April 28, 2011

Contractors must adapt or be left in the dust

Garrity

Everyone in construction agrees this recession isn’t like any we have experienced before, and the recovery is the slowest and most painful we have ever experienced. If the economic indicators are looking better, how come the construction industry isn’t improving?

Those who don’t understand that this Great Recession is a game changer may survive the recession, but they might not survive the recovery. Other recessions, basically hiccups, resulted in business as usual when the economy rebounded.

Not this time. Contractors who fail to make the necessary, game-changing modifications in how they do business will be left in the dust. Those who do will thrive. Nothing in the world, the economy or the construction industry is the same.

The global economy is not news. But the impact of the recent geopolitical instability in the oil-producing countries and the resultant increase of oil prices impact the entire world. The lack of coherent U.S. energy policy governing oil, gas, coal, nuclear, wind and solar compounds the problem. The cost of energy impacts everything and its unpredictability makes related choices difficult.

With globalization comes the trend toward modularization of construction. Some thought, “Construction won’t be impacted; you will always have to build on site.”

You have to assemble on site, but panelization and modularization can be done in a manufacturing setting with more control over weather, quality and safety. And that can happen anywhere in the world. With advancing technology and techniques, large buildings and whole communities can become “plug and play.”

Government is another major factor. The degree of uncertainty in fiscal, monetary and tax policies makes it difficult for owner/developers and contractors to make sound decisions. The deficit and printing of money weakens the U.S. dollar and increases commodity prices. The continued uncertainty also impacts the supply and use of credit to finance new projects.

The potential far-reaching impact of health-care reform is another pall on economic development and construction. Too much uncertainty can lead to decision paralysis or at least increased costs to allow for unknown contingencies.

The next game-changer is generational shifts impacting our workforce and markets. As employment rebounds, more Gen Yers are entering the workforce, at the same time many boomers are retiring. Gen Y is nothing like Gen X and contractors must figure out how to manage three very different generations while maintaining productivity and profitability.

Generations will impact not only who builds but who is built for. Futurist Andrew Zolli called it Diaper Demographics — we need to build educational facilities for the younger generation and health care and social services for the older generation. The preferences and needs of each distinct generation impact what is built and where.

Many industry trends will continue but with new twists. Green/sustainable building is an expectation, and the emphasis is on innovative strategies and solutions. Contractors who are not responsive to owners’ ever-increasing demands will be left in the dust of the green movement.

Risk management is now centering on integrated project delivery (IPD). While not every project will be able to achieve full-on IPD status with sophisticated legal contracts outlining the sharing of risk and reward, it is heartening to have the risk management discussion move away from how to push the risk down to the lowest sub to a discussion about up-front agreements and mutually beneficial collaboration. Contractors must be prepared for IPD and its impact on the way owners and contractors work together.

Technology will always be a factor. While not every project will employ building information modeling (BIM), there are many other technologies that contractors need to embrace to improve productivity and cost-effectiveness while meeting owners’ expectations. Contractors have learned to operate leaner and do more with less — often through the use of technology — and it’s clear that doing more with less is the new norm. Those who don’t will find themselves in the dust bin along with their outdated software.

In addition to owners expecting more in sustainability and technology, safety will continue to be a priority. Owners and contractors will look beyond just low EMR ratings to evaluating and requiring robust safety and loss-control programs. The safest contractors are the most cost-effective as a rule, and owners and their financial backers are paying attention. Contractors with high workers’ comp costs — off to the dust bin.

Another significant concern for contractors in the new marketplace is relationships. Real-estate development to construction is a long food chain. Those who had forged strong relationships before the recession fared better than those who didn’t. Bankers, developers, generals, subs and suppliers all play a role in one another’s success. Putting an emphasis on building relationships will continue to pay off.

Contractors who have made the difficult choices and spent this “downtime” preparing themselves for new realities will find themselves well positioned to take advantage of opportunities in a changed environment.

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