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Consultants File 2010: Market report

Last year was a very hard year for UK-based consultants and conditions in 2010 are unlikely to improve. Bruce Tether, professor of design and innovation at Imperial College Business School, explains why.

If you are looking for comfort for the next 12 months, there are three things to focus on: the UK government’s need to rebuild the economy on the basis of the UK’s strengths, amongst which professional services are prominent; the increasingly pressing need for energy and environment solutions; and the development of the European single market for services.

The results from the 2010 Consultants File survey present rather more of a mixed bag however. Of the 242 firms participating in NCE’s Consultants File this year, just over 200 also participated last year. The total employment of these firms is down by 11,200 jobs, from a total of 151,400 last January, to a total of 140,200 this January.

This represents 7.4% of last year’s workforce, and is more than the entire workforce of Mouchel, the fifth largest consultancy in this year’s file.

Many firms made staff redundant. Indeed, nearly three quarters of the large firms (those with over a thousand employees) made staff redundant, compared with 70% of the “upper middle” firms (those with between 101 and 1000 employees), just under half of the ‘lower middle’ firms (26-100) and 41% of the small firms (25 and fewer employees).

Most firms reported less work in the UK, with only small firms reporting, some growth and the large firms a little growth globally

Whilst redundancies were widespread, many firms also reallocated staff, allowed staff to take sabbaticals, and sought new areas of work. Many also lowered their fees or were willing to work for reduced margins.

Interestingly the large firms were the least likely to reduce their fees or work for lower margins. Perhaps they don’t want to be compromised in the recovery.

More than half also froze or reduced pay for all staff, although in most of these cases pay was frozen rather than reduced; a few confined their pay freeze or reductions to management.

Asked how their workload in 2009 compared with the previous year, unsurprisingly most firms reported less work in the UK, with only the small firms reporting, on average, some growth.

By contrast, overall the larger firms reported a little growth in Europe and the rest of the world, whilst the small firms with overseas work tended to find this had shrunk. Of those surveyed, 155 firms provided both their most recent financial results and those for the previous year in this year’s NCEConsultants File and last year’s file. This shows considerable variation in fortunes.

In figures

£12.9bn

Total fees earned by UK
consultants last year

£14.8bn

Value of consultants’ work
in hand at the end of 2008

£5.3bn

Value of consultants’
overseas turnover in 2008

£1.76bn

Fees earned by consultants in
roads sector in 2008

£2.71bn

Fees earned by consultants
in building in 2008

 

Whilst two firms saw their turnover reduced by half, and three firms had halved their fees, five had increased their fees by at least 50%, and 11 had increased their fees by 50% or more.

Some of these dramatic changes may be due to divestments of acquisitions, but overall the distribution shows widely different fortunes, with the turnover and fees of a quarter of the firms remaining roughly constant.

Anticipating the coming year, most firms are expecting the economic situation to remain the same, but with a sizable minority expecting some improvement.

The smallest firms tend to be the most optimistic about the UK market, whilst the largest firms are most optimistic about the European market, and the large and mid-sized firms are most optimistic about the rest of the world.

Overall, nearly 40% are expecting (or hoping!) that 2010 is better than 2009 in the UK, whilst about half expect it to be unchanged, and 11% are expecting things to get worse.

Reductions in spending will certainly hit capital expenditure projects, and the forecasts for investments are pretty bleak

Nearly 80% expect the European market to remain unchanged, whilst one in five is expecting the situation to improve; 30% expect the situation in the rest of the world to improve, with nearly two thirds expecting it to remain unchanged.

Those active in the energy and environment sectors are the most optimistic. As an outsider looking in, I would agree that the immediate future looks difficult for engineering consultants working in the UK and abroad.

For the UK, the consensus of economic forecasts anticipate that the UK economy will grow by a paltry 1% in 2010, before strengthening to a little over 2% in 2011, and strengthening further to around 2.5% from 2012.

Even that may be wishful thinking; there may well be a “double dip” recession. Much depends on what the new government decides to do after the election. It will certainly have to tackle the huge deficit, either by increasing taxes or by reducing spending, but the big question is how much medicine can the fragile patient take?

2010 was a tough year for UK-based consultants

2010 was a tough year for UK-based consultants

Reductions in spending will certainly hit capital investment projects, and the forecasts for investments are pretty bleak several years into the future.

Whilst there may be little cheer in the next year or two, there is greater reason for optimism in the longer run. Three reasons in particular come to mind.

First, the UK government is going to need to focus on the recovery and strengthening the UK economy. It makes sense to focus on our strengths. We are not much good at manufacturing, especially large scale manufacturing, and our overreliance on financial services has taught us a very painful lesson.

An overlooked strength of the UK economy is professional and business services, with architecture, engineering and related technical consultancy an increasingly important component within this.

