Practicing ArchitecturePracticing Architecture

Nearly 90% of architecture firm projects have a signed design contract

By Jennifer Riskus

After indicating a modicum of growth in September, the AIA’s Architecture Billings Index (ABI) dipped back below 50 in October to a score of 48.7, as architecture firm billings declined for the month. It is likely that it may take several more months for sustained growth to be reported by architecture firms. Inquiries for new work remain quite high at 61.7, while a new measure being tested (which will track month-to-month changes in the dollar value of signed design contracts) found that 21 percent of firms reported a decline in contract value, compared to 19 percent that reported an increase. The vast majority reported that the value of their signed design contracts for October was about the same as in September.

While the overall ABI declined this month, architecture firms located in the Northeast and Midwest reported growth in firm billings for the third month in a row in October. Business continues to improve in these two regions of the country, with both reporting their highest scores in nearly three years--54.5 in the Northeast and 51.8 in the Midwest. In addition, firms with a commercial/industrial specialization experienced their sixth consecutive month of growth in October, while firms with an institutional specialization reported a small expansion, the first for the sector since December 2007.

Recently released economic reports indicate a slight improvement in the general economy. The GDP grew at an annual rate of 2 percent in the third quarter, up from 1.7 percent in the second quarter. In addition, the employment situation improved somewhat in October, with businesses adding 151,000 jobs overall. This was led by strong growth in the private sector, which added 159,000 jobs by itself. This sector has grown by more than one million positions in the last 10 months. Construction employment remained relatively flat, and employment in the architectural services sector decreased for the second month in a row in September, the most recent data available. However, it is important to note that this data is not seasonally adjusted and is likely a reflection of the slowdown that occurs every year as winter approaches.

This month’s special question followed up on the question from last month in our attempt to develop a more accurate indicator of upcoming work at architecture firms. Survey panelists reported that on average 88 percent of their projects (on a dollar basis) have a signed design contract. Firms with a commercial/industrial specialization reported the lowest share of projects with a signed design contract at 82 percent.

It is important to note that many respondents commented that state regulations require them to have a signed contract in place before beginning work, and as such, indicated that typically just 10 percent of billable work is completed before the design contract is signed. However, many firms noted that they may begin preliminary work for regular or repeat clients and small projects without a contract. And in fact, nearly nine in 10 firms reported that they do, on occasion, perform billable work before the design contract is signed. But of that 88 percent, just 29 percent indicated that they “frequently” perform billable work in advance of the signing of the contract.

This month, Work-on-the-Boards participants are saying:

• Opportunities for new projects vary widely each month. No signs of steady positive movement in signed proposals; many clients looking but not signing.—3-person firm in the Midwest, commercial/industrial specialization

• We’re busy until February. After that, most committed work is in construction administration.—30-person firm in the West, institutional specialization

• Backlogs continue to be very short-term and there is still a lot of trepidation about committing to full-time hires. We have seen full-time staff let go at other firms in favor of bringing on other contract help at lower rates without the commitment to benefits of a guaranteed salary level.—1-person firm in the South, mixed specialization

• Clients are beginning to realize that our current negative business environment is an opportunity to take advantage of lower design/construction/financing costs that may not return again for a long time .—3-person firm in the Northeast, residential specialization

Let your voice be heard! As an AIA member and firm leader you are invited to join the ABI survey panel.

About the AIA Architecture Billings Index
The Architecture Billings Index (ABI), produced by the AIA Economics & Market Research Group, is a leading economic indicator that provides an approximately nine to twelve month glimpse into the future of nonresidential construction spending activity. The diffusion indexes contained in the full report are derived from a monthly “Work-on-the-Boards” survey that is sent to a panel of AIA member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended as compared to the prior month, and the results are then compiled into the ABI.  These monthly results are also seasonally adjusted to allow for comparison to prior months. The monthly ABI index scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline. The regional and sector data are formulated using a three-month moving average. More information on the ABI and the analysis of its relationship to construction activity can be found in the White Paper Architecture Billings as a Leading Indicator of Construction: Analysis of the Relationship Between a Billings Index and Construction Spending on the AIA web site.

Recent Related:

Design Billings Inch Into Recovery Mode

ABI Inches Forward in August

Architecture Billings Index Climbs by Two Points in July

Business Conditions Weak But Improving at Commercial Firms

ABI Slips Slightly in May as More Firms Experience Softening Business Conditions

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