The late trial lawyer Edward Bennett Williams used to advise clients to be careful about asking for justice. "You just might get it," he warned. Many environmental consulting companies across the country have felt the sting of Williams' remark in recent years.
"The environmental consulting business has changed dramatically in ways that most of us think are good," says Michael McLaughlin, a senior vice president with SCS Engineers' Reston, Va., office. "Still, there is an element of being careful of what you wish for. The consulting community has argued for many years in favor of risk-based, site specific [regulatory] decisions instead of the application of strict and expensive [regulatory] standards. Now that regulatory agencies have begun to agree with us, there's less work to do.
In the 1980s, uncompromising regulatory standards fueled the explosive growth of environmental businesses, according to Steve Maxwell, managing director of the Boulder, Colo.- based TechKNOWLEDGEy Strategic Group, a consulting firm that addresses management and strategic issues in the environmental services industry. "In the mid 1980s, the environmental service industry boomed, not just in solid waste and hazardous waste, but also in support services like laboratory testing," Maxwell says. "Firms growing at rates of 30 percent annually were not uncommon."
But no industry grows that fast forever, Maxwell continues, and two forces applied the brakes.
In the 1990s, new environmental consulting firms sprang up, and older consulting engineers diversified into the environmental field. The new competitors fought existing consultants for business, and the size of projects began to decline as regulators applied less costly, risk-based standards.
In the solid waste sector, additional forces have affected the availability of consulting assignments. In the late '80s, strict Subtitle D regulations under the Resource Conservation Recovery Act (RCRA) forced nearly 5,000 of 8,000 landfills to close. The resulting concerns about landfill capacity led to the development of large new landfills, which today appear to provide plenty of disposal capacity. Nevertheless, fewer landfills to build means fewer assignments for consultants.
Evidence of regulatory easing has accompanied the growth of landfill space. According to Cary Perket, senior analyst with Environmental Information Ltd. (EI), Minneapolis, about half of the nation's municipal sanitary landfills have received waivers, exemptions or variances related to regulations requiring liners and leachate collection systems.
The recycling business has proven to be uneven, too. Recycling capacity nationwide often has outpaced the market, leading some waste management firms to downplay that aspect of this business.
The Solid Waste Sector What does all of this mean to the environmental consulting business, specifically the solid waste sector?
Based on a survey conducted by EI, Perket estimates that overall annual market demand for environmental services fell from $5 billion in 1993 to $3 billion in 1998. He believes this decline may continue or worsen through the year 2000 as regulatory conditions continue to evolve and price competition in a crowded industry grows more intense.
Perket also uses the underground storage tank (UST) program to make his point. "Since regulators began applying risk assessments in this program, it has had a significant impact on the market value of the program," he says. "We estimate that risk assessments may change the potential market for UST work by as much as $13 billion."
In other words, the value of UST projects today is lower than their value in the past, Perket continues. "What are you going to do if your firm has ramped up for remediation only to find that the market doesn't provide as much profitability as it once did?" Perket asks.
You may have to buy your way into another kind of business, says William C. Anderson, executive director of the American Academy of Environmental Engineers, Annapolis, Md.
Consolidating Consultants "Suppose a firm employs 2,000 people and focuses on site remediation, a business that is difficult to acquire today," Anderson says. "You may notice that the market is turning to projects related to upgrading the water supply. But this is outside your area of expertise. So you buy another consulting firm with a good track record in water supply projects and go after that market."
According to Perket, small firms facing similar problems may have nowhere to go. "The reality is that this is an inhospitable market for small environmental consulting firms that are not serving unique, enduring market niches," Perket says.
In a 1998 survey of 171 firms in the environmental consulting business, Paul Zofnass, president of New York-based Environmental Financial Consulting Group Inc., found that consolidation is a driving industry force.
A total of 63 of the surveyed firms expected to make acquisitions during 1999, up from 32 firms in a similar study taken in 1996. Companies participating in the survey expected a total of 113 acquisitions to be made in 1999, up from 47 acquisitions in 1996.
