Challenges and opportunities in the US construction industry
There are a lot of challenges to all business sectors at the moment, not least the construction industry. Many of those we have discussed recently, such as the rising costs of construction and its impact on construction claims.
However, alongside the global challenges, each region of the world faces its own particular set of hurdles when it comes to construction and the things that developers and contractors need to be mindful of when tender planning and managing projects and contracts.
Broadly speaking, while there are challenges, the construction industry is perceived to be in a positive space at the moment. A report from Deloitte noted:
“In 2022, as we move into the second year of recovery, the industry has a big role in supporting the nation’s growth plan. The Infrastructure Investment and Jobs Act (IIJA), with investments across health care, public safety, and other public infrastructure, is expected to bode well for the E&C firms and is likely to accelerate recovery across the nonresidential segment. The residential segment is expected to stay strong and exhibit similar activity as it did in 2021.
The industry has increased its investments in digital, including through mergers and acquisitions (M&A), as it prepares to shift toward connected construction capabilities. These technologies can help E&C firms support initiatives such as smart cities, urban air mobility, and climate change programs and help enhance internal operational efficiencies, reduce costs, and improve margins. 2022 is likely to be an exciting year for the engineering and construction industry.”
We wanted to take a brief view at some of the current areas of consideration in the US construction industry.
Labour costs affect project margins
Across the board, materials and labour costs continue to go up thanks to a shortage in both areas, also leading to delays. This has a knock on effect that makes it incredibly hard to price projects. Materials have reached a 40-year high based on the annual growth of the BCIS Materials Cost Index. Another report estimated that during the first seven months of 2021, the prices of critical construction materials observed double-digit increases every month.
In addition, a survey by the Associated General Contractors of America (AGC) found that “workforce shortages remain severe and are making it difficult for contractors to keep pace with demand.”
The labour shortage is not new; the high demand of the construction industry has made it a challenge to access the volume of different skills required for a number of years. However, the aftermath of the pandemic has exacerbated and further exposed that requirement. It is another factor that’s driving up the cost of construction. The skills shortage and consequences further impact financial risk for contractors as profit margins dwindle.
Working on a schedule
Supply chain disruptions and volatility, as well as labour shortages, present a problem for delivering projects, making schedules longer and once again more costly.
An Associated General Contractors of America (AGC) survey noted that 75% of E&C firms indicated project delays due to longer lead times or shortage of materials.
Supply chain disruptions and volatility are still considered one of the biggest challenges to the industry in 2022. The potential for claims as a result of schedule delays also adds risk for contractors.
The race to technology adoption and increased competition
The AGC report also noted that “most contractors expect demand for retail and office construction to continue to shrink as the pandemic leaves many offices vacant and online shopping takes a toll on brick-and-mortar operations.” While to some extent bricks and mortar retail and office offices have and will continue to regain favour post-pandemic, the move to digital has had an irreversible societal effect. With that in mind, the construction industry is not shrinking, but it is changing shape, as is the case with many industries.
Technology is often considered to be the driver in modern construction, giving companies the edge, improving project management and reducing risk of claims and disputes. However, for many business implementing that technology, especially after a challenging period, is proving to be a barrier to progression.
Those investing in technology solutions are seen to be racing ahead in the industry. Deloitte noted:
“Between August 2020 and 2021, US E&C firms acquired as many as 27 targets across the software, electronics, technology consulting and services, and motion picture fields. A move in the right direction, this is further anticipated to pick up pace in 2022 as E&C firms work toward acquiring technologies to help develop a connected, integrated, and automated operations foundation.”
There was a boost during the pandemic to technology adoption as many sought to digitise. Ultimately, these technologies can help bring assets, people, processes, and job sites onto one platform—making everyone and everything work smarter—reduce downtime, optimise asset utilisation and efficiency.
Tungsten Capital works with Rider Levett Bucknall (North America) to provide construction claims consultancy to the heavy engineering sector across North America. If you would like to find out more, please contact our team.