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________________________________________________________________________________________
American Council of
Engineering Companies
(formerly the American
Consulting Engineers
Council)
Volume XXII, Number 14
June 29,
2001
1015 15th Street, NW
Washington, DC 20005
202-347-7474
Fax
202-898-0068
www.acec.org
E-mail acec@acec.org
Francis George, Editor
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GA Report |
Business
Project budgets are supposed to enable project managers to exercise proper control over their projects and to take corrective action in time to prevent unnecessary overruns. In order to do this, the accounting system must have the capability for comparing budgets with actual performances. When a job has been estimated and awarded, a project budget needs to be established based on the amount of the contract award. The original estimate may be used as a starting point, but often scope changes and revisions are made. If the project manager is a party to the negotiations, he is in a much better position to prepare the project budget.
The project manager should establish the budgeted hours and dollars for elements within the project, including subcontractor services, and the budgets are typically approved by a principal in the firm. The accounting system then reports actual time and expenses against the project and compares these to budget to determine any variances.
Control is also exercised over the subcontractor’s costs in the same way. Generally a subcontractor cost is shown as a separate line item in the budget, particularly if he is working against a lump sum. If the subcontract is large and there is need to control on a more detailed level, provision should be made to report additional information as well. Subcontractor cost control is a necessary part of the overall cost accounting system.
Every project needs management, and time must be budgeted for this purpose. While there are no guidelines because management time depends on the type of project, some allowance must be provided. An allowance for contingencies should also be built into the budget. An element of profit needs to be budgeted as well. Profit should not be part of the funds set aside for contingency, but rather a separate amount.
Excerpt from Financial Management for Design Firms by Lowell Getz, ACEC Publication #LW-322-00, $79 members, $99 non-members, $5 shipping. Orders should be sent to ACEC, FAX (202) 789-7220, or e-mail, publications@acec.org. Please include your Mastercard, Visa, or American Express number with the expiration date, contact name, firm name, street address, phone number, and e-mail address.
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ACEC Member Testifies on Value of Outsourcing Federal Commercial Activities
Psomas’ testimony stressed ACEC’s opposition to government competition and the TRAC bill, and included recommendations to strengthen the provisions of the FAIR Act and improve the A-76 process. Mr. Psomas described outsourcing as a widely practiced management tool that spurs efficiency, quality, and innovation. Psomas testified that, "As with the PECG initiative in California, this legislation (TRAC) is based on the flawed assumption that government contractors are not held accountable for cost or performance... Outsourcing provides a direct source of accountability and responsibility by tying contractor compensation to the successful implementation of contracts. The increased trend towards performance based contracting at the federal level means that contractors are even more accountable for delivering quality services within budget. As past performance is also a key determinant in securing new work, most contractors are vigilant in ensuring that their work meets or surpasses a client’s expectations. Contractors who deliver low quality services fare poorly when bidding on future contracts. Our free market system delivers the ultimate accountability by quickly weeding out underperforming contractors." To read more of Tim Psomas’ testimory, visit http://www.acec.org/programs/wr06282001.htm#psomas. Contracting-out Efforts in California Continue to Pay Dividends More than a year after CELSOC, ACEC, and others advocated the successful passage of Prop 35 in California, overcoming efforts by the Professional Engineers in California Government (PECG) to keep engineering services in house, outsourcing continues to increase in the state. Under new budget language approved by the California legislature’s Budget Conference Committee, CALTRANS will be able to contract out up to 100% of all additional work to be funded. This brings the potential contracting out levels in California to nearly 2,000 work years—the highest level in recent history. Budget conferees approved this provision unanimously. Governor Davis, in his May budget revisions, recommended contracting out all additional work, particularly in light of CALTRANS existing workload. PECG had sought to introduce provisions in the budget bill to restrict contracting out. These efforts were rebuffed by California legislators who have grown weary of PECG efforts to thwart the will of the voters. In 1999, ACEC helped fund CELSOC’s successful efforts to defeat Prop 224, which, if passed, would have essentially eliminated contracting out in California. In 2000, ACEC contributed $750,000 in grants and loans to assist CELSOC pass Prop 35, which ensured through a state constitutional amendment that agencies could outsource work to the private sector. Small Firm Council Member Testifies Before Congress
This is the second time a SFC member has testified that contract bundling directly impacts small professional service firms. Cathy Ritter, principal of the Constellation Design Group, was a hearing witness before Congress in 1999 to provide professional testimony on the effects contract bundling has on small firms in the A/E field. As Congress deliberates how best to resolve the effects contract bundling has on small firm participation in federal contracting opportunities, ACEC and its SFC continue to be actively involved in the process, providing advice and positive solutions to increase small firm contracting opportunities. Business Trends: Growth and SuccessACEC’s 2001 Annual Business Trends Survey, once again, showed that the engineering industry has experienced a strong year of business. Of the approximately 600 firms that responded, fifty-six percent of principals reported their business was outstanding or excellent. This is especially great news, as the United States’ economy begins a period of uncertainty. Even with this volatility, principals believe the outlook for the future is good, with 54% believing the U.S. market will continue to be strong for the next 18 months. There was also a jump in net revenue per employee, from $97,547 in 1999 to $106,395 in 2000. This amount remains fairly consistent with other industry figures, which set net revenue per employee at $100,000. However, profit margin as a percentage of net revenue, before taxes and discretionary distribution to owners, remained static at 16%, the same percentage as 1999. Little has changed from previous years among core business issues impacting firms. Profitability (59%), cash flow (39%), and lack of qualified staff (37%) were the central issues of concern to firms this past year. When asked which expertise would benefit their firm most, nearly half of the principals answered Marketing (49%). Quality Management (34%), Leadership Development (30%), and Strategic Planning (27%) followed in importance. Contact Joe Lyman (jlyman@acec.org) at ACEC, for more information. ACEC and CEC/NJ are sponsoring a joint seminar entitled Bringing in Business is Everyone’s Business, by Joanne Linowes and Craig Reynolds, at the Victorian Manor in Edison, NJ, on September 13, 2001. Seminar leader Joanne Linowes, founder and principal of The Corporate Media Group, is a communications specialist and presentation coach who works exclusively with professionals in architecture, engineering, planning, design, and construction management — adapting general communications techniques to the particular applications of the design and building industries. Presenter Craig S. Reynolds, principal of Brown Reynolds Watford Architects, Dallas, will discuss practice management in client relation’s strategies and A/E firm business development. Mr. Reynolds is recognized nationally as a designer and planner for innovative, cost-effective, community sensitive K-12 public schools and university facilities, using forward-thinking master planning as well as applications of state-of-the-art CADD systems. For further information, contact Peter Allen (peterallen@monmouth.com) at CEC/NJ, Springfield, NJ at 973/564-5848 or Nancy Mosely (nmosely@acec.org) at ACEC.The following editions of the Last Word are available online, to retrieve a particular issue, choose the date from the drop down box below, and click "Go Get It!" |
