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4 The Private Sector The Private Sector Task Force was composed of both consulting engi- neers and key staff representatives of two professional organizations, the American Consulting Engineers Council and the National Society of Professional Engineers. Together they reached a consensus regarding the identification of primary needs of the private practice sector of engineering, needs that result both from concerns common to all sec- tors and those unique to this group. The task force also examined the wide diversity of private practice engineering services and the manner in which they are furnished. Consulting engineers, as private practice engineers are generally known, may function as large corporations, as small business entrepreneurs, or as highly specialized experts on call from academia or industry for special consultation and/or legal testi- mony. The needs identified lay the task force and the support organiza- tions/mechanisms available to the private practice engineer are detailed in the sections that follow. Development of Management Skills For Profitable Operations Most private practice engineering firms are small businesses. A 1982 census of firms conducted by Consulting Engineer showed that 82.5 percent have fewer than 26 employees, and another 13.0 percent have 26 to 100 employees. In these firms the principals/owners are usually both the technical experts and the business managers. They must pos- sess a high degree of both technical and managerial skill if the firm is to remain a profitable operation. 43

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44 S UPPOR T oRGaNIzATIoNs Unfortunately, undergraduate engineering education is not struc- tured to provide a strong background in management. Typically, engi- neers have had to develop these skills on the job, with various degrees of success. Better training is needed to respond to the changes in the profession, especially in the following areas. CompanyFinancial Management. Development of a reliable com- pany financial management reporting process is necessary to provide the data essential for proper management. Engineers in private practice must develop the skills necessary to structure a system and to analyze the data being generated. fob Cost Accounting. This process provides the project cost infor- mation necessary for budgeting a project accurately and for monitoring that project in progress. Engineering Team Organization. Most projects require attention from engineers and technicians representing various disciplines, and the formulation of a team of the appropriate personnel provides the mechanism for these efforts. However, most engineers are not adept at organizing and managing a team, or even participating as a team mem- ber. Computerization. Computers are an essential tool both for the accounting functions and the technical work of an engineering firm. The typical individual engineer currently responsible for the manage- ment of a private practice did not use computers to any great degree during his/her college training; these individuals must now develop competence and knowledge regarding computer applications and equipment on their own. These engineers need assistance in acquiring these skills, as well as assistance in staff organization, to utilize com- puters successfully. Engineers in private practice who are not principals also need man- agement skills because those who demonstrate exceptional technical skills usually advance into positions with management responsibili- ties. The lack of management training makes it difficult for them to assume these responsibilities. If they are to function effectively, it is essential that instruction in the principles of good management be made available to these individuals. Support organizations exist to help meet this need, as follows: Organizations Educational institutions Technical societies Professional societies Mechanisms Academic curricula Home study courses Seminars/short courses

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THE PRIVATE SECTOR Education and Training in Competitive Techniques and Strategies 45 The 1980s have been difficult for engineers in private practice. Fed- eral budgets have been cut. Major public works programs have been reduced or, in a few cases, eliminated. New kinds of competitors- research and development firms, equipment manufacturers, educa- tional institutions, and utilities- are among the new entities moving into traditional consulting engineering markets. Internationally, the growing strength of the American dollar has dampened overseas cli- ents' interest in "high cost" U.S. engineering services. Foreign firms, in fact, are purchasing or creating U.S.-laased engineering subsidiaries to compete head to head with consulting engineers for domestic work. The tightened national economy has forced engineering consulting firms to reduce their staffs, with many former employees choosing to open their own consulting firms, thus adding to the competition. New technologies like computer-aided drafting and design {CADD) have left some firms behind in the "productivity race." A growing demand by clients for price-competitive procurement without adequate specifica- tion of the scope and level of services required has caused many inap- propriate and inequitable contract awards. Moreover, some firms feel that price competition is unethical and decline to participate. When proposals are requested setting forth qualifications and excluding price considerations, the number of private practice engineers responding {even on relatively small jolts) is four or five times greater than the number that would have responded as recently as 5 years ago. Because the consulting engineering field has become such a highly competitive one, salesmanship is a major factor in the success or failure of a firm. Many firms are finding, for the first time, that it is necessary to increase the percentage of their resources dedicated to business development. Moreover, today's consulting engineer must lie increas- ingly alert to the potential for new markets as the nation's engineering needs shift and change. And, because the opportunities for creating new markets are gener- ally limited in any one time frame, the majority of a consulting engi- neering firm's lousiness development efforts is generally directed toward increasing its share of the market in competition with other firms. All of this means that there is more to finding new work than merely assigning a staff member to the job. It means the initiation of a con- scious, logical marketing program. But engineers are not educated to lie salespeople and in fact are typically not adept at touting their own skills. Consequently, engineers in private practice need improved com

