Several industry surveys and reports forecast continued growth in the construction industry. It is expected to record a CAGR of 4.9% to 1,804.8 billion by 2023. Regardless, there is still a general sense of optimism. With continued growth and positive outlook in the construction industry, what can possibly be keeping construction executives up at night? Below, are the top issues facing the construction industry in 2020.
1. Unpaid work
Of course, finances are one of the major issues facing the construction industry in 2020. With a responsibility to ensure the livelihood of their employees and their families, it is important to have positive cash flow for their company. Unfortunately, subcontractors are not receiving payment for their completed work in numerous instances. Subcontractors typically file claims against their general contractors and owners in several major projects. For example, contractors claimed $11 million in unpaid work at Kings’ downtown hotel project. Another $11 million has been unpaid in the Astros Nationals ballpark project, and $3 million is still unpaid at Disney. These are just the stories that made the news. Subcontractors are front-loading costs on many projects and paid their suppliers and employees. However, they are patiently awaiting payment from the General Contractor or owner who may be disputing the payments, although the work is completed.
The General Contractor in the dispute with subs on Disney work stated, “Simply billing for work is no proof work was ever done.” Subcontractors need to develop thorough best practices to prevent putting themselves in similar scenarios. Photos and notes provide visual documentation of any job site issues that teams address the rework that may be needed. Foreman must document any delays, disruptions, and lost hours. Additional documentation, including signed approvals on submittals, change orders, etc. serve as irrefutable proof to receive any payment on claims.
Additionally, according to the 2019 National Construction Payments Report, only 61% of contractors are paid in full on every job. Those that don’t get paid in full say that back charges, deductions, and withholdings frequently get added on after a project is finished.
2. Retirement of aging boomers
There is a shift in the workforce and personnel. The construction industry faces a skilled labor shortage and an inflow of inexperienced workers. This could be an issue because it can increase the injuries and accidents on job sites. The projected change of employment from 2018 to 2028 is 10% faster than average, according to the Bureau of Labor Statistics.
Across the nation, thousands of baby boomers are retiring per day. This is a troublesome statistic considering that 54% of construction managers are boomers. With them leaves the requisite knowledge and experience that they have gained over their career. Construction executives must figure out how to transfer all of that knowledge to a new batch of hires in a time of labor shortage.
Additionally, many trades are also attending high school career fairs to proclaim construction as a desirable profession. Through active outreach, many construction companies are improving recruitment into the trades. Several construction companies are developing a mentorship program to bridge the knowledge gap between baby boomers and younger workers.
To attract new talent and younger workers, an effective strategy is to implement a training or apprenticeship program. With proper training and guidance, the future of construction will have the tools and skills needed for growth.
3. Varied technology among General Contractors
For every general contractor that incorporates new technology, they provide access to their subcontractors to use the same technology for collaboration. However, subcontractors work with multiple general contractors who may all use different software. Subcontractors can become overwhelmed by learning multiple solutions to meet the requirements of their general contractors. There are project management solutions that have integrations with daily reports, change orders, submittals, etc. that can help improve productivity in the field. The transition to technology is one of the top issues facing the construction industry in 2020, but it can also shape the future.
This arrangement benefits the General Contractor and not the subcontractors. When subcontractors use their general contractor’s project management solutions, this can put them at a disadvantage. The GC owns the system and its documentation. In the event of a claim or dispute, the General Contractor can and will likely revoke access to the subcontractor and edit any information as they deem fit. Although it may create additional work for your team, subcontractors must maintain their document management system to protect themselves in a dispute.
We live in an innovative digital world. BIM, Building Information Modeling, is a rising trend in the construction industry due to its ability to optimize the building process. Thus BIM is improving energy efficiency in construction by helping subcontractors visualize the construction project in each phase.
There are countless benefits to incorporating BIM technology into your construction processes, especially environmentally and economically. Environmentally, BIM can reduce carbon footprint and enhance the building’s energy consumption. BIM is proven to reduce energy consumption and the overall cost of maintenance by up to 20%.
4. Unfavorable contract terms
Construction projects inherently assume a lot of financial risks. Disjointed interests shift a large amount of risk to the subcontractor. In increasing numbers, subcontractors are receiving contracts with unfavorable terms such as liquidated damages, consequential impacts, warranty coverage, etc. One should pay close attention to every clause in a construction contract. Some clauses include, but are not limited to subjects including warranties, lien waivers, payment conditions, and change orders. Any missed deadlines will directly hit your pocketbook.
However, many subcontractors experience delays that may be due to no fault of their own or unforeseen circumstances. Documentation tracking lost hours, schedule changes, any delays, or disruptions is the key to protection against liquidated damages.
Construction work is inherently dangerous, which makes insurance and workers compensation costly expenditure. 71% of respondents in a risk mitigation webinar stated they had experienced a safety incident or injury in the last 12 months. Stricter punishments are enforced against companies that are accused of negligence. In addition to financial penalties, some construction company owners and/or their foreman are being convicted of manslaughter. Some receive community service or probation. However, in one instance, the judge sentenced the foreman to prison.
Furthermore, unsafe practices jeopardize the safety of employees and carry severe penalties. Contractors can mitigate risk and ensure their teams follow required safety procedures. Completing safety meeting forms and inspection checklists become important to ensure that your company has gone through the requisite measures to follow safety standards. This will help mitigate the risk that any incident will take place and additionally provide documentation to remove your firm from any negligence.
6. Project delays
Unforeseen job site conditions. Scope changes. Design rework. All of this leads to project delays, with only 25% of projects coming within 10% of original deadlines. Subcontractors attribute delays and change orders to design-induced rework and changes in scope. Companies submit project proposals based on the availability of resources. Therefore, delayed projects will cause a kink in the entire schedule and resource management of a construction company. Project delays are a top issue facing the construction industry in 2020 because there were pauses in construction during COVID-19’s social distancing and stay at home orders.
With cost and schedule overruns becoming the norm in construction, the integrated project delivery (IPD) is gaining traction. IPD brings together the owner, architect, general contractor, and major subcontractors at the beginning of the project to collaborate on designs, schedules, and costs. Because subcontractors perform the majority of labor on commercial projects, aligning their interests with the owner and designer creates a streamlined integrated labor delivery method. Subcontractors serve as the subject matter experts, who are responsible for the articulation of the intricate and complex designs and need a seat at the design table to ensure a building is up to code and contract specifications. A project based on an integrated labor delivery model connects all the stakeholders to improve communications, accountability, and productivity.
7. Rising cost of materials
For construction materials like aluminum, steel, and timber, their common base price is rising because of newly imposed tariffs. These can raise the overall construction cost and expand the profit margins for contractors. With this, it might be a good idea to edit clauses or add clauses in your contracts to allow for wiggle room for changes in material costs. In terms of materials, many of them originate from China and due to COVID-19, there might be disruptions in the supply chain in an attempt to slow the spread of the virus. Thus, these disruptions can impact the price of materials.
It is crucial to carefully track changes in contracts and to ensure that everything is recorded in document form and that everyone is on the same page. Indiscretions can cause miscommunication and delay projects. In these circumstances, tracking costs in change orders make billing easier for construction accounting as well as increase profit margins overall. Project managers should continuously search for methods to improve productivity and reduce waste.
Top 7 Issues Facing the Construction Industry in 2020