Indeed, according to official statistics, professional, scientific and technical services businesses employed almost 2M people in the UK in 2008, the last year for which figures are available; this compares with 2.75M in manufacturing.

Within this, engineering consultancies employed 337,000 people, and architecture practices another 68,000. When combined, architects and engineering consultancies employed more people than management consultants (383,000), law firms (323,000), or accountancy firms (245,000).

The UK government will be very willing to bolster those parts of the economy that are strong and show promise. Engineering consultancy is an obvious candidate

Business and professional services are also important for UK trade. Our trade deficit in goods is well known, enormous, and growing. It was £93bn in 2008, the last year for which official data is available. This is partially offset by a positive trade balance in services, with financial services the leading contributor.

Second to financial services in contributing positively to our trade balance is professional and technical services firms, which exported over £40bn worth of services in 2008, compared with almost £23bn in imports of these services, providing a trade surplus of £17bn.

Within this, engineering services accounted for £4.3bn in export earnings and contributed £2.85bn to the trade balance, whilst architecture, surveying and other technical services contributed just over £2bn in export earnings, and £1.35bn to the trade balance.

Also apparent is the strong growth in exports of engineering and other technical services over the last decade, with much less growth in imports.

The significance of professional services has not been lost on the present government. It commissioned the Professional Services Global Competitiveness Group report led by Sir Michael Snyder which was published in March 2009.

In figures

18,519

Total female staff employed by
all consultants

£16.2bn

Total turnover, all consultants

£4.2bn

Total UK public sector work, all
consultants

 

Although unfortunately engineering consultancy was not amongst the activities examined in detail, the report set out a 2020 vision for the future of professional services in the UK. I would expect the new government of either hue to be very interested in enhancing our current strength in business and professional services.

A second reason which I will touch upon briefly is the big climate change, energy and environment agenda. Despite the cold winter, this wont go away, and surely represents a massive opportunity for engineering consultants. How we achieve smarter, low carbon growth?

A third reason for optimism in the near future is the Single European Market for services. This was formally implemented on 28 December 2009.

Although a single market will not emerge overnight, the European Commission is highly committed to encouraging trade liberalisation in services, including engineering consulting. Much of the agenda here is around improving productivity in European services, which lags behind manufacturing, and also lags comparable services in the US.

The East London Line is now in the commissioning phase

The East London Line is now in the commissioning phase

There is a substantial prize for those who can work the single market. Meanwhile, the substantial decline in the value of Sterling against the Euro means that services provided out of the UK should be much more competitive than they were previously, which provides an additional advantage .

In conclusion, 2009 was evidently a very tough year for many − although not all − in engineering consulting. Many thousands of people have lost their jobs; others are having to work harder for less. 2010 does not look very promising. For most, I suspect, it will be a year to survive. The future provides greater reason for optimism.

Firstly, your country needs you! − the UK government will be very willing to bolster those parts of the UK economy that are strong and show promise: engineering consultancy amongst other professional services is an obviously candidate here.

Secondly, the climate change, energy and environment agenda will not go away − I suspect it will grow rather than shrink.

Third, the implementation of the single European market for services − coupled with the weaker pound − should increase the opportunities for UK based consultants in Europe. Good luck for 2010!

Company credentials

Mergers

AECOM - IN 2009, EDAW, ENSR, ERA, FABER MAUNSELL AND SAVANTALL BECAME
AECOM

CAPITA SYMONDSBOUGHT
engineering consultant Multi-Tech contracts, transport technology consultant MMB, and urban design company AMA

COTEBAMERGED
with Sogreah in December 2009

CYRIL SWEETTACQUIRED
Nisbett, Burns Bridge and Roger Nisbett

DAVIS LANGDONMERGED
with space consultant DEGW

EC HARRISBOUGHT
health planner RKW

GHAACQUIRED
civil and structural consultancy BSCP

HILL INTERNATIONALACQUIRED
US firm Boyken International

HYDROCKBOUGHT
transport consultancy Byways & Highways

JACOBSTOOK A THIRD SHARE
in AWE Management

MOTT MACDONALDBOUGHT
building sustainability specialist Fulcrum and health consultant Teamwork Management Services

NOBLE DENTONMERGED
with Germanisher Lloyd

BALFOUR BEATTYACQUIRED
Parsons Brinckherhoff

RAMBOLLACQUIRED
building services practice RYB Konsult

RPSBOUGHT
600 strong Australian planning and environmental consultancy Conics

SINCLAIR KNIGHT MERZ EUROPEACQUIRED
sustainability and environmental firm Enviros Group

SWANN CONSULTINGACQUIRED
M&E consultancy EMDC

TURNER & TOWNSENDMERGED
with HanmiParsons of Korea

 

Top 20 consultants

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