Construction-in-progress numbers have rebounded among this year's Top Owners, but those numbers don't completely reflect owner confidence in an increasingly volatile market. With an influx of big public and private projects tied to federal spending packages poised to put an even greater strain on a complicated supply chain, some owners are racing to get projects to the shovel-ready phase. But labor demand continues to outpace the availability of skilled workers by the hundreds of thousands. As a result, owners are under pressure to embrace earlier project collaboration to keep the economics surrounding their construction programs from overheating with inflated costs.
While there is a sense of less doom and gloom among owners, says Construction Owners Association of America executive director Howie S. Ferguson, he says group member confidence in the construction market varies “with no apparent pattern” based on region, firm size and public versus private owners. A common thread among owners that is apparent is a shift to invest more into the development of labor relationships as an in-demand resource.
“The far bigger challenge seems to be labor, at all levels,” says Ferguson, explaining that COAA members report that recruiting and retaining the right people have been the key concern in the last year.
ENR 2022 Top Owners Sourcebook (PDF)
ENR 2022 Top Owners Sourcebook (Articles)
Although federal spending packages such as the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA) and the CHIPS and Science Act will electrify sectors such as infrastructure, semiconductors and energy, the intensified activity is a “two-edged sword” for some COAA members, says Ferguson.
“While excited and appreciative, they are already doing more with less and are struggling to both attract and retain talent,” he explains. In addition to the ongoing skilled worker shortage impacting the construction trades, “who will lead and accomplish all this work?” Ferguson asks.
Overall construction-in-progress spending by this year's Top Owners totals $407.74 billion, up from $356.09 billion spent on last year's list—a 14.5% increase. Since 2018, that spending has risen by 38.1%—with varying levels based on sector-specific forces than can accelerate projects one year and slow them down the next.
Balancing Material Supply and Demand
All sectors captured by ENR increased construction-in-progress spending except food and allied products, which remained essentially flat. Owner spending in miscellaneous retail is up 65.9%, with all six companies classified in that sector boosting construction-in-progress by at least 24% from 2020-21. Spending by firms in the retail stores sector rose 36.1%, with 75% of them showing increases between 2020 and 2021.
But as business booms in some sectors, all projects, big or small, must contend with a clogged supply chain and find creative solutions to work around shortages and delays.
“Even for small office improvements that include furniture or casework, you are ordering six to 12 months in advance,” says Jared Zurbuchen, real estate project manager at Exact Sciences Corp., a cancer diagnostics firm. He explains that most of the company's project sites are too small to store building material stock for short-notice projects. Their choices have been to accept volatile material pricing or to value engineer designs to avoid delays and keep projects on track.
construction-in-progress increase in
the transportation equipment sector between
2020 and 2021
“Things that we used to always purchase from overseas,” says Zurbuchen, such as luxury vinyl tiles, porcelain wall tiles and back splashes, “now are being sourced from North America to limit customs and shipping delays.” Bringing building partners and subcontractors into the project early also helps. Project delivery methods such as design-build and design-assist have allowed the firm “the flexibility to weigh cost, schedule, quality, previous relationships, etc. and make the best decision for the company,” he says. Zurbuchen adds that “value engineering appears to have more value today than it did before.”
The firm also is considering a project management office, or PMO, approach to help keep the “look and feel” of its projects consistent, as well as to add requirements as to how a project is delivered and what deliverables, such as closeout items, reports and accounting information, should be provided, he says.
Labor Supply & Demand
The University of Chicago has “definitely changed our methodology,” says Kerry Galbraith, its capital project delivery executive. Five years ago, the school was doing mostly design-bid-build or CM-at-risk, but now it does more design-build contracts, he notes.
“Being an institution, we are very methodical in our planning and programming up front,” Galbraith explains. “Once we start design, it usually just segues into construction, and we just keep going.”
With some large capital development projects, the university also has a lot of maintenance, renovations on existing buildings and other work that account for about 25% of its spending, according to Galbraith.