Based on a series of surveys conducted between 1988 and 1998, Zofnass estimates the size of the 1998 environmental consulting industry at approximately $19 billion per year. "This number includes some things that may not be related to environmental consulting," he says. "For example, a chunk of this, maybe 25 percent, might be hard remediation or construction work, as opposed to engineering and consulting work."
Unlike Perket's research, Zofnass's studies of smaller groups have concluded that the environmental consulting business is growing. His figures indicate growth of about 4 percent in 1997, up from 3 percent in 1996.
Whether the industry is growing or shrinking, more immediate issues relate to where current revenues are coming from, who those revenues are going to and what level of profit those revenues produce. This is changing the industry and will ultimately affect organizations working in the solid waste sector.
New Services in Store Zofnass predicts that about 4 percent of the estimated $19 billion general revenue goes to engineering and consulting fees related to the solid waste industry. That's about $760 million. "Judging by the responses to our surveys, these revenues come from services like design, engineering and permitting, but not construction work," he says.
Over the next few years, he estimates that the solid waste consulting and engineering sector will increase its revenues by about 2 percent per year, well below the 6 percent growth projections for sectors such as water and wastewater treatment, and transportation. Consequently, firms specializing in solid waste will have to fight for a share of a slow- or no-growth business, or look for new services to provide.
A number of industry observers, Perket included, suggest that these firms must begin to seek out new kinds of "sustainable" services. "Many consultants are too focused on project work," Perket says. "I think it's important to begin to develop a marketing focus on sustainable services, services that you provide day-in and day-out."
Sustainable solid waste services may include landfill closure followed by continual groundwater monitoring - a 30-year requirement under Subtitle D.
Sustainable services has made environmental engineering the second fastest growing business segment at Gresham, Smith & Partners, a Nashville, Tenn.-based consulting engineering firm with expertise in health care, aviation, corporate services, civil, transportation and environmental engineering. They focused on niches early and built their client base that way.
"Some firms continue to work project to project," says Joe Whitson, a partner and director of the firm's environmental engineering division. "We've found that we can maintain clients by addressing ongoing needs.
"In the solid waste area, we recently picked up a five-year, renewable contract to provide a variety of continuing services to the city of Nashville," he continues. "Under this contract, we're dealing with the closure of old landfills, a new solid waste management program and a new recycling program. We're also setting up a household hazardous waste management program."
The firm has a similar situation with the city of Jacksonville, Fla. "We're one of several consultants working under a 10-year contract covering a capital improvement program for wastewater services," he says. "Overall, we're still doing the same kind of work we have always done: design, engineering and evaluation, but our role has expanded. We have become members of our clients' teams, an extension of their staffs."
Because of its focus, Gresham Smith's environmental area has grown at double digit rates every year since 1983 and is approaching $10 million in revenues. Robert Hauser, senior vice president and solid waste practice leader at the Tampa, Fla., office of Camp Dresser & McKee, Cambridge, Mass., says that solid waste is a fairly stable business for them.
"We are trying to grow in those areas of the country and the world where we have room to do so," he says. Camp Dresser is focusing on international business, as well as on synergy opportunities. "Some solid waste applications apply to other applications, such as wastewater," he says.
Firms that manage to stabilize their current environmental consulting revenues through developing sustainable services eventually may find new growth in business categories - landfill reclamation, Brownfields development and sub-lethal toxicity - that, for now, remain experimental.
"The market for Brownfields is mostly in old, industrial cities," says Bob Gorman, vice president of redevelopment for NTH Consultants Ltd., Farmington Hills, Mich. "As more Brownfields sites come on-line, there is more opportunity."
NTH started a Brownfields redevelopment project in Detroit in 1995 that "became an anchor for that area," Gorman says. "One successful Brownfields site helps bring about more."
Landfill reclamation redevelops closed landfills for a variety of purposes. A number of former landfills have been successfully rehabilitated over the years, reports SCS's James Walsh in "Golf Courses to Greenhouses & Beyond."
