Change in mood

Ecolibrium:

How has the nature of the mechanical services consulting landscape changed in recent times?

Ganado: The biggest change I’ve seen in recent times is the tension between what clients are asking for, and what the industry is trying to deliver in terms of where design risk lies. Many clients are pushing towards the design and construct (D&C) model, which passes design risk onto contractors – while state governments and industry bodies are pushing for greater regulation and registration requirements, which pushes the design risk back to consultants.

This tension is contributing to the current skills shortage, as both contractors and consultants are struggling to find qualified staff to meet these demands. Contractors who previously haven’t had design engineers in-house are finding themselves in the position of having to change their workforce.

Hampton: D&C project delivery has become more prevalent – there are few projects that go through full design and documentation in the traditional sense. Integration with ESD and energy efficiency is now front and centre. We are also seeing a trend away from centralised chilled water mechanical plant to manufactured package systems.

Thomson: Indoor D&C contracting has changed the landscape significantly, driven towards lowest price in both consulting and contracting, resulting in a major change to delivery by both contractor and consultant.

Large international consulting firms have started to influence the consulting areas in Australia

Treweek: Over the last decade (or longer) we’ve seen the entry of large global players into the market, through the acquisition of strong local businesses.

Twenty years ago the consulting landscape was driven by half a dozen large Australian practices, whereas now we have a landscape of hyperscale multinationals and smaller local practices, with very few mid-size local practices.

Ecolibrium:

How has the rationalisation and merger of local firms with larger and/or international ones affected the Australian consulting landscape?

Treweek: The industry consolidation coupled with an endemic skills shortage within Australia, and the ease of sourcing offshore engineering support, means we are slowly seeing a knowledge drain from the local industry.

The flow-on impacts to design and documentation quality and a commoditisation of the design process are impacting the perceived value of the consulting sector and a lower fee base. On the flipside, projects with a high-IP content are now a significant differentiator to many consultants; and from a career perspective, who doesn’t want to engage on intellectually challenging projects, partnering with clients that value the knowledge that a consultant can bring to the table?

Hampton: It means that firms are able to utilise international resources and knowledge and also resource projects internationally. Locally, mergers of smaller companies generally bring specialist knowledge in-house and offer a consolidated service to clients.

Ganado: It has resulted in a lot of movement within the industry. Engineers that previously had a clear path to partnership or director-level roles within Australian businesses have now lost that opportunity. As a result, there are a growing number of people now starting their own practices.

Thomson: Some design solutions and consultant advice seem to have either European or American influences in the designs, which in some instances do not meet Australian design regulations and requirements.has resulted in a lot of movement within the industry. Engineers that previously had a clear path to partnership or director-level roles within Australian businesses have now lost that opportunity. As a result, there are a growing number of people now starting their own practices.

Ecolibrium:

What have been the drivers behind such mergers?

Hampton: The merger between WRAP and Edefice was a natural alignment and progression of a long relationship. WRAP has been able to improve and grow its ESD department while Edefice has been able to focus on consulting and develop integration with building services. The consolidation of administrative tasks has been terrific!

Treweek: Australia is a market with a high-value currency, a well-educated population and is very well regarded globally from a design, innovation and engineering perspective in the global property and infrastructure sector. For a global business, having a substantial Australian arm is a valuable proposition. And the ability for staff to work on international place-making projects, irrespective of their home location, is a significant attraction.

Our sector in Australia is very much relationship-driven, so the ability to win work in the local market is a high barrier-to-entry for an international business to do a start-up; hence acquisition of well-regarded businesses is the logical entry point.

Thomson: Many of these firms are using Australia as a method of gaining influence into the Asian market, using Asian-based labour managed from Australia, or using expat Australians to help integrate Asian workforces.

Ganado: It’s as simple as expansion and profit. Australia is seen as a profitable market and international businesses are expanding into it.

Ecolibrium:

It appears this has been a trend that has accelerated in recent times. Will it result in fewer mechanical services consultancies, and what might the flow‑on effect of that be?

Thomson: Yes and no.

