Supply chain delays have impacted nearly every industry since the COVID-19 lockdowns commenced in 2020 and persist through our recovery. In this post, we look at some of the toughest challenges construction contractors face as work returns to pre-pandemic levels, and offer recommendations to mitigate the impacts to:
- Project Costs
Common construction materials that were traditionally readily available before the pandemic are now difficult to find and, if found, often come with long lead-times. As a result, contractors find themselves forced to consider material substitutions in order to maintain project budgets and schedules. Some recommendations to lessen the impact are communicating project timelines with suppliers, ordering locally if possible, paying suppliers on time, and ordering long-lead items early.
The Skilled Labor Shortage
In 2020, due to the COVID-19 pandemic, many construction projects slowed down or stopped. In early 2022, Associated Builders and Contractors (ABC) reported that an estimated 1.2 million workers will leave the construction industry altogether in search of other careers. Now, projects have resumed but labor issues continue. Contractors struggle to bring back skilled labor. ABC predicts that in 2023 the industry will need to hire close to 600,000 workers to meet pent-up demand.
Increasing the challenge is that demand is for skilled workers, while the fastest-growing segment of the industry’s workforce is made up of low-skilled workers, such as laborers. This will drive up demand, wages, and costs for skilled labor, which in the long run will incentivize those unskilled laborers to specialize. In the short-term, contractors are exploring options to get workers trained more efficiently and effectively so when they are needed, they have the training and certifications required.
Increased Project Costs
Supply chain disruptions have a direct impact on construction costs, making it difficult for contractors to stay within budget. Material cost escalations are likely and have the potential to push projects over budget. According to e-Builder, a commonly used project management solution, one way to limit the impact is collaboration with engineers and architects during the design phase to avoid selecting materials that might not be available when it is time to mobilize and procure. In addition, it is critical to maintain positive relationships with suppliers to secure materials in advance. This may require exploring substitutions to stay within budget constraints, ordering materials ASAP to lock in costs and delivery windows, and revisiting the traditional procurement contracts to include incentive/damages clauses.
Material Lead-Time and Schedule Delays
Maintaining the project schedule is more difficult for contractors due to long material lead-times. According to HBW Construction, an established contractor in the Washington, D.C. area, prior to the pandemic, contractors could move forward with ordering materials knowing that deliveries would fall within normal timelines. Now material lead-times are a main driving force in project delays, and the project schedule must be developed with this in mind. Start dates and phases that are typically aligned with material deliveries, and even some phases of a project that typically occur early, might need to be scheduled later to coincide with material deliveries.
An avenue to help mitigate project delays are software systems such as Trimble Construction One. This software provides contractors with the ability to track material deliveries, material inventories, fuel surcharges, and automatic reordering of materials.
Buckle Up – The Road Ahead Is Likely to Be Bumpy
The next few years will be challenging for the construction industry with the short supply of skilled labor, material delays, and rising costs directly affecting project schedules and budgets. Navigating these realities starts with:
- Understanding what they are and the areas of business they impact
- Collaborating with all stakeholders to identify and execute alternative plans
- Exploring options for training on critical skills
- Building in worst-case scenario planning from the start so surprises are minimal
Disruption and uncertainty are constants – with the right planning, it is possible to mitigate the impact of these issues.
How Can VERTEX Help
With decades of experience in helping contractors and sureties navigate issues like those in this post, we bring insight into industry best practices, technology innovation and experience to help. For more information, please contact Mr. Robert Massey. Robert is a graduate of Colorado Mesa University with a BBA in Management, graduating Cum Laude. He has over 20 years’ experience in the construction industry, from field labor work to estimating, litigation estimating, and project management.
As a Consultant with VERTEX, Mr. Robert Massey’s typical responsibilities include construction claim review and analysis, project management, estimating, project Relet/RFP, cost to complete, cost of repair analysis and allocation, contractor termination analysis, and interpretation of drawings.
To learn more about VERTEX’s Construction Management and Surety Services, or to speak with a Surety Expert, call 888.298.5162 or submit an inquiry.