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(Source enr.com - Date 3/23/03)

By Judy Schriener

Koonce at 2001 AIA convention

The American Institute of Architects already had its financial challenges, including watching its net assets plummet from $9 million in 1996 to what looked like it would be $1.3 million in 2000. But accounting rules require the AIA to take the hit in 2000 for the demise of its AECdirect dot-com venture, so the Institute is ending up the year with a deficit of $5.6 million.

At the AIA's annual convention in Denver last week, Norman Koonce, executive vice president and CEO, openly addressed its financial woes, promising to turn the Institute around so it has positive net assets of $2.5 million by the end of 2003. He was less forthcoming when discussing AECdirect, citing "current negotiations" as the reason. Among other things, he is attempting to work out deals with partners and investors to preserve the intellectual properties that were licensed to AECdirect, including licenses to electronically sell the AIA's valuable contract documents.

AECdirect's impact is to reduce net assets by $4.4 million plus costs related to the dissolution of AECdirect, which the AIA figures will increase the current deficit to $5.6 million. In addition, since the AIA does not legally provide an organizational veil of protection for board members, they were reportedly told to each get his or her own lawyer in case of upcoming litigation.

"AECdirect was intended to empower AIA members through enhanced productivity tools; demonstrate members' leadership in the industry by fostering widespread use of AIA standards and guildelines; and generate additional revenue for the AIA to invest in better member services and professional knowledge," Koonce told the members. That statement also appeared in the May 8 letter sent out to members telling them of the Institute's financial difficulties.

The AIA owns 60% of AECdirect, the rest divided among the other investors, including McGraw-Hill, CMD, Bentley Systems, Hanley-Wood and IPIX.

Koonce admitted to members in an open business meeting that there had been "a serious lack of accountability" in the past and says the Institute is implementing a multitude of cost-cutting activities and initiating new standards of fiscal responsibility for management and the board of directors.

"This doesn't mean that the AIA is going out of business, by any means," says Koonce. "Our reserves do meet all of our requirements," he says. That means 50% of the annual operating budget, including liquid and nonliquid assets, currently totaling $19 million. "Our total reserves are in excess of $25 million. We're fine with cash flow, fine with reserves." Programs that serve members will not be affected, he says.

Cost-cutting measures include knocking down advertising from $1 million a year to $250,000 for 2002 and 2003, reducing expenses for board meetings and board members (including putting a halt to reimbursement for spouses' travel) to the tune of $280,000 a year and cutting down contributions to other architectural organizations and scholarship support. "We're getting pretty good at meeting by telephone," notes Koonce.

Among other remedial measures, the AIA has instituted a new budgeting process that will be project-based, and financial oversight that includes a board-level finance committee.

On the plus side, revenue increases are expected. The biggest is a $3 million up-front payment that will come from the extension of the AIA's contract with the McGraw-Hill Construction Information Group (parent of construction.com) through 2010 for Architectural Record to be the official magazine of the AIA.

The AIA for three years, from 1997 through 1999, operated on a budget that was in the red from the get-go. One factor was the elimination of supplemental dues, or dues from non-AIA architects working in AIA-owned firms, which had been $3.4 million a year. The AIA retained $1.5 million of that, leaving a deficit of $1.9 million, says Koonce. Instead of trying to come up with ways to make up for that income, the Institute "chose to count on membership growth," says Koonce. "It just didn't happen."

Koonce took over the helm of the AIA in mid-1999 so wasn't there when the deficit budgeting took place. "I'm sure there are logical explanations for many of the things that happened," says Koonce.

On the positive side, the AIA has or soon will have an enhanced Web site with member and non-member areas, the addition of "My AIA" personalization, a search engine in the library and an expansion of its lucrative electronic documents business. "We've been busy this past year getting the ship back in shape," notes James Dinegar, chief operating officer of the AIA.

The AIA has another positive note to tout, namely that for the first time in four years, it ended the year with a positive balance in the budget. "I was proud," Koonce told members, "even though it was only $100,000."

Photo by Judy Schriener

© 2001 The McGraw-Hill Companies - All Rights Reserved