Specifically for larger projects it does seem this is the case. For smaller work, large firms cannot compete on price or personal contact with clients, so most small-to-medium projects are dominated by local smaller firms.

Ganado: As I touched on, this changing landscape will eventually generate more smaller consultancies as senior engineers lose sight of the progression path within large international companies and go out on their own.

The larger firms are also chasing a different market with larger projects, potentially leaving fewer consultants in the market for smaller jobs, and fuelling an influx of new consulting firms.

Treweek: Supply and demand drivers will naturally shape the quantum of people in the sector. However, there are limits on how large a consulting practice in this sector can grow to. The large local practices from 20 years ago are no smaller or larger than those equivalent teams today sitting inside a 50,000-person global business. The landscape is ever-evolving, and as businesses are acquired, we have seen and will continue to see new locally based start-ups build their capacity over time off the back of strong local client-relationships.

Hampton: This is a regular cycle that plays out in the industry – there are a series of mergers, and within a couple of years people leave the new multi-nationals to start their own firms. These grow and eventually become big enough to be bought out and the cycle begins again.

Ecolibrium:

Does the sector run the risk of losing its identity – or position – in the wider building and construction industry?

Hampton: Yes. However, key clients, architects and builders provide feedback that they prefer a more personalised, boutique service and key senior consultants hear this and move to start their own firms. This allows them to move back into a more hands-on consulting role and utilise their skills and contacts in the industry.

Ganado: Yes, international corporations are always going to have different drivers and priorities than local firms. Companies are bought out for profit. In some cases this may lead to greater efficiencies, exposure to wider markets and technologies, but in others it runs the risk of reducing
the quality of work produced.

A reduction in the quality of consultant design documentation ultimately affects the entire industry.

Treweek: I believe we have already seen this to some extent but not only through the industry consolidation. The drive towards pushing risk as far down the construction supply chain as possible through D&C contracting mechanisms has also impacted. Those that are able to clearly articulate the ability of the consulting profession to de-risk projects through robust advisory and design engagements to the appropriate level for the project, will make their mark and maintain the identity of the profession.

Thompson: I don’t think so. Good-quality advice and local knowledge will still win out with an educated client.

The issue may be coming from large clients with minimal involvement in projects’ delivery sometimes finding during or at the end of the project that the design advice was not in line with local regulations, and climate conditions.

Ecolibrium:

The sector has always been impacted by the skills gap. How is this – and the “great resignation” – combined with mergers and acquisitions going to impact the industry?

Thomson: The skills gap is getting wider due to fee and time pressures. Some design activities are not being completed, as the reliance for compliance can be placed on the contractor. Lack of major company support of training programs and education has also driven a gap between the “haves” and “have nots” in access to training outside the company. D&C contracting and contractors do not typically provide high levels of support for external training, hence gaps are also being created due to lack of skills and experience for engineers in the contracting areas.

Ganado: Our industry is already being greatly affected by a skills gap. The scale of the skills gap is now such that it can’t be ignored and is being actively addressed. A much greater focus on closing the skills gap is being put on the industry, and AIRAH.

Hampton: The skills gap is the most critical issue for us at the moment. There is a large gap at the mid-range senior engineer level, which will have serious repercussions over the next 20 or so years as people retire. This will only get worse with the move towards working from home, which affects the mentorship and growth opportunities for younger engineers.

Treweek: We’ve been living with a skills gap for the 25 years I’ve been in the industry, as well as cycles of people movement. The industry is fluid by nature given it is largely project-based, so those consultancies that value their staff, invest in their development and afford them the time to innovate and be the best they can be, will do well. The laggards who see staff as an employee number and manage autocratically will struggle. Consulting is a people business, so rationalisation and merger is not necessarily a negative, as long as the focus remains on people. Good staff managed well will connect with good clients and deliver good projects. Financial performance is the output if it all works together.

Ecolibrium:

How is the mechanical services consulting sector performing from a gender‑equity perspective? Are the number of women woworking on consultancy growing?

Hampton: N0, but neither are the number of female engineering graduates. However, many women have taken the opportunity to work for the large Victorian infrastructure projects or start their own businesses around their family so have become less visible.

