Beyond the Numbers: What the 46th Clarity Study Reveals About the Future of A&E

The Deltek Clarity Architecture and Engineering (A&E) Industry Study is the longest-running report, offering trends, benchmarks and analysis of the industry. The Study is based on survey data from nearly 700 participating firms, completed between January and mid-March. The results allow firms to compare their performance against their peers, identify areas for improvement and develop strategic action plans based on the data.

A&E Firms Embrace AI and Digital Maturity Despite Hurdles

This year's Study reveals a growing commitment to technology and digital transformation across firms in the A&E industry. A striking 74% of firms expect to reach mature or advanced stage on the digital transformation maturity spectrum within three years, reflecting a strategic alignment between IT and overall business goals. Adoption of artificial intelligence (AI) is accelerating—53% of firms already use AI and machine learning, while two-thirds have embraced generative AI for tasks like proposal writing and data analysis. While these advancements signal progress, the journey toward full digital transformation is far from seamless, as challenges remain.

76% of firms report that they struggle to prioritize relevant technology trends, nearly 60% citing cost as a barrier and many facing time constraints that limit learning opportunities. In addition, manual data entry persists, especially in finance, signaling a high potential for automation. Larger firms are adopting AI faster than small firms, potentially widening the competitive gap.

To retain a strategic edge, firms should assess their digital capabilities, align goals across departments and identify areas where AI and automation can drive the most significant impact. By leveraging their existing tech stack and closing capability gaps, firms can foster the innovation needed to succeed.

A&E Firms Report Strong Financials Amid Rising Costs and Margin Pressures

2024 was a strong financial year for A&E firms, marked by rising operating profits, record-high net labor multipliers and improved cash flow. Despite these gains, the industry is contending with growing cost pressures, particularly from rising employee expenses, tighter project margins and persistent staffing challenges—with 59% of firms citing recruitment and retention as a top financial concern.

The operating profit on net revenue reached a 10-year high, with large and high-performing firms outpacing others. Collection periods improved, indicating better cash flow, although some firms still exceed the 90-day threshold. Utilization rates have stabilized, with architectural firms seeing a slight dip.

To maintain profitability, firms are encouraged identify inefficiencies, actively monitor key performance indicators, explore automation in finance operations and increase project managers' financial knowledge. Improving collection practices is also a crucial next step. Firms are doubling down on financial discipline to stay resilient amid increasing cost and pricing pressures.

A&E Firms Shift Focus to Developing and Engaging Talent

According to the Deltek Clarity Study, firms are pivoting their human capital strategies from aggressive hiring toward retention, development and engagement. The staff growth rate has slowed to under 3%, down from 7% last year, signaling a stabilization in workforce expansion. While turnover has remained steady overall, medium-sized firms saw an increase, and top-quartile firms reported turnover nearing 20%. Workforce disruptions have added complexity—more than 40% of firms experienced reductions in force (RIF), nearly a third underwent merger and acquisition (M&A) activity, and 31% saw increases in voluntary departures.

Amid persistent challenges in finding qualified staff, firms are investing in upskilling, cross-training and career development initiatives. Enhanced compensation and employee engagement efforts are also gaining momentum to help retain talent.

To navigate ongoing workforce challenges, firms should focus on identifying their specific talent management pain points, leverage technology to streamline HR functions and boost engagement and implement career development programs that align with long-term business goals.

A&E Firms Tackle Complexity, Forecasting and Visibility Gaps

Project managers face mounting pressures, and strong project management is essential to organizational success. While 75% of projects are now reported to be on budget, a four-year upward trend, schedule adherence remains a significant hurdle, particularly among lower-quartile firms. Project complexity, staff shortages and competing priorities continue to strain project managers, with 64% of firms ranking competing priorities as a top challenge. Many project managers are stretched thin across business development, design and execution responsibilities, and 31% of firms cite challenges in forecasting as a leading cause of budget and timeline issues.

A lack of real-time visibility into project performance metrics further compounds these challenges, limiting proactive decision-making.

To strengthen project outcomes, it is essential to investigate the root causes of scheduling delays, invest in project management training, especially in financial oversight, and enhance forecasting tools and processes. Empowering project managers with better data and dedicated support will be key to managing increasing project complexity and maintaining profitability.

Strategic Focus Takes Priority with Rising Competition in Business Development

A&E firms expect continued net revenue growth, though at a slower pace than during the immediate post-pandemic boom. Despite strong win rates and higher pursuit values, firms are submitting fewer proposals, signaling a more targeted, strategic approach to business development. Roughly one-third of revenue remains concentrated among just three clients, especially in small and architectural firms, making client relationship management a critical focus.

Key challenges include limited time to nurture client relationships, increased competition and difficulty identifying new prospects. The lack of market intelligence is also emerging as a concern. Growth expectations vary by sector, with energy, power and transportation offering promising opportunities, while federal and education sectors face projected declines.

To stay competitive, firms must pinpoint growth opportunities, realign pursuit strategies based on shifting market conditions and strengthen relationships with high-potential clients. Implementing robust tracking systems and leveraging technology can help firms maximize limited business development resources and improve strategic pursuit targeting.

Resilience Through Strategy

The 46th Annual Deltek Clarity A&E Industry Study underscores the importance of strategic adaptation. Leveraging technology, investing in talent, strengthening project management and refining business development efforts are best practices that will help A&E firms navigate today’s challenges and position themselves for long-term success.