NEWLY RELEASED SURVEY INDICATES CONSTRUCTION DEMAND WILL SHRINK IN 2021
BY NICK FORTUNA
For many, news coverage of vaccinations in early January brought to mind Winston Churchill’s famous quote from 1942, after the Allies’ first major victory in World War II: “Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
With the coronavirus pandemic cresting this winter, it was apparent that our long, global nightmare would continue for months, resulting in a second consecutive year of diminished demand for construction projects. On Jan. 7, AGC of America and Sage Construction and Real Estate released their annual business assessment for the construction industry, and the survey results suggest that 2021 will be another challenging year.
Few firms anticipate adding workers this year, and contractors expect demand for construction projects to shrink in the vast majority of industry segments, according to The Pandemic’s Growing Impacts on the Construction Industry: The 2021 Construction Hiring and Business Outlook (http://bit.ly/2021businessoutlookreport). The report is based on survey results from more than 1,300 firms from all 50 states and the District of Columbia. Contractors of every size answered more than 20 questions about their hiring, workforce, business and information-technology plans.
“This is clearly going to be a difficult year for the construction industry,” said Stephen E. Sandherr, AGC of America’s chief executive officer. “Demand looks likely to continue shrinking, projects are getting delayed or canceled, productivity is declining, and few firms plan to expand their headcount.”
Here are some of the survey’s key findings:
• Project delays and cancelations: 59 percent of firms had scheduled projects pushed back a year until 2021; 44 percent had projects canceled in 2020 and not yet rescheduled; 18 percent said projects scheduled to start between January and June 2021 have been delayed; and 8 percent said projects scheduled to start in that time frame have been canceled.
• Business volume: 55 percent either don’t expect business volume to return to pre-pandemic levels by midyear or are unsure when their businesses will recover; 33 percent report that business has already matched or exceeded pre-pandemic levels; and another 12 percent expect it to return to those levels within six months.
• Hiring: 35 percent plan to add staff this year, while 24 percent plan to decrease their headcount and 41 percent expect no change in staff size. Optimism is higher in the South, where 39 percent of firms expect to add employees, than in the Northeast, where 41 percent expect to reduce headcount.
• Talent pool: 54 percent of contractors report having difficulty finding qualified workers to expand headcount or replace departing staff, and 49 percent expect it to remain as hard or become even more difficult in 2021.
“The unfortunate fact is too few of the newly unemployed are considering construction careers, despite the high pay and significant opportunities for advancement,” said Ken Simonson, AGC’s chief economist.
Sandherr said the AGC is addressing the workforce challenge by crafting a new plan focusing on continued advocacy, helping chapters and members establish or improve training programs and launching a national workforce recruiting effort. This new initiative, “Construction is Essential,” will use targeted digital advertising to complement the many existing local and regional construction workforce campaigns.
• Productivity: 64 percent said their coronavirus procedures made projects take longer to complete than originally anticipated, and 54 percent said the cost of completing projects has been higher than expected.
“The pandemic is undermining construction productivity as contractors make significant changes to project staffing to protect workers and communities from the virus,” Simonson said.
• Information technology: 62 percent said they have a formal IT plan that supports business objectives, up from 48 percent last year. Dustin Anderson, vice president of Sage Construction and Real Estate, said most firms plan to continue investing in technology at about the same level as in 2020.
“While the past year has been filled with many challenges, technology has played an integral role in keeping people connected and businesses up and running,” he said. “While many firms have had to scale back other investments, technology remains an important part of most business plans.”
HELP FROM WASHINGTON?
A robust, long-overdue infrastructure bill would significantly boost the outlook for the construction industry, and President Joe Biden has said infrastructure is a top priority for his administration. His “Build Back Better” plan, unveiled last July, includes $2 trillion for green jobs and infrastructure as part of a broader stimulus package.
To some politicos, his selection of former Mayor Pete Buttigieg, a rising figure in the Democratic Party, further signaled the administration’s commitment to infrastructure spending.
Still, a bill is far from certain with the Senate evenly divided and 60 votes needed to pass most legislation. Political pundits have suggested that after years of soaring budget deficits, congressional Republicans may rediscover their concerns about the ever-growing national debt, and they could be reticent to give a first-term Democratic president a major legislative victory.
“Members of Congress have been talking about the need to invest in infrastructure in a bipartisan fashion, and then when you ask them how to pay for it, that’s when they want to change the subject,” Sandherr said. “One factor that’s different currently is that over the last nine months, Congress has demonstrated that they are not obligated to engage in any fiscal restraint, so we don’t know how much longer that sentiment will continue.
“We’ll continue to make the case that with low interest rates, with people needing to go to work, with infrastructure demands that aren’t going away and will only get worse as time goes by, now is a good time to keep the economy going by investing in infrastructure broadly.”
Sandherr said that in addition to paying for federal projects, a stimulus bill should “backfill” state and local construction projects, many of which have been postponed as states grapple with massive budget shortfalls. He said the association also will stress to lawmakers the importance of not implementing any new burdensome labor or environmental regulations as the economy struggles to gain traction.
Of particular concern is the Protecting the Right to Organize Act, or PRO Act, which Sandherr said is a top priority for organized labor. The bill would give workers more power in workplace disputes, increase penalties for companies that retaliate against workers trying to organize, expand collective-bargaining rights to hundreds of thousands of workers and weaken “right to work” laws in 27 states.
“That package has problems for both union and nonunion contractors,” Sandherr said.
TIME TO SELF-EVALUATE
There are several things construction companies can do now to better position themselves for the eventual market rebound, according to Jim Schabarum, principal at Cavignac & Associates, a risk-management insurance brokerage agency based in San Diego and a San Diego Chapter and AGC of Colorado Building Chapter member.
“It’s critical that contractors take the time to perform both internal and external evaluations to refocus and right-size their operations to set themselves up for a profitable future,” he said. “Areas that contractors should be focused on include refining financial management, risk-control and risk-management programs. Aligning business and succession plans and working with construction professionals in these areas are vital to a contractor’s success.”
For contractors to stay profitable, their total cost of risk has to be controlled and minimized, Schabarum said.
“The pillars of risk control include human resources (a contractor’s most important asset), safety, claims management and contractual risk transfer,” he added. “Wise contractors are frequently performing audits and developing lasting, impactful best practices in these areas to reduce their total cost of risk and remain profitable. A successful risk-control program will significantly improve the availability and affordability of insurance coverage for a contractor.”
A CHALLENGING YEAR FOR MOST CONSTRUCTION SECTORS
Contractors expect the market for most types of construction to shrink in 2021 as the pandemic continues to undermine the demand for projects, according to the AGC of America’s 2021 Construction Hiring and Business Outlook report.
The survey separated construction projects into 16 categories, and the “net reading” was negative for 13 of them. The net reading is the difference between the share of respondents who believe a given market will expand and the share who expect it to contract. Positive readings reflect optimism, while negative readings suggest pessimism.
|Construction type||Net reading|
|Medical labs, clinics, testing facilities||+11%|
|Mi0iltary, veterans affairs||-10%|
|Transit rail, airports||-19%|