Ganado: We still have a long way to go but I’m encouraged by the fact that so many women who are in the industry are actively stepping into leadership positions within AIRAH and the wider industry. This leadership and visibility is going to manifest in greater levels of industry participation.

Treweek: We have moved the dial over the past 10 years, but not by enough. There is still a long diversity journey (in all forms) that the sector needs to navigate.

Ecolibrium:

What opportunities does the internationalisation of the mechanical services consulting landscape create to address the skills gap, and encourage more women to the industry?

Ganado: Australia has always been an attractive place for immigrating engineers. The internationalisation of the market exposes Australia to an even larger number of existing building services engineers.We need to encourage more people to the industry. Currently the biggest untapped resource in the building services industry is women so that is a logical good place to start. In reality, the same things that are going to attract more women to the industry are also going to make the industry more attractive to men.

Thomson: There is the opportunity to work within a large international firm and gain overseas experiences. For the HVAC industry the benefit of this is unknown. Since HVAC design is weather and location specific, overseas experience is difficult to translate into adding skills and capabilities to the local market. Australia has one of the highest levels of regulation in the building industry, and therefore local experience is typically more valuable.

International firms may have a higher percentage of women in engineering, and also in the HVAC field. Encouraging women from other countries to settle into Australia especially if they are in the HVAC or sustainability sectors, is a good thing.

Hampton: Australian consulting has always relied on international professionals to bolster our ranks. Larger international companies may offer overseas staff more opportunities to move to Australia. However, the opposite will also be true. Encouraging more women to the industry begins at high school and follows at university. If larger consultancies have the resources to make our industry more visible and encourage not just women but all bright sparks into HVAC, they need to make this a priority.

Treweek: Although the internationalisation of the consulting profession may go part of the way to addressing diversity and the skills gap through the use of offshore professionals to support the local industry, it may turn out to offer mediocre outcomes. The power of different perspectives and thoughts from a diverse team is unquestionable; however, when part of that team is halfway around the world, from a cultural background perhaps less likely to offer their opinion, and maybe never having met the rest of the team or built a relationship with them, are we truly able to harness the power of diversity that internationalisation brings? There are certainly benefits around remote working on international projects affording better flexibility and work-life balance – which in theory should help encourage women to the industry – however, I’ve not seen any hard data on this.

Ecolibrium:

On the other side of the coin, there seems to have been a rise in the number of sole practitioners operating in specialist areas. Has the rationalisation and mergers of local firms played a role here?

Hampton: This has also been growing over the last 20 years as people seek more flexibility and work-life balance. More recently, software advances have also enabled individuals to operate effectively independently, sharing files and information with their clients in a way that wasn’t possible a generation ago. We certainly notice this trend for women in ESD – many leave and start their own practice once they begin a family.

Treweek: Large businesses need scale, efficiency and consistency in approach to operate profitably; otherwise the leadership teams spend their entire working life herding cats. The very idea of a specialist area is counter to this as they tend to be small, niche and agile markets, so often better suited to sole practitioners or small businesses. This has not necessarily changed with the rationalisation in the sector, but perhaps has been magnified in recent years.

International firms may have a higher percentage of women in engineering, and also in the HVAC field. Encouraging women from other countries to settle into Australia especially if they are in the HVAC or sustainability sectors, is a good thing.

Thomson: From personal knowledge of people I know who have left major firms to “go it alone” the answer is yes. Many highly skilled individuals have found becoming a sole practitioner is definitely a good pathway to more freedom in their work-life balance, better recognition of their skills, and greater reward for work done, as they find themselves with lower overheads and hence higher income-to -expense ratios that the large firms have.

Also, COVID and the work-from-home movement have opened people’s minds to the option of using people no matter where they are based. This has increased the opportunity for sole practitioners.

Ganado: People that previously had a clear career progression to senior management and a share in company ownership no longer have that. There are a growing number of these people starting their own business.There is also a tendency for the larger international firms to chase larger jobs, leaving fewer competitors in the smaller projects market in the short term.