Construction’s 2022 challenge: Seizing opportunities in a tough risk environment

By John Wallen and Craig Tappel

Wisconsin is in line to receive billions of dollars in federal funding through the sorely needed federal Infrastructure Investment and Jobs Act (IIJA), with everything from bridges ($225 million) to airports ($198 million) targeted for work[1].

It poses a major boost for the Badger State’s construction industry in 2022 and beyond, although the overall pace of work was already growing at healthy clip. Home construction in the state, for one, jumped 40% through this year’s first half due to lack of housing inventory combined with low mortgage rates[2].

The challenge, though, is the industry’s ability to marshal the resources needed to get the work done. Shortages of materials and particularly of workers will continue to be a drag in 2022, as both can delay project completions, hurting revenues and the bottom line.

Risk management takes on heightened importance in the construction environment as some of the best solutions, like improving alternative materials and growing tech adoption, do have their downsides. The industry should keep an eye on subcontractor performance and default risks, along with rising cyber exposures.

Leveraging the opportunities while managing the risks will take all the resiliency the industry can muster. Here’s what’s on the 2022 horizon.

1. Supply chain woes continue, but alternative materials may help

The ability to take on the abundance of work out there is limited by a supply chain still disrupted by pandemic-driven shutdowns combined with severe weather in 2021. Back orders of supplies still stretch out into months and construction goods costs were up 19% as the year headed to a close[3].

In 2022, alternative materials will increasingly be an option, though less due to supply chain woes than continuing quality improvement. Mass timber, for example, has strength and fire resistance going for it and its domestic manufacture creates long-term supply side advantages. “Bendable” concrete has cost disadvantages, but positives of a smaller carbon footprint and greater durability. Balancing the benefits and risks means checking the implications of their use on insurance coverage, particularly property, general and product liability.

Managing the construction business won’t get easier in 2022. Cash flow cycles will continue to be interrupted, affecting costs, timing and project budgets. And delays due to materials shortages are leaving firms under further pressure to extend expiring builders’ risk policies.

It will take resilience to get through this period. A focus on supplier relationships, especially with local and regional resources, will emphasize regular engagement and use of backups. Material reserves should be built, if possible. Cutting back on foreign-made supplies and just-in-time sourcing will also help.

2. Shortage of workers continues to constrict growth

The longer-term, ongoing labor shortage will plague the industry for the foreseeable future, and the aging of the workforce (now averaging 43) only makes the problem more acute. The industry must continue to pull out all the stops if it hopes to find the 1 million workers needed in the next two years to manage the boom in construction[4].

It’s preaching to the choir, of course, but vocational training – and especially retraining – must continue to be priorities. Construction is seeing the same trends in turnover that business in general is experiencing. Turnover in the industry has reached 21.42%[5]. Another solution to aid recruitment and retention lies in enriched voluntary benefits.

The influence of technology on the industry is another leverage point for smart construction employers. There’s a tremendous interest in drones, robotics and Internet of Things solutions among younger workers. Underscoring technology’s expanding role and the implications for construction careers plays an important relevance card for tech savvy millennials and Gen Zs.

In fact, the construction tech trend appeals to more than just the younger cohorts. One way enterprising contractors have worked to get everyone up to speed is with training approaches that “cross-fertilize” skills: Older workers mentor apprentices in manual skills, which young newcomers reciprocate with technology training.

3. A downside of tech trend: new vulnerabilities

Technology is having a profound impact on the business – and it’s still early days.

Drone use is skyrocketing, with 239% year-over-year increases[6]. “Smart” project management tools make scheduling and budgeting more efficient. Robots and wearable sensors improve efficiency and safety.

The requisite investment will challenge many given the economic turmoil and financial pressures accompanying the pandemic. But there’s a lot at stake: The tech evolution stands to improve the industry’s productivity by as much as 60% and deliver as much as $1.6 trillion annually in incremental global value[7].

The downside is additional risk, particularly cybercrime: technology makes contractors and their customers vulnerable to ransomware, social engineering and other cyberattacks. One study showed that 75% of construction-related firms had experienced a cyber incident in the previous 12 months[8].

Construction isn’t as vulnerable as some industries. But, overall, escalating cyberattacks are pressuring the cyber insurance market, resulting in more stringent carrier guidelines and rate increases of 20% or more. Now’s the time for firms to have serious discussions about risk precautions and the scope of their cyber insurance policies.

Opportunities abound in the new year – and beyond – for the construction industry. But seizing on them will be the challenge. The ability to navigate the uncertainties on the road ahead – financial, supply and labor pressures alone – require resiliency that many firms, by now, may find hard to muster.

About the authors —

John Wallen

John Wallen is Vice President and Wisconsin Construction Practice Leader for global insurance brokerage Hub International. He has more than 30 years of experience providing risk management consulting, effective insurance solutions and innovative risk and cost reduction strategies for the construction industry.  John is active in multiple construction industry trade associations including ABC, AGC, ASA, Plumbing and Mechanical Contractors Associations as well as the Construction and Financial Management Association.  John has been a featured speaker for several of these and other construction associations on various risk management topics.

 

 

 

Craig Tappel photo

Craig Tappel

Craig Tappell is the Chief Sales Officer for global insurance brokerage HUB International’s construction specialty practice.

 

[1]    https://www.wisbusiness.com/2021/tue-am-news-wisconsin-to-get-billions-in-federal-dollars-through-infrastructure-bill-dems-some-business-groups-applaud-house-package-of-the-legislation/

[2]    https://biztimes.com/wisconsin-home-construction-up-nearly-40-in-first-half-of-2021/

[3]   https://www.tmj4.com/news/coronavirus/local-grocery-construction-workers-feel-impact-of-supply-chain-constraints

[4]   1https://www.cnn.com/2021/07/08/economy/construction-worker-shortage/index.html

[5]  https://www.bls.gov/opub/mlr/2021/article/as-the-covid-19-pandemic-affects-the-nation-hires-and-turnover-reach-record-highs-in-2020.htm#:~:text=June%202021-,As%20the%20COVID%2D19%20pandemic%20affects%20the%20nation%2C%20hires%20and,reach%20record%20highs%20in%202020&text=The%20total%20separations%20level%2C%20also,spike%20in%20layoffs%20and%20discharges.

[6]    https://www.bigrentz.com/blog/construction-trends

[7]    https://www.mckinsey.com/~/media/McKinsey/Industries/Capital%20Projects%20and%20Infrastructure/Our%20Insights/The%20next%20normal%20in%20construction/The-next-normal-in-construction.pdf

[8]    https://www.forrester.com/blogs/category/cybersecurity/

Recent Posts
0
Flag and hardhat image
X
X
X