Contractors face a perfect storm of challenges that can be difficult to assess and manage while finding, winning, and completing jobs. What I find encouraging is that potential solutions tend to crop up once we understand the problems.
Selective’s 2023 Contractors Risk Report discusses prevailing risks in the construction industry: inflation, supply chain disruptions, a skilled labor shortage, and subcontractor risk. It also offers guidance for general, heavy, and trade contractors to mitigate and manage these risks while adapting their businesses to seize new opportunities.
With that in mind, here is my outlook for the construction industry in the second half of 2023 and beyond—plus a few strategies to help contractors get the job done.
General Construction Industry Outlook in 2023
Selective’s Contractors Risk Report confirms several trends we have anecdotally observed in the construction industry for the past few years.
There will be a continued shift in demand within residential construction away from new single-family homes and strong demand for multi-family dwelling projects. In the non-residential space, building opportunities persist for large warehouses and data centers, along with the reinvention of traditional office space as companies settle into hybrid work environments. Lastly, the steady rise of much-needed infrastructure projects will continue as new funding pours in.
This changing construction environment will present additional opportunities and challenges as contractors evolve to meet demand.
- General contractors will continue shifting toward bidding projects offering more turnkey solutions for developers. The key for these general contractors will be to ensure their subcontractors, risk management programs, and operations management are adaptable enough to deliver on their promises.
- Trade contractors will expand into multiple services or general contracting and hire more subcontractors. They will likely pursue new bid opportunities and, thanks in part to the skilled labor shortage, shift toward outsourcing work to subcontractors. Hiring subcontractors can carry significant risks, so trade contractors should protect their businesses with ironclad risk transfer agreements.
How Contractors Can Overcome Labor Challenges
A tight labor market. The skilled labor shortage. Call it what you will, contractors are increasingly hiring younger, inexperienced tradespeople for roles they are (as yet) unsuited for. The risks of doing so range from frequent injuries and worker’s compensation claims to potential construction defects.
The demand for skilled workers will likely continue to outpace supply for the foreseeable future, but each challenge offers one or more solutions. In this case, contractors can:
- Improve worker and job site safety protocols and training. Contractors can help inexperienced workers avoid injuries by prioritizing safety training and equipment. Providing personal protective equipment (PPE), training workers about its proper use, and mandating it at job sites will help mitigate some risks. Onboarding and training programs need to be robust and take a continuous learning approach. Ask recent hires what you could do to improve the onboarding experience for new employees or what they wish they had learned during the training program.
Improving future training and fostering continued learning after the onboarding period are more than philosophical approaches to management—they are tactics that can help you better manage the labor challenge.
- Embrace a workforce transition. The proportion of women working in construction reached an all-time high of 14% in August 2022, and the number of women working in the construction trades will continue to increase. Similarly, the Infrastructure Investment and Jobs Act will help minorities enter the construction business by streamlining procurement processes, simplifying government lending programs, and unbundling large contracts—potentially increasing the size of the labor pool.
- Support Skill Development: Companies that adopt new technologies must ensure that they have workers capable of implementing them. Job roles and employee skill sets must evolve to use new tools and software.
How Contractors Can Overcome Supply Chain Challenges
In the construction industry, delays have a compounding effect that can cause a weeks-long project to drag on for months or longer. Several years back, lousy weather and permit problems were arguably more significant than construction material delivery delays. Not so anymore.
Supply-chain inconsistencies will persist through the rest of 2023. Whether shipping and delivery will ever return to their pre-pandemic speeds is uncertain. To offset or overcome these challenges, contractors can:
- Consider alternative building materials. Alternative building materials, many of them “green” or more environmentally friendly, have become attractive alternatives—both in terms of price and availability—to standard wood, stone, and metal. Many contractors around the country are using materials such as bamboo, shredded tires, reclaimed soil, recycled plastic, and used bricks to complete projects.
When considering alternative or environmentally-friendly building materials, you should research their safety performance, review safety data sheets, and train employees on proper installation to help ensure they meet the demands of your project.
- Plan for continued supply-chain disruptions. Finding alternative suppliers or stockpiling materials is easier said than done but can help offset the risks related to future supply-chain troubles without drastically altering a project’s timeline. Be realistic with customers about project delivery times and add buffer time to offset supply chain disruptions.
How Contractors Can Leverage New Technologies
While some challenges, like inflation, are intractable, contractors increasingly have access to new resources that can mitigate others.
Emerging technologies, from wearable efficiency trackers and vehicle dash cams for workers to building information modeling software and VR training programs, offer contractors new ways to improve every aspect of their operations. These technologies have recently become more affordable for smaller to middle-market construction firms.
Contractors who embrace new technologies may gain an edge–potentially safer workers, the confidence to diversify into new kinds of projects, and fewer equipment breakdowns–over those who are slower to adapt and adopt.
Some of this new technology may mitigate the effects of the skilled labor shortage and supply chain inconsistencies. A forward-looking example is using robots to replicate a tradesperson’s work.
Navigating the Construction Industry in 2023 and Beyond
Despite some challenges, the future looks bright for the construction industry and individual contractors who can evolve their operations and seek new opportunities—but keep in mind that diversification and tech adoption bring new risks.
General contractors should work with a qualified independent insurance agent and a carrier who understands the construction industry to help build a risk management program. Robust insurance coverage can help contractors reap the benefits of reducing risk: greater predictability, higher productivity, and more on-time and on-budget deliveries.
Best of luck in 2023 and beyond!