In looking at the results of this year’s International Construction Costs report, it’s no surprise that the construction industry is still dealing with the fallout of COVID-19. While price volatility, supply chain chaos and skilled labor shortages were expected for 2021 as a result of the pandemic, reflecting on the past year remains a reminder that the industry must think differently about the way we do things moving forward.
Volatility and uncertainty cause U.S. cities to rise in the ranks
Following a year of shutdowns and slowdowns in 2020, we saw a significant rise in prices of construction materials during the first half of 2021 as cities in the U.S. opened up again and construction projects resumed. Basic materials that you find in most projects, like structural steel, aluminum, copper, wood products, gypsum products, and PVC, rose dramatically in price, causing many U.S. cities to move significantly up in the ranking. Further, prices for many of these materials, such as steel or lumber, dropped in the second half of the year almost as dramatically as they had risen. This sort of volatility presents its own challenges as we wouldn’t normally see such fluctuations in the space of a year.
Supply chain issues fueled by shipping delays were also a factor, with the time it took to import materials more than doubling in some instances. Once materials arrived, however, cargo space to complete the deliveries wasn’t readily available. For instance, a project I worked on was delayed for months as materials sat on a ship in the Port of Los Angeles, with no way for the construction team to retrieve them. Firms were forced to navigate this unpredictably either by paying a premium for cargo space or by accepting the risk of delayed deliveries.
Lastly, as the industry has seen more demand for construction projects, we’re realizing the impact of a skilled labor shortage. Fortunately, we saw only a modest increase in wages for construction workers last year, but we should expect to see much higher labor increases in the coming year.
Agile approaches to building will have economic and sustainability impacts
While the passing of the Infrastructure Bill has improved confidence in the market and increased demand for construction projects, how we deal with the post-COVID impacts of material prices, supply chain and labor risks will have a major influence on how the industry meets this demand. Firms will need to be creative and agile in the way they plan their projects.
One of the most impactful examples of this is planning procurement early. If we can identify materials that will have a longer lead time or equipment that may be more difficult to obtain and place orders for them early on, we can give ourselves a better chance of getting what we need at the price and time in which we need them. Another strategy is to look at the schedule very carefully to determine whether there are elements that can be accelerated or delivered early. For example, in many cases the building foundation’s design can be developed early, separate from the rest of the building. Everything that is part of the foundation system can be bid separately, allowing that work to be locked in and underway while the design for the rest of the building is finished, helping to get ahead of challenges around material supply, labor and price escalation.
In addition to financial and scheduling benefits, a more forward-thinking approach to building can provide substantial environmental benefits. Off-site prefabricated or modular solutions for certain elements of the project can provide additional benefits such as build quality, dimensional accuracy, minimized rework and reduced carbon footprint while also mitigating some of the uncertainties of material delays and skilled field operative shortages. Oftentimes, creativity in one aspect of the construction process leads to multiple benefits.
For some firms, there is hesitation around adapting to a more agile approach, whether because of a perceived increase in risk, which we can help our clients manage, or simply because it is different to the way they’ve always done things. But the post-pandemic industry doesn’t look the same anymore, and it’s imperative that we adjust the way we do things accordingly.
Tell me what you think about the report
For a deeper dive into the state of the construction industry and a look into the challenges and opportunities we see for the year ahead, download the 2022 International Construction Costs Report. If you have any questions about the report or post-pandemic construction projects, please reach out.