This story is one in a series of articles examining the effect of the COVID-19 pandemic on the construction industry and how an expected rebound in construction work later this year could be slowed down by various forces. Click here for more articles in the series and come back for more throughout the year.
Material shortages are hampering the resumption of construction before it has even started.
While contractors are still optimistic about bringing projects back online in the second half of 2021, and the architectural billing index, a key indicator of demand, has increased his first two-month winning streak since the start of the pandemic, a prominent construction economist has now postponed the recovery at least until next year.
“I think the non-residential construction market, as measured by spending and likely by workforce, will remain stable,” Ken Simonson, chief economist for Associated General Contractors of America, said in a webinar this month -this. “It will be 2022 before I expect a significant increase.”
He cited as the reasons soaring material prices and shortages, continued supply chain bottlenecks and the reluctance of homeowners to build in today’s environment.
“As the economy generally picks up, we’ve certainly seen a lot of bumps in the road,” Simonson said. “We have a lot of areas where construction is going to have to wait until homeowners are convinced they have the income to justify a new project and that they have the demand. I think it will be a long time to come.”
The myriad headwinds currently hitting construction are already hampering projects. Take the Ag Innovation Campus, a state-funded agricultural research incubator in Crookston, Minnesota. A favorite project of Governor Tim Walz, the work paved the way for a $ 5 million soybean plant last fall.
But the original 67,000-square-foot facility has now been reduced to just over 16,000 square feet amid a 40% cost increase since construction began in October, according to local news radio. KROX 1260 AM.
“COVID has caused us to scale down our initial plans to downsize the building,” Jim Lambert, project manager for the work, told the news channel. “This is only a temporary step. As we go through COVID, we will be able to fill the building as we originally designed it.”
He said the project now aims to build a small crushing plant and two incubation bays, before continuing with nine more bays planned and an office building later.
“This will allow us to start projects and start to develop some cash flow,” he said.
The quagmire of the first trimester
There is further evidence that material costs and supply chain issues are slowing the recovery, before they even get started. The results for the first quarter of 2021 have already started to paint a grim picture.
According to Dodge data and analytics, supply chain delays took a heavy toll on civilian contractors in the first quarter, with nearly three-quarters having serious problems getting materials to projects. In addition, more than three-quarters of civilian contractors are now concerned about increases in the costs of building materials over the next six months, while about half had similar concerns at the end of 2020.
These findings have made Dodge, which has been tracking construction data for over 100 years, questioning how quickly the recovery will come.
“While it is not clear whether this would impact the large infrastructure investments currently recommended by the Biden administration, it could impact the extent to which the civil construction sector can successfully rebound in the first half of 2021 “, states the Dodge report..
How entrepreneurs cope
Entrepreneurs adopt various approaches to move projects forward in the face of these challenges.
Some, like Lambert at the AG Innovation Center, reduce the initial stages, to use the equipment and materials they can get, while others change the sequencing of their builds to put materials they already have first. in place. Still others use technology to track the supplies they have and plan accordingly.
Take Matt Gramblicka at Graham Construction & Engineering, based in Calgary, Ont., Which focuses on commercial construction in the United States and Canada. As Vice President of IT and Business Applications, Gramblicka tried to leverage technology to stay ahead of supply chain and hardware challenges.
Where projects were booming in Alberta before the pandemic, it has seen a shift to Seattle and Ontario simultaneously since then. This has forced him to pivot to obtain more equipment and materials in these markets from the suppliers who own them.
“It’s really about having visibility into the changing market and making sure that we have the right relationships with the people to actually get the supply in the first place,” Gramblicka said.
It does this in part using SAP’s ETM.next tracking solution for asset and tool management, enterprise software vendors, to ensure the right resources are in place where they are needed. needs, while leveraging materials tracking tools to ensure supplies will arrive when teams are ready for them.
“Before, for materials, you had a conversation and a handshake,” Gramblicka said. “Now it’s about having electronic visibility, so you know where things are and how they’re getting there. This is how we fight this on our projects. “
Past performance as a leading indicator
Tools to better understand where materials are in the supply chain – as well as who may have delivered them in the past – have grown in importance during the pandemic.
At enterprise software maker Oracle, Vice President Burcin Kaplanoglu took care of deploying the company’s new suite of AI and analytics applications called Oracle Construction Intelligence Cloud Service, which was introduced in February and uses past performance to assess the likelihood of future results.
“You can look at historical data and assign rewards based on whether one submarine was able to deliver things on time better than another,” Kaplanoglu said. “You can look at their relationships with suppliers, see how much they communicate, even see how many inquiries they’ve received. These are the tools that our customers are starting to use.”
One of those customers is Chicago-based Pepper Construction, which has experienced long delays in ordering prefabricated steel roof beams and wall panels for distribution centers, an area of construction that has seen increased demand. during the pandemic. These materials can now have delivery times of 10 months or more in the Midwest, a challenge Pepper has overcome by revamping the sequencing of their builds or handing projects over to owners in phases.
“If you have a million square foot distribution center, rather than building the whole structure until it’s complete, we’ll sequence it so we can hand the first half over to the owner for their use,” while we continue to build the second half, ”said Scott Higgins, senior vice president of Pepper.
The company also used low-tech RFID tracking to make sure it knows where its supplies are. On an ongoing casino project, for example, it uses these beacons to know where the most in-demand steel components are located at any given time.
“Steel is the main driver of the calendar, so we have a whole process to label it,” said Jennifer Suerth, vice president of technical services at Pepper. “We know when it’s ready for manufacturing, when it’s leaving the shop and when it’s arriving on site so you can find it when you need it. “
Container tracking at sea
Although ordering steel joists is not the same process as buying toilet paper on Amazon, industry professionals now say building material tracking has improved a lot in recent years as monitoring of deliveries in general has become more common.
For example, at San Francisco Bay-based general contractor XL Construction, senior vice president of integrated solutions Chris Bailey said he can track his materials, even when they are traveling in a container on a ship at west coast destination.
“We use BIM model technology and calendar linking to drive our procurement process in a meaningful way,” said Bailey. “We use our RFID trackers and QR codes on the containers so that when they leave the factory, when they are loaded onto a ship or an airplane, we have a pretty good idea of their delivery time.”
Ultimately, although challenges remain, using technology to help find and track materials gives contractors greater control over the process. “The ability to see beyond is what really excites us,” Graham’s Gramblicka said. “If we could invent a crystal ball, that would be the best thing to do.”