After citing examples of closed landfills that have been transformed into facilities such as conference centers and recreation complexes, Walsh concludes by saying: "The challenges inherent in [developing] a closed landfill are substantial. Experience has shown that technical challenges such as settlement, deep foundations, gas protection, and health and safety issues can be met. Legal liability challenges continue to present impediments to landfill redevelopment. However, recent [federal and state] Brownfields policy initiatives, coupled with increasing experience on the part of national lending institutions, suggest that such impediments also can be overcome."
The Brownfields Initiative aims to return contaminated properties to productive use. Zofnass says, however, that Brownfields business in 1996 produced negligible revenues of about $200 million for consulting engineering firms.
The Brownfields program eventually may offer revenues close to $1 billion per year, according to some forecasts.
Perket doubts that figure, calling Brownfields a facade. The Initiative "is falling far short of the replacement driver that the remediation consulting and contracting field had hoped it would be," he says. "Real estate transactions to some degree are stimulating business where the Brownfields Initiative did not. But most believe that there still are a large number of sites that have not been addressed to date, and probably will not be under routine real estate transactions or the Initiative because the properties' commercial values are so low."
Perket notes that programs such as Brownfields have been developed based on assumptions made about the lethal effects of toxins found at contaminated sites. "In the long run, a bigger issue might be something called sub-lethal toxicity," he says.
Is sub-lethal toxicity an issue capable of capturing the attention of lawmakers and regulators?
That, of course, is difficult to foresee. But it does provide a reminder that environmental consulting in solid waste and other industries owes its period of explosive growth in the 1980s to the strict regulations that grew out of a desire to protect people from the effects of waste and other forms of environmental contamination. Should some issues re-ignite larger concerns about the quality of the nation's environment, those days may return. WA
The consolidation trend among environmental engineers and consultants has increased the difficulty of choosing a consultant for solid waste organizations. The process has evolved into more of an art than a science compared to the relatively straightforward Quality Based Selection (QBS) procedures. However, in today's world of consolidations and mergers, the logic of the QBS process can fail unless you pay attention to the details.
Well-documented over the years, QBS begins with a Request For Qualifications (RFQ), which asks firms to detail their technical expertise, depth of staff and experience with similar projects. The RFQ also requires engineering firms to submit recommendations from other clients.
Next, the solid waste organization develops a short list of respondents that will receive Requests For Proposal (RFPs) defining the scope and objectives of the project, a detailed schedule, a budget and any unusual elements.
Submitted proposals undergo a review emphasizing technical approach, related experience, budget and schedule criteria, financial stability, and key personnel qualifications.
The top respondent meets with the solid waste organization's search committee to negotiate the project's price. If those negotiations fail, the second ranked respondent is invited for a similar interview. The process continues until the selection committee awards the project.
However, this process may not work as well in today's consolidated environment unless careful attention is paid to the consulting firms under consideration, including their technical experience and the health of the firm.
Joe Whitson, a partner and director of the environmental engineering division of the Nashville, Tenn.-based Gresham, Smith & Partners, advises talking to the individuals who would be assigned to the job, asking specific questions about key technical and regulatory issues, and requesting a three-page outline describing an approach and schedule that meets the expectations created in the RFP.
Procurement people with a broad understanding of the industry also remain important to the process. Suppose a municipal solid waste department followed the QBS process step by step until a selection was made. Then, what if another consulting firm acquires the selected firm just as work begins?
Mergers and acquisitions typically create turnover during a transitional period. People leave. Others receive new assignments, or clients may find new engineers working on their projects, including people who were not involved during the selection process and people who must start the project from scratch.
"Today, a solid waste client evaluating consulting firms probably should go beyond looking at traditional credentials and try to understand a firm's status within the industry," says Paul J. Zofnass, president of the New York City-based Environmental Financial Consulting Group Inc.
In other words, solid waste organizations also must make judgments during the selection process about whether the consolidation trend within the industry will or will not affect the quality of the firms under consideration.