Today, the ACEC Research Institute released a new report that finds that using a lump sum contracting method to pay for engineering services benefits clients and engineering firms.
The report found that client benefits of lump sum contracting include cost savings, a lower administrative burden, and more effective cost management. At the same time, the model offers engineering firms increased staffing flexibility and better positioning to leverage artificial intelligence (AI) and other innovative technologies that benefit client delivery.
The report notes that a shift to lump sum contracting will help engineering firm executives successfully navigate the rapidly evolving technology landscape and the shift to funding for projects based on value rather than metrics that may not reflect the totality of the service engineering firms provide.
“A series of system-level disruptions are taking shape with the advent of AI and other emerging technologies that will transform the consulting engineering industry and the world as we know it,” wrote Javier A. Baldor, CEO of BST Global in the report’s foreword. “This industry’s underlying business model, which has remained unchanged for decades, is going to be upended. Where the consultancy of today is a pure-play architectural and engineering firm that operates largely on a time and materials basis, the consultancy of tomorrow will be a data first company operating on a value-based model.”
The lump sum contracting method allows clients to fund a project with a defined scope of work and then focus on the deliverable while the consulting engineering firm determines the best way to design the project including tapping into state-of-the-art practices.
The report found that projects more suitable for lump sum contracts include resurfacing, restoration, and rehabilitation (3R projects), bridge inspections, culvert replacements, and improvements to interchanges and intersections. Complex projects and projects with significant third-party engagement were noted as less suitable, along with projects that have complex maintenance of traffic (MOT) requirements, or projects with “unknown unknowns.”
While some public agencies like state Departments of Transportation (DOTs) use lump sum arrangements sparingly, other state DOTs use it quite successfully. Additional proponents of lump sum contracting include the Army Corps of Engineers which has effectively used lump sum as its preferred structure for professional engineering services for many years.
The report shows that the minimal use of lump sum arrangements by a client organization is not necessarily a sign of opposition or resistance, but rather due to other factors such as the lack of staff awareness and familiarity with lump sum contracting. One client organization said during an interview, “We do use [lump sum], but not to the extent that we should be using it. And I would say a big piece of that is just the lack of experience of our project managers using lump sum. It’s different, it’s new.”
Mike Carragher, VHB president and CEO and chair of the ACEC Research Institute hopes this report helps grow the practice of utilizing lump sum contracting. “This report shows that lump sum contracting can be symbiotic for the clients funding the projects, the engineering firms designing the critical infrastructure that we use every day, and our neighbors that expect high-quality infrastructure and smart use of tax-payer money.”
The ACEC Research Institute commissioned the study in partnership with Virginia Tech. The research led by Dr. Michael Garvin undertook expert interviews to provide a rich data set on perspectives surrounding lump sum contracting. Researchers conducted interviews with 14 client organizations made up of nine DOTs, three federal agencies, and two public transportation authorities. Researchers also interviewed nine engineering firms.
The ACEC Research Institute conducts original research on topics vital to the engineering industry including the quarterly Engineering Business Sentiment report which provides real-time perspective from firm executives and deep dives on pressing industry issues. Additionally, the ACEC Research Institute has provided nearly $1 million in scholarships to engineering students in the last year.
The ACEC Research Institute is the independent research arm of the American Council of Engineering Companies (ACEC) — the business association of the nation’s engineering industry. The ACEC Research Institute’s mission is to deliver knowledge and business strategies that guide and elevate the engineering industry and to be the leading source of knowledge and thought leadership for creating a more sustainable, safe, secure, and technically advanced built environment.
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