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2020 Construction Outlook

Strong Demand for Work and Stronger Demand for Workers

BY DEBRA WOOD

Construction firms expect continued high demand for projects, yet they remain concerned about their ability to find and keep qualified workers, according to a new survey, Strong Demand for Work Amid Stronger Demand for Workers: The 2020 Construction Hiring and Business Outlook Report.

“Contractors are very optimistic about the demand for construction in 2020, and as a result three-quarters of them plan to expand their head count,” said Stephen E. Sandherr, chief executive officer of AGC of America, during a press conference. At the same time, “many construction executives remain troubled by labor shortages and the impact those shortages are having on operations, training and safety programs, and bottom lines.”

AGC and Sage Construction and Real Estate conducted the survey in November and December of 2019. A broad cross-section of 956 firms from 48 states participated.

AN EXPANDING MARKET

Although the overall economy may be headed for a slowdown, contractors remain bullish.

“The percentage of respondents who expect a market segment to expand exceeds the percentage who expect it to contract for all 13 categories included in the survey,” said Ken Simonson, the association’s chief economist. “For most of these segments, respondents were more upbeat about market prospects than in last year’s survey.”

Mike Tuohy, senior vice president operations with McCarthy Building Companies in Newport Beach, California, a member of multiple AGC chapters, reported continued growth in all markets it serves across the country in 2020 and beyond. The markets include airports, stadiums, health care and higher education.

“Revenue growth in 2020 is mostly fueled by sales in 2018 and 2019,” Tuohy said. “Our backlog extends two to four years.”

Contractors responding to the survey were most optimistic about water and sewer construction, followed by K-12 schools, hospital, bridge/highway, and other transportation, such as transit, rail, port and airport construction. Although still anticipating growth in private office construction projects, this segment had the smallest net-positive reading.

“We anticipate a slight increase in our projects for the upcoming season,” said Jim O’Brien, founder of Bothar Construction, a highway contractor in Binghamton, New York, and a member of AGC of New York State.

The findings are mostly similar by region, with a few exceptions. In the Northeast, contractors had a net-negative outlook for seven of the 13 project categories, including K-12 schools, public buildings, water and sewer, bridge and highway, retail and lodging, multifamily residential and private office.

Southern construction firms were the most upbeat, especially about water and sewer projects. Contractors in the West and Midwest were slightly less optimistic than firms in other areas.

HIRING EXPECTATIONS

Seventy-five percent of responding firms said they plan to increase headcount in 2020. Half said the new hiring will expand the size of the firm by 10 percent or less. Nineteen percent plan to increase their headcount by 11 percent to 25 percent, the same percentage as those who do not anticipate a change. Only five percent of the firms expected to decrease head count.

Larger companies are more bullish about expansion, with 30 percent of firms with more than $500 million in revenue planning to increase head count this year by more than 10 percent.

Most construction firms have raised pay and added benefits and bonuses to address labor shortages. Companies also are investing in training programs and revamping initiatives to recruit new employees.

“McCarthy is focusing on hiring and training staff,” Tuohy said. “We are looking for skilled workers, trades and salaried employees.”

LOOMING LABOR SHORTAGES

Contractors’ greatest concerns were worker shortages and worker quality. Eighty-one percent of responding firms reported having a hard time filling salaried and hourly craft positions. Forty-three percent expect a continued struggle to hire, and 22 percent think it will become even more difficult. Seventy-five percent cited worker quality as the biggest concern, followed by worker shortages at 72 percent.

Labor shortages “often lead to projects taking longer and costing more in the process,” said Dustin Anderson, with Sage Construction in Arizona. “At the same time, projects are becoming more complex. As less experienced workers take on increasingly more complex projects, it increases the firm’s risk.”

Participating firms reported significant changes to operations due to the labor shortages, including pricing projects. Forty-four percent indicated staffing challenges drove costs higher than anticipated. Therefore, 41 percent priced new bids higher.

Forty percent reported projects are taking longer than expected, and 23 percent have added longer completion times into bids. Firms also are reducing waste through Lean construction methods and improving efficiencies with off-site fabrication.

O’Brien said Bothar Construction is using Lean, and the company has experienced labor shortages affecting schedule.

“The workforce shortage is our biggest challenge,” O’Brien added.

INVESTING IN TECHNOLOGY

“Many firms clearly see technology as a key answer to coping with labor shortages and becoming more efficient,” Simonson said.

The outlook found 48 percent of contractors have a formal information technology (IT) plan, supporting their objectives, and 10 percent are planning to create such a plan in 2020. Contractors also are spending more on IT, with 42 percent reporting spending 1 percent or more of revenue on IT, and 46 percent of firms expect to increase their IT investment in 2020.

Contractors responding to the survey were most optimistic about water and sewer construction, followed by K-12 schools, hospital, bridge/highway, and other transportation, such as transit, rail, port and airport construction.

“The technology areas with the largest planned increased investment are project management software, document management software, fleet tracking/management software, and estimating software,” Anderson said.

Additionally, 84 percent of responding firms outsource IT or a business function, including 45 percent outsourcing backup and disaster recovery and 36 percent outsourcing phone service over Internet.

Firms report investing in technology, such as drones, robots, laser-guided equipment and 3D printers, to improve efficiencies and production.

“Technology can be strategically applied to increase productivity of current staff,” Anderson added.

Nearly half of the respondents reported using project collaboration software. Anderson said he expects, “the adoption of cloud-based collaborative tools to increase as greater collaboration among teams helps reduce errors and improve efficiencies.”

Building information modeling (BIM) offers another way to collaborate. Eighteen percent of firms expected more projects will use BIM in 2020, and 39 percent expect it to remain about the same.

Contractors also are embracing more cloud-hosted technologies, including for project management, accounting and field operations. For instance, 68 percent of responding companies said they plan to use mobile software for daily field reports, 61 percent for employee time tracking and approval, and 55 percent to access job and customer information and to share photos, drawings or other documents.

Despite all of the time- and cost-saving opportunities technology offers, firms report several IT challenges. Forty-three percent of contractors report having difficulty finding time for implementing and training of new technology; 38 percent indicate employee resistance, 36 percent worry about field and office communication, and 35 percent indicate a lack of connectivity as an issue.

CONCERNING FEDERAL PROGRAMS

Construction executives surveyed expect current pro-growth federal policies to mitigate a slowing global economy, with the Republican tax cuts and regulatory reform offsetting immigration policies, Sandherr said.

Sandherr encouraged Congress to pass the JOBS Act, double funding for career and technical education, reform immigration policies to enable more people to enter the country legally, and invest in infrastructure, including waterways, ports, highways, transit systems and airports. He thought the infrastructure bills have the best chance of passage, since a general understanding exists that these are issues that need to be addressed, and both parties will be able to take credit for funded projects.

“There is bipartisan support,” Sandherr said. However, “no one wants their fingerprints on a tax increase.”

Additionally, some support for technical educational training exists. But immigration continues to be a topic of contention. A strong economy will support construction. “A thriving, successful and diverse construction industry is the essential foundation for America’s continued economic prosperity, security and well-being,” Sandherr said.