Every year, the Deltek Clarity A&E Industry Study gives architecture and engineering firms something concrete to work with: real data from real firms about what's working, what's stalling, and where the industry is heading. The 47th edition surveyed 896 firms of all sizes and types, and the throughline is clear. This isn't a market that rewards guessing or going through the motions. The firms pulling ahead are the ones making intentional, disciplined decisions at every level of the business.
Nowhere is that shift more visible — or more urgent — than in the Financial Management data.
The mood has changed
For the first time in several years, increasing profitability displaced finding and retaining qualified staff as the top financial challenge, named by 54% of firms. Talent pressures didn't go away — 49% still list them — but financial pressure moved to the front of the line. That's a meaningful signal. It tells us that firms have shifted from "how do we grow fast enough to meet demand" to "how do we protect what we built."
The numbers back it up. Operating profit on net revenue fell to 16.7%, down 4.7 percentage points year over year. Revenue backlogs contracted sharply — from 9.0 months to 6.3 months. Firms are still profitable by historical standards, but the conditions that produced record performance over the past two years are moderating. The margin for error is narrowing.
The firms navigating this best aren't chasing volume. They're being deliberate — about which projects to pursue, which clients to deepen, and how they price their work. That kind of intentionality doesn't happen by accident. It requires real-time visibility into the data that drives those decisions.
What the utilization number is actually telling you
The median utilization rate fell to 58.9%, down 2.2 percentage points from 61.1% the year before. That drop was felt across every firm segment, with large firms taking the steepest hit — falling from 62% to 58%.
Here's something important to understand about how Clarity measures utilization: it's calculated in dollars, not hours. Specifically, it's the cost of labor charged to projects divided by the total labor cost of the firm. That distinction matters — a lot.
A decline in utilization doesn't mean your people are doing less. It means a smaller share of your total labor spend is going toward billable work. The hours are still being logged — but more of them are landing in business development, internal initiatives, training, overhead, or other non-billable categories. When utilization drops, it's often a sign that the work mix inside the firm is shifting.
That shift is likely to accelerate. As AI tools compress the time required for technically complex but repeatable tasks — calculations, specifications, drawing revisions, report drafts — billable technical work gets done faster. That's good for delivery. But it also means more hours open up, and where those hours go matters enormously for the financial picture. If they flow into overhead and non-billable activity rather than additional billable scope, utilization drops further. If they flow into higher-value strategic work that commands better pricing, the firm comes out ahead.
The firms that will manage this well are the ones tracking it in real time. That means understanding their utilization not just at the firm level, but by project type, role, and team — and course-correcting before it shows up as a problem in the year-end numbers.
The compounding pressure of labor cost and overhead
Declining utilization doesn't exist in isolation — it connects directly to two other metrics that are moving in the wrong direction at the same time.
Total labor cost per employee rose to $119,511, up 3.6% from the prior year. Gross wages per full-time equivalent approached $100,000 for the first time, up 5.1%. Firms are spending more on their people — which makes sense in a competitive talent market — but they're converting less of that spend into billable work.
The result: the overhead rate hit a new 10-year high of 161.3%, up 1.3 percentage points. The math is straightforward. When fewer labor dollars are directed toward billable projects, more costs get absorbed into overhead. And higher overhead compresses the margin available for profit — even when pricing holds steady.
Together, these three metrics — utilization down, labor cost up, overhead up — describe a firm that is spending more to generate each billable dollar. The firms that recognize this dynamic early and act on it have options: adjust project selection, protect billable time more aggressively, improve pricing, or find ways to convert non-billable overhead hours into billable capacity. The firms that miss it until year-end have fewer.
Where firms see their greatest growth opportunities
Given the financial pressure, you might expect firms to be in retreat mode. The growth opportunity data tells a different story — but it's a story about targeted investment, not broad expansion.
Firms ranked investing in project managers and project management first, at 27%. Small and medium-sized firms leaned into this most heavily (30% and 28% respectively), which makes sense: PM capability directly drives project margins, billing accuracy, and client satisfaction. A financially literate PM who understands how scope changes affect profit is one of the highest-leverage investments a firm can make.
Growing your brand and optimizing resource allocation tied for second, each at 19%. Those aren't vanity goals — they reflect the strategic reality of a tighter market. Brand visibility matters more when you can't afford to chase every pursuit. Resource optimization matters more when you can't hire your way out of capacity constraints.
