By Lynn Pearcey, MBA, Copywriter, AIA Contract Documents
September 14, 2023
Table of Contents
Lack of Skilled Labor
Cost of Materials
The construction industry is one of the cornerstones of the national economy, producing an astounding $1.8 trillion annually in goods and services. Even the global pandemic that impacted so many other sectors couldn’t slow the growth of the construction industry. The growing demand for large infrastructure projects, residential units, and campus and university opportunities will continue driving growth in the coming years. But while the industry is resilient, there are challenges on the horizon that could slow growth. What follows is a listing of the top five that contractors should be aware of beginning in 2024 and beyond.
Lack of Skilled Labor
The Great Recession of 2008 had a catastrophic impact on the construction industry. Research shows that between 2007 and 2013 the industry saw 150,000 firms closing their doors. Those closures meant 2.3 million jobs were lost through a combination of layoffs, early retirement, and career changes. Regardless of how these professionals left their absence left significant shortages that the industry has not been able to fill. The ongoing scarcity of skilled workers is one of the leading causes of construction defaults including scheduling and cost overruns and increased on-site injuries. Technology is helping offset this phenomenon, but the pace of innovation may not be enough to manage the increasing needs.
The economy is a fickle place that sometimes teeters on the brink of recession. Ours has been in this place for the better part of the last five years. Economic uncertainty breeds desperation. For construction professionals, this often means expanding into areas outside their chosen fields of expertise. A residential homebuilder may begin pursuing commercial opportunities and vice versa. Sure, there are some similarities between the two project types, but there are far more differences. Operating in those differences is where many professionals fall short and assume risks they wouldn’t take in stable economic environments. The same is true for clients looking to hire a contractor. Their budgets might be spread thin, and to save money, they choose an unproven firm for no other reason than finances. The result is often poor work that has to be sent out to bid again. In these scenarios, all driven by economic concerns similar to what is being forecast for the coming years, no one wins.
Cost of Materials
During COVID-19, supply chains up and down the economy were hit hard, and the recovery is still ongoing. The construction industry was among those hit the hardest. To offset the resulting losses, prices on things like lumber, steel, and other materials used to build structures increased exponentially. Those prices remain inflated, and there are no clear indicators as to when those prices will decrease to the pre-pandemic rate. These increases have ripple effects on projects, cause delays in completion, and force clients to hire less experienced contractors, resulting in defaults in areas that can blow a project to pieces. Over the next five years, construction professionals must factor in these price increases and bid accordingly to protect their profit margins.
Technology impacts every part of daily living at some point, including construction, where professionals are slowly but surely infusing innovative technical components into their operations. Here’s the thing: Technology brings a need for increased security from hackers and cyber-criminal elements lurking in the darkness. Overall, the construction industry has been slow to adopt technology and even slower when adopting protocols designed to protect sensitive personal and business data. Construction professionals must be open to embracing technology in totality, including scalable protections, to remain viable in the coming years. Learn more about how to manage cyber security risks by viewing: Cybercrime and the Construction Industry: Managing Cyber Security Risks
The construction industry remains one of the most viable pillars of the global economy. But just like so many others, the industry is evolving. Not all challenges apply to every construction firm, but all warrant watching. Review your business and determine which ones impact yours and adjust accordingly to protect your current situation and long-term future.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.