Sage Advice US

A new year: a new construction outlook

Construction companies are very optimistic about 2018 and plan to expand their workforces as well as invest in new technologies and techniques to achieve their goals. These findings are part of the 2018 Construction Hiring and Business Outlook report recently presented by the Associated General Contractors of America (AGC) in conjunction with Sage.

“This optimism applies to both private- and public-sector construction demand, perhaps reflecting both optimism with current economic conditions, an increasingly more business-friendly regulatory environment, and optimism that the Trump administration will finally deliver on its promise to boost infrastructure investments,” says Stephen Sandherr, chief executive office of the AGC.

AGC economist Ken Simonson agrees, citing that nearly six times as many Outlook survey respondents (53%) expect the overall volume of construction projects to grow as those who expect it to shrink (9%). Contractors expect demand for construction services will be higher this year in each of 13 major market segments, he explains, especially in the private office, transportation, and the retail, warehouse, and lodging markets.

Staffing still an issue

While optimism is high, the industry is not without its challenges. Not surprising, the qualified worker shortage continues to plague most contractors, with 82% of survey respondents saying it will either become harder or remain difficult to recruit and hire qualified workers in 2018. To combat the problem, many contractors are taking matters into their own hands. Sixty percent of those surveyed have raised base pay, 36% have provided more incentives and bonuses, and 56% have increased investment in training and development.

“We are very concerned about workforce development,” says Chuck Graves, president of construction and concrete for Idaho-based McAlvain Companies, Inc. Depending on the day, between 150 and 175 craftsman are part of his organization’s self-performing component. “We’re having to develop that workforce internally,” he says, explaining that to meet workforce demands they often have to hire workers with virtually no construction experience.

That lack of experience is presenting a major safety concern for 56% of contractors, according to the survey. “There’s just not the same level of competence,” says Bob Schafer, president of Florida-based Ranger Construction, about the safety know-how of many new workers.  He stresses that increased safety training is crucial going forward as contractors look to new labor sources.

Competition is another other big challenge

In addition to the worker shortage, contractors are encountering greater competition. Thirty-nine percent of survey respondents say increased competition for projects is one of their biggest concerns for the year, second only to their worries about labor.

Both Graves and Schafer acknowledge that new competitors are coming from outside their states to set up shop. This aggressive business landscape is also increasing local demand for an already shrinking labor pool.

Innovation to the rescue

To deal with staffing and competitive challenges as well as take advantage of continued growth opportunities, many contractors are adopting more innovative approaches to improve operational efficiency and quality. For instance, 44% of firms report that they use lean construction principles.

Many firms also follow collaborative project delivery methods. Sixty-one percent of survey respondents use design-build methods and 39% design-assist. Use of a file-sharing site such as Dropbox is the way 73% of firms collaborate with project partners. But a growing number (46%) are also using online project collaboration software and 33% are using building information modeling to improve collaboration.

“The use of technology to assist with collaboration is evolving,” says Jon Witty, vice president and general manager for Sage Construction and Real Estate. “We anticipate the adoption of more sophisticated, cloud-based tools to continue as project owners and general contractors expect greater collaboration among the building team to reduce errors and improve project efficiency.”

Getting strategic about information technology

Traditionally lagging behind most other major industries in information technology (IT) usage, the construction industry seems to be in catch-up mode. In fact, a growing number of contractors are incorporating IT into their strategic thinking. More than half of firms (52%) say they currently have a formal IT plan that supports business objectives, up from 47% last year. And 8% of those currently without a formal IT plan will be creating one in 2018.

Contractors are also spending more to fund their IT plans. In a separate technology usage study conducted by Sage in 2014, only 32% of construction firms said they spend 32% or more of revenue on IT. That percentage has steadily grown, reaching 47% in 2017’s Construction Business Outlook and 50% of firms in this year’s survey. Looking forward into 2018, 43% of contractors report they plan to increase IT investment.

All-in-all: A positive 2018 outlook

Despite some hurdles, 2018 is expected to be a good year for the construction industry. Contractors are doing more in-house training to prepare less-experienced workers. They are also making more strategic investments in new technologies and new ways of operating to increase efficiency, accomplish more with fewer people, and improve their competitiveness. For many contractors, these efforts will not only help them take advantage of today’s positive economic conditions but prepare them for new possibilities and challenges in the future.

For more information, check out highlights from the 2018 Construction Hiring and Business Outlook.