Navigating the Road Ahead
Posted on: 09 Jul 2020
Embracing change in the way we work and learning lessons from recent history can help contractors move forward.
There is no playbook for the current state of the North American construction economy. While much of the industry was deemed essential during initial shutdowns, the long-term effects of social distancing, reduced revenues and consumer confidence on the construction market are uncertain.
Contractors, owner/operators and other businesses serving the construction market should proactively review conditions in the area, project backlog, biddings and workforce conditions as they look at ways to push beyond the heart of the construction season.
We talked with two economists representing significant public and private interests in the construction industry — Dr. Alison Premo Black, senior vice president & chief economist with the American Road & Transportation Builders Association (ARTBA), and Ken Simonson, chief economist with The Associated General Contractors of America (AGC) — to look at what we can learn from the “Great Recession,” how the market is changing and ways that contractors can fortify their foundation for future success.
Diversify and Leverage Strengths
A frequent refrain in the post-Great Recession recovery was the discussion/angst over how contractors began bidding on jobs outside of their usual geographical area, or on projects smaller than they’d typically bid on.
“There’s certainly no single formula for success or survival,” says Simonson. “Large firms started bidding on much smaller projects than they had previously. Conversely, other firms that had expanded during the long period of strong growth for construction that began early in the decade and ran right up until 2008 — they had to cut back on many of their offices and wound up with just a single location and a core staff.”
The migration of contractors to bidding on different kinds of jobs presents a few takeaways:
- There will be greater competition in bidding. What are the steps you can take now to position your business positively to win bids, whether that’s defending your territory against new competition, or intelligently expanding your services and offerings to keep the work flowing?
- The advancement of technology – machine control and telematics, particularly – will continue to help streamline earthmoving and fleet management, help make more accurate bids, and ultimately allow contractors to bid more confidently against a greater volume of competition.
- There is a benefit to knowing your strengths and sticking to them instead of grabbing at every bid available. In an industry that already has issues with finding skilled labor, is there virtue right now in looking at your business and making decisions on whether to focus on your strongest disciplines and building your core team around that for success instead of trying to boil the ocean and be everything to everyone?
“It really depends on what your firm’s strengths are in terms of sticking to a business that you’ve had for many years, or areas that you see competitors faltering in and that you think you have a comparative advantage,” says Simonson.
Both AGC and ARTBA have highlighted and produced extensive materials for members (AGC here; ARTBA here) helping guide them through this unique time in our industry — and building a safety culture that focuses on reducing the opportunity for the spread of infectious diseases not only helps protect the health and wellbeing of your employees, but also helps ensure that you are following all appropriate protocols when you bid for new work.
“I think we’re going to see stricter physical distancing and other requirements for a very long time,” says Simonson. “Firms that find ways to get projects done with greater separation – they’re going to have an advantage over firms who try and do things the way they were before February 2020.”
ARTBA has long provided safety training materials to its members, and recently produced a new video (view here) on minimizing the risk of infectious disease transmission on the job site.
“We have regular communications that go out, especially in the early days to our members about what the safety protocols were, what different states were doing, helping to make sure that people in the industry understood what was being required in different states,” says Black.
“Creating that safe work environment has been so important, and the work they are doing is so important to the economy,” she adds. “It’s a very resilient industry and you’ve seen it with the DOTs and how they’ve completely changed their operations. I think our industry adapted very quickly.”
Know Where the Work Is
Most 2020 projections for the construction industry predicted continued growth, if somewhat tame, in comparison to previous years – continuing a trend of growth that had brought the industry back from the Great Recession.
That has all changed.
For road and bridge construction – one of the first segments to be deemed essential – work has continued (and in some cases accelerated due to the reduction in traffic on the roads).
“Work has continued, and we’ve certainly seen evidence that, overall there’s been more construction activity than there was at this time last year,” says Black.
But there is a potential reckoning.
“Contractors are very cautious about the outlook for the next year,” she adds, “and I think the broader concern is over how a situation where so much of the country [had] been in lockdown, and you have declining transportation-related revenues – how is that going to translate into state budgets and capital projects over the next year?”
Contractors in other sectors will continue to see a considerable shift in the types of development that is being put in place.
“For now, what seems like one sure bet is renovation and remodeling,” says Simonson. “Whether you’re talking about an office building, a public building, any kind of public-facing space, it looks as if there will be a demand for achieving greater physical separation… firms that have concentrated on new construction may want to go back to past clients and see if there are adaptations the client would be interested in.”
New construction will shift away from retail, hospitality and other recreational centers where people congregate en masse and shift to areas that have become vital during the pandemic: warehousing/distribution, connectivity, and continued examination of healthcare infrastructure and what makes the most sense for future development.
“In terms of new construction niches on the private side, I think there’s surely been a strong demand for distribution facilities that are focused on that so called ‘last mile’ or ‘last hour’ rather than bulk distribution to stores and offices,” says Simonson.
With remote work for many industries being embraced, the importance for consistent communications and bandwidth will provide a boost to utility construction that focuses on these services.
“That implies more fiber optic cable, maybe a rollout of 5G and more cell towers in certain spots. And more data centers – that’s been a strong market for years, but [I think] there will be even more demand for those,” he adds.
And new healthcare construction – while seemingly intuitive given the health crisis — actually presents a tale of two pandemics.
“We’ve heard how hospitals have taken a huge revenue hit in spite of having an influx of patients with COVID [as it has] actually driven away other patients that provided a lot of revenue but the need for those [services] still exists, so whether hospitals will be creating spaces separate from people with infectious diseases or we’ll see a whole new set of separate facilities – I do think that healthcare construction is one that has some growth potential.”
Invest in Workforce Growth/Development
One doesn’t have to look too far to see what happened in the construction industry in the wake of the Great Recession – a period of time that, despite recent years of consistent growth across numerous sectors, has not seen overall construction employment levels return to where they were at their peak pre-2008. This is both a result of the pace of growth in construction, as well as the difficulty in attracting new talent to the industry.
“Just going by the employment figures the Bureau of Labor Statistics put out, the industry lost 13 percent of its workforce in April alone – over a million jobs,” says Simonson. “And while there was unprecedented recovery in May (453,000 jobs), and the very strong job gain again in June of 158,000 jobs, that still leaves the industry with half a million fewer workers than it had at its peak in February.”
“At the peak in February of this year  we still had not gotten back to the 2006 peak,” he adds. “I think the risk here is that… it will be increasingly difficult to compete for workers once the industry does start expanding.”
The opportunity for contractors here is to invest time and training resources into new and current staff, and to develop leaders that are effective and loyal – and who help attract other like-minded workers into the fold. Developing a strong workforce now will help ensure you’re able to compete for the work that’s here now and the work that will come as the construction industry mounts a recovery. Opportunities include:
- Developing career paths within your business that make growth opportunities clear and attainable.
- Teach skills that help workers grow and support your whole operation – treating their career as something to grow/nurture and not simply as labor.
- Invest in equipment and technology that shortens the training cycle and helps simplify work – an employee that takes satisfaction in a job well done and is given the tools to do so is infinitely more likely to stay than one who is not.
Both Black and Simonson also note the importance of federal funding to boost public projects and local governments – particularly long-term and sustainable funding for transportation infrastructure. With that will come additional resources and capabilities to boost the workforce and career development.
“I think there will be opportunities to expand that labor pool significantly, especially as jobs in some other sectors of the economy may not be coming back,” concludes Black. “There’s going to be great opportunities for people who don’t mind working hard and are willing to get out there.”