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46 S UPPOR T ORGANIZATIONS petence in both written and verbal communication, marketing tech- niques, and interpersonal skills. A number of existing organizations and mechanisms that are related to the marketing of engineering business development provide infor- mation on the philosophies and techniques of effective business devel- opment. They include the following: Organizations Professional societies Trade associations Educational institutions Manuals Workshops Association advertising Referral services Technical literature Engineering business reports Technical societies Publications Private marketing consultants Mechanisms Seminars Cassettes Programs Peer information exchange Business leads Short courses/seminars Development of Adequate Risk Management Tools The number of claims against private practice firms or engineering consultants has climbed steadily for the past 20 years, increasing in severity as well as frequency. That frequency now exceeds 40 claims for each 100 insured firms, with the average severity of each claim surpass- ing $20,000. Although engineers mount a successful defense in approx- imately 75 percent of the cases, "success" means only that the insurance carrier did not pay any damages on behalf of the engineer. The private practice engineer still encountered substantial defense costs, in time as well as money, and may have had to agree to a settle- ment within the deductible. An important aspect of the solution to this problem is a strong pro- gram of quality control. Such a program is essential to an engineering consulting firm if it is to maintain a record of high-quality service and integrity to minimize its liability losses. The techniques of a good quality control program are not taught as part of the college engineering curricula and are frequently learned only after a firm has suffered embarrassment, the loss of a client, or even a claim demonstrating negligence. Consequently, there is an ongoing need by private practice engineers to learn the fundamentals of a formalized quality control program.

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THE PRIVATE SECTOR 47 A second essential risk management tool for engineering consulting firms is professional liability insurance. This type of insurance is not new to the engineer in private practice. The largest and oldest program of professional liability insurance has been in existence for over 25 years. However, the crisis in professional liability and associated litiga- tion is a relatively recent phenomenon. Professional liability insurance rates have climbed steadily for the past 20 years because they are directly tied to the Mueller and severity of claims. The need in professional liability insurance involves resolving issues that are related to improved practice and, more importantly, addressing those issues affecting the practice from other sources. All too often consulting engineers are sued indiscriminately as part of an overall claim against any parties either directly or indirectly involved in the circumstances leading to the damage suit. In summary, private practice engineers face a significant need for risk management tools that will permit them to render high-quality, state- of-the-art service to their clients with the minimum exposure to poten- tial litigation. Private practice engineers must certainly stay abreast of current legal trends, defense strategies, and new areas of litigation involving engineering firms. They must lie familiar with techniques for resolving conflicts, amending errors, and documenting problems, all part of a strong risk management program. Service to the client should not lie allowed to deteriorate lay permitting adversarial relationships to develop whenever problems arise. A number of existing organizations and mechanisms provide support to the engineer in private practice in the application of risk manage- ment tools: Organizations Professional societies Technical societies Liability insurance carriers Law firms Mechanisms Workshops Newsletters Model contract documents Seminars Home study courses Achieving Versatility and Profitability While Maintaining Professional Integrity and Objectivity The private practice sector of the engineering profession is currently grappling with major changes in business practice, changes related to nontraditional roles that are available and potentially beneficial to con- sulting engineers. Whereas private practice engineers have, in the past,

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48 S UPPOR T ORGANIZATIONS generally procured work based on the presentation of their qualifica- tions without price consideration, such firms today are more and more being invited to bid on design services in much the same manner as construction contractors. In addition, consulting engineering firms are finding increasingly that their role in a project is that of a team member in a design-build effort. Finally, the private practice engineer is also facing shortages of capital for public works projects, private develop- ment, and industrial expansion shortages that have drastically reduced both public and private demand for design services. To deal with this situation, engineers in private practice are beginning to offer a new type of service: the development and testing of new and creative methods for financing clients' projects. The pros and cons of these changes and trends are debated widely among private practice engineers. Regardless of the final consensus, however, the changes exist and their impacts must be acknowledged and dealt with. Typically, the private practice engineering firm is not confortable with the competitive bidding process as it applies to the procurement of design services. Nor is it generally adept at providing services as part of a design-l~uild team, particularly in dealing with questions related to conflicts of interest and potential liability. There is, therefore, an increasing need among private practice engineers for opportunities to acquire the requisite skills and take the precautions necessary to respond to and deal with these new demands successfully. Furthermore, it is becoming important for consulting engineers to become as conversant with funding alternatives as they now are with design, equipment, and material alternatives for a specific project. A number of support organizations currently exist that attempt to respond to this need: Professional societies Educational institutions Investment bankers Legislative bodies Seminars Short courses Publications Procurement procedures Organizations Mechanisms Technical societies Insurance companies Industry Workshops Postgraduate courses Standardized contract documents