Although public institutions tend to have different procurement goals and standards they must meet, university projects are all generally subject to the same construction parameters in terms of material and labor supplies, says Galbraith.
“That has an impact on the market that we are looking at as well, and on the contractors and subcontractors that we engage,” he says, adding, “having enough people to actually build a project,” continues to be a challenge whether a project is private or public.
When it comes to labor supply and demand, there are a number of new market forces exerting more pressure on workforce supply chains to deliver more skilled workers, explains Daniel Groves, the Construction Users Roundtable’s director for strategic initiatives and workforce consult.
“That demand is based on infrastructure spending that the government has enacted, which is based on decarbonization and federal rules around the percentage of electric vehicles,” he says. As energy operations seek to decommission their use of fossil fuels and increase investment in sustainable alternatives such as solar and wind to meet emissions goals, they will need a skilled workforce that has experience to quickly complete those projects, Groves points out.
But recently recruited construction trade workers may be less prepared for that, he explains. “So you have not just those changes in supply and demand, but also getting the workforce ready to do new types of things,” he says. “That becomes an issue around training.”
With existing labor pools stretched thin, workforce uncertainty adds to owner risks as bidding wars drive up the cost of securing labor. In some areas, CURT reports that wage and per-diem additives have been used to make projects more attractive to labor forces.
“Those kinds of wage increases may be good for the worker, there’s no question, but it’s a short-term benefit,” Groves explains. “It breaks budgets, and it makes projects that were otherwise feasible no longer feasible.”
Engaging Innovative Solutions
As owners look for more ways to reduce risks around projects, there is a greater interest in embracing innovation. While integrated project delivery methods are not new to most sectors such as commercial construction, the Construction Industry Institute says it now sees them used more in industrial construction.
“There are large companies that previously had not considered [integrated project delivery] that now are taking a look,”explains Daniel Oliveira, interim director of operations at the institute.
Overall, owners are becoming more heightened to risks and are recognizing the need for more flexibility around projects and risk sharing, says Jamie Gerbrecht, institute interim senior director.
“Looking closely at risk sharing and how that is happening, of course, that starts to tap into collaborative contracting” such as integrated project delivery, he explains.
With most institute member companies back to being busy with heavy project activity, “there's a little less dwelling on the challenges that we've recognized over the past few years,” says Gerbrecht, and a greater focus on innovating to get work done. “Maybe that has the potential to point us more toward further depth in looking at risk sharing,” he says.
Regardless of the delivery method that is used, “eventually somebody is going to have to build that project,” says Mounir El Asmar, associate professor at the Arizona State University School of Sustainable Engineering and the Built Environment.
“There’s no going away from the fact that we are going to need skilled labor to help us,” he says. “That said, if we use more collaboration approaches, owners would also have time to plan for their labor and plan to order some materials that need long lead times.”
Engaging contracting partners early also allows more time to plan time-saving processes such as use of prefabrication. “This way you are not wasting your labor,” El Asmar adds. “As an indirect result of that, companies are able to use their labor a little more effectively because that supply of workers is not waiting around for equipment or supplies.”
When it comes to integrated project delivery methods, El Asmar predicts that there will be more variations “to fit the needs of the particular owner or agency that is developing the project.” The type of delivery method also will depend on what legislation allows owners to use in the place a project is located, he adds.
The Construction Users Roundtable created a Labor Risk Management Program in 2019 that asks members to only hire contractors that commit to having a verifiable recruitment, retention and workforce training program.
This year, the group is turning its focus to guiding its members in meeting environmental, social, and corporate governance goals, with creation of a new ESG committee that will launch this month, says Jim Ellis, former Microsoft corporate vice president of global construction.
He explains that the group has found that its members have a desire to step up actions to reduce their emissions, but there is a lack of understanding. Similar to the group’s Labor Risk Management program, the ESG committee will help companies create a playbook to improve sustainability around their capital projects.
“This is our future, our license to operate and grow,” says Ellis. “Capital project delivery is an integral part of that.”
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