Contractors are realigning business and operational processes to support people, projects and partners, creating the smart and highly connected jobsite of the future
If you’ve ever been on a construction site and felt the heart-pounding vibrations of a massive steel pile being driven into the ground, COVID-19 inflicted a similar shock on the global economy – and on life as we knew it. As the pandemic continues to unfold, the construction industry is responding with tremendous agility to the greatest disruption and uncertainty builders have faced in my lifetime.
Any discussion regarding the state of the industry should begin with the health and welfare of people. With dining rooms converted into makeshift offices, parents facilitating online learning and restrictions on visiting our most vulnerable loved ones, everyone’s experiences and emotions surrounding the virus are unique and important for businesses to consider. In a high-stress, high-risk industry like construction performing essential work, people’s fears can be even further intensified, leading to increased worker fatigue and rising safety incidents.
As we support the health and wellbeing of our workforce with empathetic listening and purposeful leadership, we do so with a holistic view of both the immediate and anticipated long-term impacts of COVID-19 on the building sector.
Navigating the ‘New Normal’
COVID-19 has impacted nearly every facet of how we procure and execute work. From implementing ever-evolving CDC guidelines to managing market instability and disruption to the delicate ecosystem of the global supply chain, our ‘new normal’ changes almost weekly.
With private developers facing liquidity issues or proactively conserving cash, many projects have been delayed or terminated. Hospitality, tourism, aviation and retail have experienced significant hardships that have had a ripple effect on construction. According to the Q2 2020 USG Corporation + U.S. Chamber of Commerce Commercial Construction Index, a notable 87% of contractors reported experiencing delays. With an 18-24-month sales cycle, the full ramifications of falling private sector construction activity won’t be fully felt until 2022.
Deemed essential in most states, public work like K-12 schools and higher education facilities have provided a steady revenue stream for contractors with existing footholds. But the public sphere is experiencing increased competition and undercutting margins as larger contractors attempt to shore up balance sheets from private developer losses. In states like California, North Carolina and New Mexico with education bonds on the November ballot, tax revenues will have a direct impact on contractors’ pipelines for the next three to five years.
Keeping the Supply Chain Flowing
Like a domino effect, disruptions to the global supply chain have adversely altered some project schedules and have put limitations on production. Immediate impacts were felt on materials sourced from China and Italy, and now widespread delays are occurring for supplies sourced from across Europe, Canada, Mexico and Asia.
Since 2014, commodity prices have risen approximately five percent year over year. But as of July 2020, prices have fallen for five consecutive months according to the IHS Markit PEG Engineering and Construction Cost Index (ECCI). IHS also projects a 4.2% decline in structural steel prices this year, which correlates to uncertainty surrounding the future of high-rise commercial buildings. At Balfour Beatty, we have developed a COVID-19 supply index that provides up-to-date prices and availability of key materials and commodities, empowering our teammates to better mitigate risk.
Despite this initial slowdown, signs of resurgence are on the horizon. The Associated General Contractors of America (AGC) conducted an analysis of government data, revealing construction employment increased in 31 states and the District of Columbia between May and June. Dodge Data & Analytics cited a 6% increase in total construction starts in June, marking the second consecutive monthly gain since the March pandemic outbreak. Notably, Balfour Beatty’s $1.3 billion widening of Interstate 635 in Dallas, Texas was the largest nonbuilding project to break ground in May.
Thriving in Times of Change and Challenge
As builders and engineers, we often prefer concrete data to the abstract, which is one reason the industry has been historically slow to embrace change. But as my colleague and Balfour Beatty Chief of Innovation, Mark Konchar, reminds in a recent blog, we must “innovate or die.” In the era of COVID-19, that imperative for businesses rings truer than ever.
Many contractors are building resilience into their business structures and core competencies to limit the long-term impact of COVID-19 or insulate from future crises. At Balfour Beatty, we believe that lean and agile practices are key to thriving in times of change and challenge. One example was a recent realignment between our Arizona and Texas teams, which share common markets and clients. Additionally, we have scaled equipment rental capabilities that originated in the Northwest to most of our Buildings teams across the U.S. By offering tools and equipment to our projects, we in turn help control schedules and demand.
Approaching Growth Markets with Strategic Discipline
Contractors with a strong balance sheet that strategically allocate their capital and resources will be well-positioned to pursue work in high-potential growth markets. Federal infrastructure initiatives are expected to address our aging highways, bridges and roads, which according to the American Society of Civil Engineers, will require a nearly $4 trillion investment over the next five years. With conservative lending practices, public-private partnerships (PPP) will become a more attractive delivery model that better allocates risk and integrates resources. Emerging federal opportunities along the East and West Coasts could serve to balance the opportunity pipeline ahead.
Projects of smaller scope will play an equally integral role in our path forward. Safety retrofits for corporate interiors became an immediate and ongoing need as return-to-work strategies are implemented. COVID-19 led to a crash course in online learning that has prompted many K-12 schools and universities to upgrade audiovisual capabilities. Healthcare partners, including assisted living and skilled nursing, are exploring innovative HVAC systems such as negative air that better control and prevent the spread of infectious diseases. As a testament to Balfour Beatty’s national strength and capabilities, we are well-positioned to be an active thought and building partner in every growth market.
In times of economic downturn, contractors often strive to take even greater market share in areas where their portfolios are thriving, or dive head-first into new and previously untapped geographies or markets. History has taught us that there are cautionary tales to be learned from both strategies—most recently during the Great Recession of 2007-2009. When owners shift to a low-bid mindset, a disproportionate percentage of troubled projects occur over the long-term. Competition is important to any healthy industry, but without the right partners, a penny saved now is not always a penny well invested.
Creating Operational Advantages with Smart Technologies
With limits to in-person meetings and travel restrictions, COVID-19 has required contractors to rapidly accelerate the adoption of digital solutions that have enabled many activities that took place on-site to be successfully and more efficiently executed remotely.
- Workforce tracking: It’s never been more important to know who is on your jobsite and the areas where they’ve worked in the event contract tracing becomes necessary. Technologies like Kwanti.ai, Triax and WakeCap provide this data while assisting with physical distancing.
- Virtual job walks: With 360 cameras and a smart phone, companies like OpenSpace and Holobuilder are making it possible for one individual to walk a job and provide every stakeholder with a view of job progress. Smart safety glasses with live-streaming capabilities are among the exciting new developments soon coming to a jobsite near you.
- Robotics: Robotics were on the rise pre-COVID-19, but with new tools like Boston Dynamics’ Spot robot that can perform laser scanning, their use cases are growing exponentially.
- Digital planning: Bluebeam, Touchplan and BIM 360 Plan are among the platforms that are effectively replacing on-site visual planning with the added benefit of real-time markups.
COVID-19 is a profoundly human tragedy that has shifted many elements of life and work from absolute to agile. As contractors seek to make the right decisions for people, projects and partners, I am confident that the industry will emerge stronger because (re)building is what we do best.