As we enter the first quarter of 2024, I have had several conversations with member firm owners who are in the process of finalizing their companies’ business plans for the new year. The top issue I have heard from colleagues is whether the strength of this economy can sustain its momentum through 2024. Firm management teams across our state are trying to determine whether they should forecast a “business as usual” approach for 2024 or plan for bumps in the road due to the inflationary pressures affecting our country.
It is not an easy question to answer. On one hand, 2023 was one of the busiest years for virtually every engineering industry market sector throughout Florida. Most member firms continued to grow staff throughout 2023, and engineering staff salaries rose historically throughout the year. Based on my limited discussions with our member firm owners, firm backlog seems to remain strong, and future programmed work in the state, municipal, and airport sectors appears to stand firm. In addition, the state’s budget is solid, and at the time of this message, we are unaware of any Florida House or Senate bills that will negatively impact the state’s infrastructure budget. Finally, since this is a national election year, there is a prevailing thought that the economy will remain stable throughout 2024 based on previous historical data. These indicators help to lend credence to the idea that 2024 will be as good or better than 2023 was.
However, on the other hand, inflationary pressures continue to affect every project our member firms design. Inflation is affecting our design budgets, as the cost to do business has dramatically increased post-Covid. Staff retention during this difficult time has required firms to offer salary packages previously not seen in our industry. Additionally, the cost of fuel, rent, vehicles, and equipment has significantly increased the overhead costs that firms have to account for. These issues are compounded with Continuing Services Contracts, where the firm’s overhead multipliers were negotiated and agreed to before the inflationary pressures were encountered. These conditions often lead to bifurcated financial forecasting estimates, as the work that firms complete under the “old rates” in a contract can often lead to a financial loss for the firm.
In addition to the inflationary pressure associated with design costs, construction costs for infrastructure projects are soaring due to the same issues facing the design sector. Add to that the highly variable prices and availability for aggregate, concrete, asphalt, steel, machinery, and other construction items, the process of budgeting a construction project has never been more challenging than it is today. The estimated price of a project is now highly dependent on the exact date when the project is anticipated to go to bid. Even a three-month delay in project letting under these current conditions can result in a 10-20% increase in the overall cost of a project, based on material and labor costs at the time of bid.
These factors are having a significant effect on our industry. Our clients likely will not be able to issue the same number of contracts/projects today that they could in 2019, as the overall costs have increased at a rate that no one could have anticipated. Additionally, adhering to the design schedule has become especially important, as meeting the anticipated letting date is critical to the success of the project. While it is true that inflation metrics are beginning to stabilize throughout the country, economists don’t predict that prices will drop anytime soon. This likely means that these high labor and material prices are here to stay and that our industry needs to plan accordingly.
In conclusion, I unfortunately do not have a crystal ball, and I have no idea what this year truly has in store for us. My Firm’s Board is very excited for 2024, but we are taking several precautions this year. We’ll be focusing on increasing our market share for services that we perform in sectors in which we already have a market presence, and we will also be managing our cash flow as efficiently as possible in the event the economy takes a turn that we do not foresee. Will 2024 be as good for our businesses as 2023? I’m not sure, but I’m taking the optimistic view!
The American Council of Engineering Companies of Florida is the voice of Florida’s engineering industry, representing more than 350 consulting engineering companies, specializing in all disciplines in seven regions throughout Florida.
American Council of Engineering Companies of Florida 125 S. Gadsden St., #100 Tallahassee, FL 32301