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Construction Industry Outlook 2023: Reorienting to Pursue Growth in the Face of Macroeconomic Headwinds

This post is part of a series sponsored by the IAT Insurance Group.

A recession, continued inflation, severe labor shortages and potential supply chain issues will loom large over the construction industry in much

Still, opportunities await for well-prepared construction companies that can pivot in uncertain times.U.S. commitment to improving national infrastructure[1] Due to the expected increase in building renovation and renovation work, Construction firms can thrive in continued uncertainty.

Prepare for opportunities in 2023 by considering these five trends:

1.Civil engineering and infrastructure

Total starts in 2023 are expected to remain flat,[2] But it looks like a big shift in the type of work is imminent. In pure monetary terms, the construction industry is likely to see more civil and infrastructure work than the single-family and multi-family homes that have dominated the construction industry for the past few years, or some areas of commercial construction. .

But adding to this opportunity comes the continued impact of inflation, rising interest rates, and other monetary factors. For example, a project that cost $1 million to build a few years ago may cost 20-30% today. Larger contractors may have the equipment and the organizational and financial depth to tackle these changes, but smaller firms will explore options to participate more broadly. may be necessary.

Take action!

In response to potentially increasing opportunities for larger infrastructure projects and/or infrastructure in general, joint ventures (JVs) may present an attractive way to participate. Traditionally, JVs provide a way for contractors to combine talent, experience, equipment, management and financial resources to handle a larger project or backlog.

For some, a merger or acquisition with a competitor may provide an opportunity to strengthen the company’s capabilities. If finances make sense, this could be a tool for adding professional equipment and expertise, or a deliberate expansion of your business to new locations and geographies.

2. Renovation & rehabilitation

The current market poses additional challenges as some industry segments and owners move from new construction to rehabilitation and renovation projects. For example, the pandemic and the shift to online shopping have accelerated the conversion of shopping malls and warehouses to other uses. Mall traffic has slowed in recent years as shoppers choose to visit stores closer to home more often.[3]

Depending on the complexity of the project, renovation work can be difficult for contractors who have traditionally focused on new construction. I have no idea what quality work was done when the facility was built or how often the building was properly maintained. Additionally, based on its age, the building may contain various hazardous materials and historic preservation requirements that the contractor did not expect.

From a non-life insurance perspective, structural change increases risk. Opening walls also adds risk, as contractors may encounter water damage, fire sprinkler problems, gas line problems, electrical damage, or other unforeseen issues that require repairs.

Take action!

Consider new technologies that can help reduce risk. Laser scanning, hot wall analysis, and computational fluid dynamics modeling, among other innovative instruments and methods.

Contractors must stay up-to-date on the latest changes in construction codes. For example, many retail store renovations in the past may have simply changed stores from one retail store to another. However, if the building has been repurposed, converting a storefront into a medical or manufacturing facility may require special or unique modifications to accommodate the needs of these types of businesses.

3. Workforce Challenges

The labor shortage in the construction industry will continue in 2023.[4] Qualified workers for the professions required by construction companies are simply not available.

Another big factor in the construction industry is the stigma attached to blue-collar jobs among many young workers. Currently, the average age of construction workers in the United States is 42.5 years old.[5] With many baby boomers choosing to retire early due to COVID-19, the industry will struggle to expand its workforce beyond 2023 as there are not enough young workers in these roles. I will.

Take action!

To attract from all parts of the labor pool and improve the skills of experienced workers, the industry needs to improve communication of the benefits of a career in the construction industry to younger generations. There are several ways to do this.

  • Increase outreach efforts.Encourage high school students to enter vocational schools and encourage vocational school students to participate in the construction industry.
  • Build your own benefits package for your employees. This can mean additional total compensation, including benefits, sign-on bonuses, higher salaries, and more holidays.
  • Provide entry-level work and safety training
  • Consider how to reacquire experienced workers. Today’s cost of living may be impacting retirement plans, which may result in trained workers willing to re-enter the workforce. Acquiring these old workers will also give young workers a positive training experience and help improve safety on site.

4. Supply chain challenges, volatile pricing

Supply chain malfunctions have delayed some projects, while others have been hampered by rising and falling fuel and material costs over the past year. It is clear that volatility and inflation are slashing margins on employment projects. As such, project timeline extensions, material or subcontractor price increases, and additional overhead costs should be evaluated during the tender stage. His one potential remedy for dealing with rising material costs would be to impose liability on project owners, or at least add material inflation clauses to contracts where owners and contractors share the additional costs. That’s it. The contractor may also consider discussing whether lower cost material options are acceptable to the owner or his representative.

During the COVID pandemic, some construction companies relied on US Paycheck Protection Program (PPP) loans.[6] Help with overhead costs. The PPP was well-timed and helped many contractors manage financial uncertainty. PPPs are dead, but supply chain uncertainty and inflation are not. As a result, it is imperative that contractors stay up to date with local, regional and national economic and workforce dynamics when pricing their work.

Take action!

To minimize the impact of price volatility and material shortages, contractors can increase inventory and buy in bulk when possible. Additionally, inventory control is very important in a tough materials market. Return unused materials to the inventory warehouse for use in future projects rather than ending up in the trash or left behind.

Stay on top of the latest developments in materials, labor and economics. There is a vast amount of data available in each of these areas and industry insights from various publications such as Associated General Contractors (AGC), Associated Builders and Contractors (ABC) and Engineering News Record (ENR).

5. Threat of cybercrime

As construction companies and other industry stakeholders continue to move towards technology as an enabler, Cybercriminals are following suit. According to NordLocker research, the construction industry was the second most targeted industry in ransomware attacks between January 2020 and July 2022. This is due to the high success rate of hackers across the industry.[7] Small to medium-sized construction businesses are particularly vulnerable to cyberattacks due to their limited resources and defenses, which are often dedicated to protecting their network environments.

Cybersecurity compliance is important for all government contractors, but in 2023, we expect even stricter compliance requirements from the business partners involved.

Take action!

With a focus on employee education and commitment to having cyber insurance, leveraging technology to protect and defend software and systems, and knowing and avoiding common mistakes that can lead to breaches, Protect your business from cybercrime.

Looking ahead to 2023 and beyond

As we head into the new year, construction companies of all sizes face many challenges. However, opportunities exist for those organizations that can shift gears and take advantage of larger industry trends while mitigating risk and maintaining strong profit margins in the process.

For information on how to further manage risks related to construction projects in 2023, Contact IAT Insurance.

Thomas Postol and Laura Penhale

[1] White House “Factsheet: One year into implementation of bipartisan infrastructure law, Biden-Harris administration celebrates major progress in building a better America” November 15, 2022.

[2] equipment world “Dodge Economist: Preparing for a Challenging First Half of 2023” November 23, 2022.

[3] CNBC “UBS expects 50,000 store closures in the US over the next five years after the pandemic pause.” April 13, 2022.

[4] construction dive “Five charts that suggest what’s in store for construction in 2023” December 6, 2022.

[5] U.S. Bureau of Labor Statistics, 2021.

[6] Construction Financial Management Association, CFMA Building Profits “The Impact of Paycheck Protection Program Loans on the Construction Industry” May/June 2021.

[7] nord rocker “Ransomware Statistics: Who Are Most Targeted?” 2022


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