A Blueprint for Thriving in the New Era of Post-Pandemic Construction

4 Construction Industry Trends Affecting Your Business and Actions You Can Take to Improve Outcomes

by Ryan Prindiville
June 09, 2021

Updated August 23, 2022

Those in construction are all too familiar with the industry’s ongoing challenges, including materials and labor shortages, the impact of prefabrication and modular construction, sustainable building expectations and margin pressures from rising costs.

What we’ve learned over the past few years is that we can’t afford to become complacent. These challenges can be overcome with the right strategic approach. Here we review four prevailing construction industry trends and offer actions you can take to improve the outcomes for your business.

Materials Shortages and Rising Costs

Some of the most painful issues for construction companies right now are material shortages and rising costs, which can have serious consequences for cash flow and profitability. The global pandemic disrupted supply chains around the world, causing delivery delays and recurring shortages in building materials.

To date, many of those supply chains have not fully recovered. Consequently, material costs have skyrocketed, companies are seeing much longer lead times for supplies, and construction delays have become more frequent and longer.

Construction research firm Cumming reports that steel rose 25% to 50% in material cost over the past year. Lumber costs continue to increase every month. Increase in demand has not only led to cost increases, but much longer delivery times, with companies experiencing two- to three-weeks and longer lead times than pre-pandemic.

What you can do to alleviate the impact:

  • Double down on accurate and thorough project planning and job mobilization — these capabilities have never been more important to anticipate and plan for longer lead times and help minimize work stoppages and project delays.
  • Invest in improving your company’s skills, processes and technology around project management, procurement, and financial planning and modeling. Depending on your situation, this could include training employees, deploying new software, improving business processes and implementing industry best practices.

Labor Shortages and Stiff Competition for Subcontractors

Talent shortages are an ongoing issue for many industries, and construction is no exception. The dearth of framers, roofers, electricians, plumbers and other traditional tradespeople has continued to worsen over the past several years and was further exacerbated by the pandemic.

While there are signs of a resurgence in interest in trade schools, it has not yet provided needed relief for the widespread labor shortages in construction. Research from Autodesk and the Associated General Contractors of America found that 81% of respondents said they are having trouble hiring project managers and supervisors, and 52% reported difficulties in hiring hourly craft workers. The top positions firms reported difficulty in filling include laborers (43%), carpenters (35%) and crane/heavy equipment operators (29%).

The combination of the talent shortage and a rebounding economy means that subcontractors are in high demand. There are fewer skilled subcontractors available for a growing number of projects and firms are pitted against each other to secure scarce subcontractor services. This dynamic gives subcontractors more control over which companies they choose to work with and enables them to negotiate faster payment terms for their services.

What you can do to improve the outcomes for your business:
  • Compare your compensation and benefits to other firms in your area to make sure you are competitive.
  • Review and refine your recruiting, hiring and training processes to make sure you’re attracting and developing the best talent. Consider implementing an apprenticeship program, if you don’t already have one, to develop and retain the skilled labor you need.
  • Make sure you have a robust payroll system. Streamline and automate processes around sub-draw payments to make sure they are timely and accurate.
  • Evaluate upgrading your current systems or deploying modern technology. In the general contractors survey cited previously, 40% said they are implementing new technology to alleviate the labor shortage, including tools to improve project management (16%), field collaboration (13%), estimating (13%), workforce management (10%) and bidding (9%).

Technology Adoption

While adoption has been slower than in other sectors, don’t underestimate the growing impact of technology on the construction industry. Broadly speaking, technology helps construction firms operate more efficiently, complete projects faster and more cost effectively, reduce project and worksite risk, meet client and government expectations and requirements, and compete effectively.

From project management to time entry systems, cloud-based software enables employees to access the data and capabilities they need to be productive on the go, at a job site, from home or in the office. Whether accessing building plans, creating purchase orders, entering hours worked, updating job cost estimates or other time-critical tasks, employees can rely on a suite of technology that lets them quickly and efficiently get the job done using their phone or laptop.

By creating a connected ecosystem of technology, firms can reduce or maintain building costs in the face of higher prices for materials, reduce operating costs with automated processes and improve overall margins and profitability.

What you can do to modernize your operations using technology:

  • Get outside help to review the technology your firm currently uses, identify any gaps and recommend where you should invest to create the ecosystem your company needs to remain competitive.
  • Focus first on core technologies that address business-level efficiency problems such as construction management, procurement, payroll, accounting and finance. This is your solid foundation on which everything else is built.
  • Make sure the technology you’re using is integrated to eliminate double data entry, redundant processes and bottlenecks.

Modular and Green Construction

Modular construction and prefabrication are gaining momentum in the industry. Significant investment dollars are flowing into companies developing pre-built modules such as additional dwelling units (ADUs).

The prefabrication approach has a lot going for it, including shorter construction schedules, a greener building process, greater control over materials and less wastage. In short, modular construction lets companies build quicker, safer and cheaper than traditional, onsite construction.

According to the Modular Building Institute, modular building means that projects can be completed 30% to 50% faster than onsite construction. Plus, with the majority of construction completed inside a factory, there are no weather delays.

At the same time, the green building and sustainability movements are continuing to gain more traction in the industry. Some areas are approving green regulations and construction codes, while both home buyers and commercial clients are demanding eco-friendly, locally sourced materials. Green construction methods help reduce environmental impact during the different phases of demolition and building.

What you can do to prepare your business for new methods and models:

  • Confer with industry experts and peers to understand how your business can adapt to and take advantage of modular and prefabricated construction.
  • Get strategic advice and analysis from a financial, operational and technological perspective to guide your decisions on changing your business model to incorporate modular construction.
  • Model and analyze the adoption of green building practices on your projects to understand the financial and operational impact and potential benefits.
  • Work with a sustainability expert to understand the environmental impact new practices can have and then communicate those benefits to your organization and your clients to encourage adoption and differentiate your business.

Final Thoughts

While this is by no means an exhaustive list of trends and challenges impacting the construction industry today, it summarizes some of the most urgent areas where your firm should focus its time, energy and investment in the near term to help you survive and thrive in years to come.

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Ryan Prindiville - Consulting | Armanino
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