As 2017 comes to a close, several major events and issues continue to plague the U.S. construction industry.
However, the industry’s labor shortage and increasing material costs top the list, now much more acute in the wake of three destructive hurricanes that tattered the Caribbean, Florida and Texas and wildfires that blasted northern and southern California.
The Plague: Labor Shortage
The construction industry has been growing within the last few years, and this growth is expected to continue, but with an anticipated slowdown in 2018. Despite this, many subcontractors and resources strongly indicate finding qualified workers in the industry remains a major problem. Some companies have taken measures to try to fix the problem, such as increasing spending on training and raising workers’ pay. Others are advancing their technology usage to offer employees new skills and growth opportunities.
With a shortage of skilled workers and incredibly high incident rates, safety is increasingly becoming a concern as contractors have to work with a diverse, inexperienced labor force, meaning construction companies have to invest heavily in safety training programs. The labor problem had its roots in the economic downturn when many construction workers were laid off and never returned. To further exacerbate the issue, the millennial generation came of age, and the construction industry has been slow to appeal to the technology-born generation that believes education and economic accomplishments are significant.
Stagnant profitability and productivity
In addition to the labor shortage, the construction industry is still ailing from obsolete business practices as well as being saturated with point solutions inadvertently creating data silos, which are barriers to process improvements and significant efficiency gains. The resultant competition is stifling better business practices and investment in new technology that addresses shrinking profit margins. To make it even worse, labor productivity has remained stagnant for decades.
In 2016, a World Economic Forum (WEF) report found that global productivity in engineering and construction had remained nearly flat for 50 years, due to industry fragmentation, volatility, relatively low profits and weak capitalization. The news is worse in the United States, where productivity has fallen during the past 40 years. According to a McKinsey study, construction productivity has increased a mere one percent per year over the past two decades. Consequently, poor project management and execution directly correlate with poor productivity performance.
The connection between poor productivity and poor project management is significant. A study by PMI concluded that poor communication is the primary reason for project failure 33 percent of the time. Additionally, ineffective communication negatively impacts project success more than 50 percent of the time. Therefore, improving communications between stakeholders (owners, architects, builders, subcontractors and suppliers) can increase construction productivity. In the future, poor productivity may become a thing of the past with the digitization of the industry.
Increasing Construction Material Costs
According to the U.S. Bureau of Labor Statistics, material costs rose 4.8 percent over the past year. With uncertainty in the construction industry, builders, contractors and suppliers need to be concerned about the increasing costs of building materials. Rising energy prices, market uncertainty and supply and demand in flux compound the concerns across the U.S. construction market.
Rising material and supply prices is a multi-dimensional problem that requires contractors to be proactive in managing budgets and job costing, especially with continued demand for materials and uncertainty surrounding potential tariffs and international import changes.
According to ABC Chief Economist Anirban Basu, robust construction activity has contributed to the rise in material prices in addition to the post-hurricane recovery in the Southeast U.S. and Texas. The U.S. demand for building materials should not ease up for the next few years due to the significant damage incurred by Hurricanes Irma, Harvey, Nate and Maria, as well as the wildfires in Northern and Southern California.
Construction job costing software is now essential for contractors that want to increase profit margins in light of being threatened even further with the rising cost of materials and labor.
Construction project managers must have access to accurate and complete job costing utilities, as well as real-time updates on the firm’s financial health to ensure that projects don’t eat up the budget. Integrated job costing software platforms are a contractor’s most significant weapon for estimating costs accurately to ensure each construction project generates reasonable profit margins.
Financial institutions can also offer flexibility in loans for construction firms with proper credit and assets to for collateral. However, this is not the ideal route if the company needs to secure cash to pay workers or purchase final materials to avoid costly project delays before receiving payment for services rendered.
It is an unfortunate fact that the construction industry – primarily building projects – contributes up to 40 percent of all solid waste in the U.S., igniting a wave of interest in sustainable architecture and construction. The result is an expanding green building industry (GBI) at an accelerated rate making a significant economic impact in the U.S. In 2015, the GBI reported that the industry contributed $134 billion in labor income to American workers, and is expected to account for more than 3.3 million jobs in the U.S. in 2017.
