary on construction sector developments, with updates as they occur. We are also seeking your questions and comments about the ongoing crisis.

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Ben Willis
"It is not your responsibility to finish the work [of perfecting the world], but you are not free to desist from it either.” —Rabbi Tarfon

On a recent flight, a gentleman sitting next to me noticed, aloud, that I was reading a book about architecture. Daring to engage in a conversation with more than two hours of flight time left, I confessed that I not only read about, but also practice architecture. His next question, with the earnest tone of a newly minted grandfather, was whether architects were “solving the housing crisis.”

“We’re trying,” I said. “But it’s complicated.”

With more clarity of thought, or less investment in finishing my book, I might have admitted that it was a grave exaggeration to say architects were solving the housing crisis. Or the climate crisis. Or whatever crisis-of-the-day was waiting to be delivered by phone notification when the plane touched down.

A species’ ability to survive depends both on how attentive it is to crises and whether it can develop tools to adapt to and survive them. Lately, it feels like our culture has turned the dial from “crisis-attentive” to “crisis-obsessed,” threatening our ability to separate sensationalism from necessary calls to action. But this crisis awareness has also turned up the pressure on all of us—or at least, the responsible ones—to really examine whether we’re burying our heads in the sand while the world burns or doing something to help the bucket brigade.

Enter architects, with our utopian idealism, desire to solve things, and dash of artistic inferiority complex.

Most architects care deeply about the problems intertwined with the built environment—housing, climate, health, social wellbeing—and the evidence is clear that many of these have reached a crisis point, or at least need stronger action than business-as-usual. But I suspect we portray an over-idealistic vision about the power of design to address them. We’re bombarded with articles about building types that can “solve” homelessness, conference sessions about designs for “solving” the climate crisis, and professional organizations lauding architects’ ability to “solve” the loneliness epidemic. These big claims are marketing efforts on steroids, thrown around the profession to generate clicks and ease our own qualms about the value and necessity of our work.

Admittedly, I sometimes want to believe that architecture wields a disproportionate weapon in these fights. Yet when confronted with a building-related crisis—the asbestos plaguing Philadelphia schools, for one—what good is the power to design a brilliant school building until the local politicians allot money toward building repairs and the school district decides how to divvy it up? Likewise, architects can design dense, human-centric neighborhoods until all the current cow pastures become big-box stores, but such neighborhoods can’t house more people if the zoning ordinance forbids denser housing and the price point of modus operandi single-family housing continues to exclude low-income and nontraditional buyers.

This perceived impotence is likely what drives some architects to leave the profession and become developers (where financial control resides) or planners (where policy power lies) or politicians (OK, actually there aren’t many architects who become politicians, but perhaps there should be?).

The leverage of a developer, planner, or politician may be different than that of an architect, but if they have a silver bullet solution to these crises, they’re holding out on us. The rather obvious truth is that solutions to big problems require ecosystems of solutions, and the “ecosystem of solutions” to problems plaguing the built environment is made up of planning, financing, designing, constructing, and inhabiting.

Less obvious are the ways that architecture may be underperforming in its role. In the way that we forgot for a few centuries the role that buildings play in their environmental ecosystems—n.b. the climate crisis—we have similarly neglected to examine, and accurately convey, how architects could play a more effective role in this ecosystem.

Here is a non-exhaustive and non-authoritative set of suggestions:

Expand the definition of the problem. Design’s most potent product is a systematic process for arriving at a solution. Th
ENR
The construction market is enjoying a decade of steady growth, and most sector executives don’t see an immediate cause for concern. But there is a growing sense of unease that the U.S. economy is softening, which could put an end to the industry’s expansion.

The contrast between current conditions and future market expectations can be seen in the latest results of the ENR Construction Industry Confidence Index survey. The CICI remained static at 59 in the first quarter of 2019, from the previous quarter ending last year. Of the 205 executives from large construction and design firms responding to the survey, many believe the market will begin to decline sometime in 2020.

This sense of an impending downturn doesn’t mean that the current construction market is in trouble. Only 3% of survey respondents believe it has started to decline now, and only 6% say it could start in three to six months. On the other hand, 25% speculate the market will start to shrink in the next 12 to 18 months, compared to only 15% who believe it will still be in a growth mode in that timeframe.

The CICI measures executive sentiment about the current market, where it will be in the next three to six months and over a 12- to 18-month period. A rating above 50 shows a growing market. The index is based on responses to surveys sent between Feb. 28 and March 27 to 6,000 U.S. companies on ENR’s lists of leading general contractors, subcontractors and design firms.

CFMA: CFOs Prepare for Trouble
The contrast between what the industry is seeing in the current market and what it expects to see next year is even more dramatic in the soon-to-be-released results of the latest Confindex survey from the Construction Financial Management Association, Princeton, N.J., which show that CFOs are worried about the market climate in 2020.

Each quarter, CFMA polls 200 CFOs from general and civil contractors and subcontractors. The CFMA Confindex is based on four separate financial and market components, each rated on a scale of 1 to 200. A rating of 100 indicates a stable market; higher ratings indicate market growth.

“The Confindex fell from 114 in the previous quarter to 109 in the current quarter,” says Stuart Binstock, CFMA’s CEO, noting it is the lowest rating since late 2010, when the industry was struggling to climb out of a deep recession.

The bigger story is how the market is being viewed. The forward-looking “general business conditions” component plunged 11 points, to 102, while the “year-ahead outlook” took a similar dive, falling 10 points, to 95.

On the other hand, the Confindex components associated with the current market were stable. The “financial conditions” component remained steady at 115, while the “current conditions” component also was unchanged at 121.

Worrying About the Bottom Line

Even so, industry execs are watching news about the U.S. economy with growing concern. “I don’t know if it is what [CFMA members] are seeing in the market, or what they are hearing from economists, but they are worried about next year,” says Anirban Basu, CEO of economic consultant Sage Policy Group, Baltimore, and a CFMA adviser.

Basu says CFO members of CFMA are more focused on the bottom line than on markets. “There is a lot of work out there, but workers to do that work are getting more expensive, which means increasing volume does not necessarily mean increased profits,” he points out.

Despite the active market, firms are not necessarily awash in cash. Only 29% of CICI survey respondents report higher profits compared to this time last year, while 14.5% said profits were actually down. This compares to a year ago, when 37.1% said profits were up year-over-year, and only 11.8% said they had fallen.

Binstock notes a similar trend in the Confindex survey. In the last quarter, 39% of respondents believed that profits would be up next year, compared with the 27% who thought profits would be in decline, he says. The current quarter’s responses are in sharp contrast to the last quarter, with only 20% believing profits will be up next year, as opposed to the 37% who believe profits will be down.