What to Know About State and Local Architecture, Engineering and Construction Government Contracts in 2021

The state, local and education (SLED) market for architecture, engineering and construction (AEC) involves approximately 200,000 new competitive bids per year and is worth around $300 billion using the Census Bureau’s official estimates of Value of Construction Put in Place. GovWin’s database identifies architecture and engineering (A&E) and construction as two of our 12 major industry groups that we tracked in our quarterly series, most recently in the State and Local Procurement Snapshot for Q1 2021. 

Both construction and A&E trended sharply lower in bidding opportunities during 2020 due to the pandemic’s deep impacts (see chart).

With an expected rise in state and local AEC government contracts in 2021, we’ve outlined some of the trends to watch for the months ahead.

State and Local AEC Contracts Expected to Rebound in 2021

As far as the entire year of 2021, our forecast prepared in October 2020 calls for construction and A&E bids to grow by +13% combined following a difficult year where they declined by around 15%. That greatly improved outlook would place 2021 at around 96% of the pre-pandemic volume of bids. However, there is some evidence that this forecast may be on the conservative side because economic indicators have since trended higher and the often-discussed stimulus for SLED government of several hundred billion did finally get approved in March 2021. Understanding more about how these developments will impact AEC firms requires some investigation.

The consensus among economists is that while the outlook is brighter, much uncertainty remains. Our 2021 bid forecast in our annual 2021 SLED Government Contracting Forecast report, for example, gave alternative forecasts that placed 2021 in a range between 92% of 2019 all the way up to 99%, with 96% as the baseline.

Experts Discuss Trends in Architecture, Engineering and Construction Government Contracts

For more details on AEC government contracting trends we interviewed two industry experts: Author and consultant Mary Scott Nabers, head of the national consulting firm Strategic Partnerships, Inc., and Michael Heinsdorf, Director of Product Alliances at Deltek, an industry expert specifically on architecture and engineering related trends.

GovWin: How would you describe the health of the AEC market for state & local government in 2020?

Mary Scott Nabers: The year 2020 was a rough one for construction and A&E firms. Almost every project, whether government or private sector, was impacted in some way. Many firms struggled valiantly. Most government projects that could be halted were put on hold. Quite a bit of funding for projects had to be diverted to COVID related efforts. Policies and new rules for construction were put in place and almost everything changed because of COVID-19. Building supplies were tough to come by and there are still supply issues today. Many construction companies have told me they now order appliances, equipment and other necessities immediately when starting projects because it takes everything so much longer now to reach them.

Government did not shut down all work but there was a major slowdown in activity as public officials re-focused on urgent immediate needs. In spite of the slowing, there is a sense that compared to private sector work, government remains a viable and attractive market for AEC firms. In the past year, we’ve had dozens of companies that never pursued public sector work in the past call to say “We’ve got to diversify and get into government…” They are realizing that the public sector may slow down but it does not completely “shut down.” Citizen services, emergency and healthcare services must continue no matter what else is happening. Governmental agencies purchase every conceivable product and public assets must always be maintained. During COVID, many temporary facilities were constructed and anytime there is extreme weather, wildfires, flooding or disasters of any type, construction and engineering is required. I would advise any business able to provide services to both the public and private sectors to do so. The diversity provides great insurance and maximizes opportunities that can be pursued by tenfold.

GovWin: What is your outlook for 2021 for A&E firms?

Michael Heinsdorf: The good news is that coming out of 2020, a number of firms are seeing the proverbial “light at the end of the tunnel.” A key indicator is the American Institute of Architect’s Architectural Billings Index, which went positive in February 2021 and is made up of individual architecture firms reporting on their market conditions. While one month alone does not make a trend, and it’s likely to move around as the economy enters recovery mode, the key takeaway is that architecture firms are billing and getting paid for work, are seeing or getting more inquiries for new work, and are signing more contracts. Despite the severity of the 2020 downturn, 64% of the firms in the January survey expect their billings to return to pre-pandemic levels at some point in 2021. Engineering firms have not seen the same degree of contraction as architecture firms; however this will be positive news for engineering firms as well.

Both architecture and engineering are professions that are highly collaborative, traditionally both in-person and online, and many of the tools that practitioners had utilized to coordinate among the different disciplines and firms involved in a single project turned out to be just as useful for connecting within a firm.

GovWin: What about the prospects for the “everyday” non-federally funded construction projects?

Nabers: As long as the economy continues to be robust, growth in the private sector will support new opportunities and there are indications that citizens will continue to approve most local bond elections. It appears that 2021 will be a year for numerous bond elections, supporting many local opportunities. School campuses are a high priority throughout the country. We are tracking planned bond elections in 2021 already and many have already been announced while others are still in the planning stages. To look at the overall picture, when you consider the healthier government budgets because of COVID funding, new federal grant programs, a potential infrastructure bill, numerous bond elections and private sector investment in public projects, how can it not be a good year for government contractors?

GovWin: How will A&E firms compete for market share?

Heinsdorf: The best A&E firms will pivot to infrastructure work or expand the amount of work they are doing connected to return to work activities. This will result in those firms having to adjust their go to market strategies, assess their bench of talent and determine if there are skills shortages, and collaborate with new and existing partners on exciting new projects. The very best A&E firms who win these contracts don’t rely on their connections to find new work – they will in fact be using the business consulting world as a model to tailor the services they offer. These firms will be harnessing technology, a digital toolbox, to make sure that their firm has the appropriate staff and skills, that they are objectively assessing each project under a go or no go model, are using project management tools to manage deliverables and expectations, and are keeping track of the pulse of the client.

For the complete interviews with both Mary Scott Nabers and Michael Heinsdorf, as well as a comprehensive look at state and local government contracts in 2021 Q1, you can download our most recent State and Local Procurement Snapshot below.