With the continued socioeconomic and environmental contributions GBI makes in the U.S. and job creation for working Americans, green building will gain more recognition and proliferate in the commercial and residential market. Many green building strategies also reduce the costs for construction projects which add to the winning build strategy.
Environmental sustainability has become a very hot discussion topic over the last few years and is expected to continue beyond 2018. The ecological benefits will continue trending throughout the construction industry, along with the emphasis on financial benefits.
Technological advancements and disruption
While the construction industry in 2017 continues to see transformative technology introduced, soon contractors will no longer have a choice but to adopt. Technologies like augmented and virtual reality, robotics, generative design, 3-D printing, additive manufacturing and many others were showcased at Autodesk University 2017.
With mobile and cloud-based applications becoming more accessible and affordable, technology adoption will increase in 2018. Increases are expected in drone and 3-D printing usage, as well as autonomous vehicles. The advancements in virtual and augmented reality solutions are revolutionizing the industry by examining finished projects before construction begins through virtual construction site tours.
Also, expect to see greater integration between pre-construction design software and labor delivery platforms in 2018. Best of breed platforms will exponentially increase communication, accountability and productivity to enable unparalleled stakeholder (owner, architect, builder and subcontractor) collaboration and efficiency for delivering projects on time and on budget. This people-technology approach presents the best hope for productivity gains within the integrated project delivery (IPD) framework.
Other Trends to Watch in 2018
As major events in 2017 continue to move the construction industry, contractors need to keep educating themselves on new and emerging trends or risk falling behind. With increased material prices, continuing labor challenges and moderate growth, the new technology adopted by these contractors is going to help propel these construction firms into firm leadership positions.
The construction industry is ripe for being disrupted and here’s what we know.
Slower growth, higher costs bring greater competition and more emphasis on technology, enabling collaborative project delivery methods
While construction demand is expected to grow slower than initially forecast, in the early months of 2018 this will be especially true for commercial and residential sectors, making the competition even more fierce. As Dodge Data & Analytics reported, commercial building will rise only two percent, following a three percent gain in 2017, and continue to decelerate after the sharp 21 percent hike back in 2016.
Overall, the construction industry has a bright outlook. Its many challenges can be overcome with innovation and collaboration. The best measure construction companies can do is continue improving through knowledge and consider new ideas and concepts for building tomorrow. The evolution of the construction industry is underway and fast-tracking into 2018. Only the strong will survive.
The popularity of collaborative project delivery methods is growing while the days of design-bid-build domination may be waning, as experts expect collaborative approaches to become more commonly adopted for construction projects. Public-private partnerships, integrated project delivery and design-build are the three most often cited methods. Powered by “best of breed” integrated technology platforms to support all stakeholders, these approaches that will alter the face of the industry will gain ground in 2018.
With the introduction of BIM 360 integrated with labor delivery software and the rise of new forms of manufacturing, new technologies and approaches are radically changing how the world’s infrastructure is designed and built.
Being in the position to design and solve construction problems pre-build can save significant time and money on project delivery. Industry experts believe technology can increase productivity between 30-40 percent over the next five years. Imagine how much money this translates into for construction companies.
Prefab and modular construction
Because of its cost-effectiveness and energy efficiency, prefab and modular construction have become an increasingly popular trend in 2017. With construction material costs expected to increase, prefab and modular commercial and residential development will continue to be an attractive option in 2018. The use of RFID data is now being introduced to help mitigate the effects of potential downstream construction delays. For example, using RFID sensors, individual prefab parts can be tracked throughout the supply chain as seen in the construction of the Leadenhall Building in London.
Better safety procedures
The construction jobsite is a dangerous place, and well-documented evidence of workplace accidents has placed the industry under increased scrutiny in 2017. With new technology including safety mobile apps and safer training programs, builders have more resources than ever before to ensure a safer work environment for inexperienced and experienced workers. Expect to see continued focus on implementing better safety procedures in the field. Safety technology will also improve in the coming year.