One divergence worth noting: large firms ranked mergers and acquisitions as their top growth opportunity at 33%. The strategic acquisition play is increasingly how larger firms expand without relying on organic growth alone — and the data on firm valuations supports it. The share of firms that completed a valuation in the past two years rose to 57%, up 6.5 percentage points, with large firms leading that trend significantly.
The throughline across firm sizes is doing more with what you have. That requires better data, tighter processes, and systems that give leaders the visibility to make smarter decisions faster.
Reading the revenue mix: clients, projects, and contracts
The revenue composition data in this year's Study is worth spending time on — it points to where the industry is moving and, by extension, where firms should be positioning.
On the client side, private-domestic clients remained the majority at 56% of revenue. The most notable shift was public-private partnerships, which rose six percentage points to 32% — continuing a multi-year trend as firms gravitate toward more stable, structured funding sources. Federal revenue declined four percentage points to 11%, consistent with broader uncertainty around federal funding priorities.
On the project side, transportation stayed at the top at 25%, while residential fell two percentage points and water/wastewater/stormwater declined five points. The real story is in the growth categories: energy and power rose to 18%, and data centers debuted as a new category at 10% — reflecting the surge in AI infrastructure investment driving demand across the country. For firms not yet active in these markets, the window to establish a track record is open but narrowing.
On the contract side, fixed-price contracts remain dominant at 57% of revenue, and the overall mix held remarkably stable. The Study flags an important nuance here: contract type is often driven by client preference, especially in public-sector work. But as cost pressures build, firms may want to evaluate whether their current contract mix adequately protects against the margin risks the data is surfacing. If fixed-price contracts are where the volume is, pricing discipline, resource planning and scope management become even more critical.
AI is reshaping the financial initiatives list — and that's a story worth telling.
The financial initiatives data includes something new this year: AI and technology adoption debuted as a response option and immediately tied for third, with 34% of firms naming it as a key financial initiative. That's a strong first-year showing, and it reflects the broader theme running through every section of this study — firms are increasingly treating technology as a direct lever for financial performance.
Here's what makes this interesting: several other initiatives declined in the same period. Streamlining billing processes dropped five percentage points. New financial system implementation also fell five points. These aren't coincidences.
When firms invest in AI and technology adoption as a financial initiative, they're often addressing the same underlying problems that "streamline billing processes" and "new financial system implementation" were trying to solve — just more comprehensively. Technology handles the heavy lifting; the initiative becomes less about the tool and more about the outcome.
For firms still running manual or semi-manual billing workflows, or managing financial data across disconnected systems, this is the moment to ask: are you building the foundation that lets technology deliver on its promise? Because the firms seeing real financial returns from technology investment are the ones who did the infrastructure work first — clean data, integrated systems, clearly defined workflows.
This is exactly where Full Sail Partners can help. Our custom development work addresses the gaps that off-the-shelf tools don't cover — the stored procedures, custom reports, and system-specific automations that make Deltek Vantagepoint work the way your firm actually works. If your billing process still requires manual intervention at key steps, or your financial reporting requires someone to manually pull and reconcile data, that's a solvable problem. We've helped dozens of A/E/C firms close those gaps.
We've also been building out educational resources specifically around accounting and financial operations in Vantagepoint. Our recent accounting webinars have covered topics like billing workflow optimization, invoice configuration, and month-end close — practical, scenario-based content designed for the people who actually run these processes. If you haven't attended one yet, keep an eye on our upcoming events.
What to do with all of this
The financial picture in this year's Clarity Study isn't a crisis — but it's a clear turning point. Firms that thrived in the growth environment of the past few years will need to operate differently to sustain performance in a more constrained one.
The most important thing is visibility. You can't protect margins you can't see, and you can't improve utilization you're not tracking in the right way. Firms that have real-time access to the metrics that matter — utilization by role, overhead trends, project profitability, billing velocity — are better positioned to respond early rather than react late.
The second is intentionality. This word comes up again and again in this year's data, and it's by design. Being selective about which projects to pursue. Pricing work that reflects your actual cost structure. Investing in PM capability as a financial discipline, not just a delivery one. Building processes that protect billable time rather than eroding it.
Full Sail Partners works with A/E/C firms at every stage — from Vantagepoint implementations to ongoing optimization to custom development that closes the gaps your ERP can't. If you want to talk through what the Clarity data means for your firm's financial strategy specifically, we'd love to have that conversation.
Catch up on the series so far: Technology Trends | Business Development
Next up: Project Management — we'll dig into how firms are managing delivery pressure, what the data says about accountability and performance, and where AI is starting to change how work gets done.
