Unique isn’t the word. Unprecedented might be the more appropriate descriptor for the current state of the commercial construction market.
The professional landscape has been altered in countless ways by the historic disruption of the COVID pandemic. It’s being pulled in opposite directions by the opposing forces of strong underlying economic fundamentals and ongoing labor and supply chain challenges. Construction professionals are navigating an industry where the demand for quality work is high, but there are formidable obstacles making it difficult to complete projects in a timely manner.
For construction companies looking to thrive in the current environment, understanding the scope and scale of the challenges before them is critical. Even more critical is recognizing what they can do to mitigate and overcome those challenges.
What follows is an overview of the issues construction and development professionals need to be aware of before any shovels hit the ground, and a list of tips and best practices for how construction companies can proactively address those issues and minimize disruptions and delays.
Headwinds and hiccups
Unfortunately, many construction professionals are all too familiar with the challenges facing the industry. One of those is a chronic and continuing labor shortage, the result of a decades-long talent drain, an aging workforce and a pipeline of new talent in the skilled trades that was chronically neglected. It isn’t just the lack of new talent causing an issue, but the real possibility of burnout in a workforce that is often overworked and stretched to the limit. Anecdotally, stories of workers turning off their phones to avoid getting called in to work over the weekend support the notion that the demands are high.
The other urgent issue is the lack of available products and building materials, largely due to continuing supply chain disruptions exacerbated by the lingering effects of a global pandemic. It’s not just premium or difficult-to-source materials—even “quick ship” items that could formerly be relied upon to ship and deliver in an expedited manner can no longer be guaranteed.
Predictably, the combination of supply chain disruptions and labor shortages has made setting and adhering to realistic build schedules enormously difficult. Many leases and contracts used to include language that penalized construction companies and developers for not delivering on time (e.g. clauses that obligated them to pay 1.5 days of rent for every day of delay or, in some cases, even giving tenants the right to terminate the contract if the build is not completed by a specified date).
Unsurprisingly, owners/landlords and development and construction professionals are increasingly trying to avoid deadline clauses, even as tenants are trying to push for them. In response, some developers are starting to insert clauses into their contracts to say they aren’t responsible for any delays or disruptions because of the current supply chain issues.
Proactive and creative
Given these structural market challenges, what should construction companies be doing to proactively address these issues?
First, recognize that much of the hard work required to do just that takes place well before construction begins. It starts in the design stage, identifying material and design choices that fit your budget and your schedule. Construction companies should prioritize working with architects and other design professionals who have demonstrated that they can be creative with material selection and design choices. Work closely with end users to discuss products, emphasizing the need to be flexible and creative.
Negotiating realistic timelines to give construction companies enough time to successfully complete projects is important—but making that happen often means reaching out to landlords a year or more in advance to discuss options and opportunities.
Planning ahead as much as possible is also critical for logistics and budgeting. Successful construction companies are ordering products and materials earlier than ever to lock in prices and avoid future price changes. Once you get a signed contract, plan to have draft agreements with sub-contractors ready to go.
Along with proactive preparation, the best construction companies have recognized the need to become increasingly relentless and creative when it comes to sourcing and procurement. A company that used to require three bids for every major line item in a contract might now be regularly reaching out to 30 different companies and working hard to leverage all existing relationships in search of specific products or materials. At a time when you can’t always rely on traditional sourcing or supply channels, it might take hundreds of calls a day and a newly aggressive mindset when it comes to tracking down a certain light fixture or a specific flooring product.
Finally, be realistic—and communicate that realism to clients and professional partners. In such a unique and challenging environment, delays are likely, perhaps even unavoidable. But will your build timeline end up being three times longer than you wanted, or just 1.5 times longer?
While there are few things that can be done to address the labor shortage in the industry in ways that will dramatically move the needle right now, it is incumbent upon construction company executives to invest in the employment and skills development programs and pipelines that will hopefully bear fruit in the not-too-distant future. Construction and development companies should be working with colleges to help create and fund programs that encourage young people interested in the skilled trades, and should be partnering with or supporting trade schools and programs/academies that teach people those skills.
In the meantime, hiring programs with attractive signing and retention bonuses can have a positive impact. At Huntington Construction, we created a scholarship program in the name of our founder, coupled with an opportunity for interns to ultimately learn on the job. Programs like these are not just supporting the next generation of talent and skilled workers, but hopefully building relationships that will translate directly to hiring that bolsters your employment base in the not-too-distant future.
Talk the talk
There is a clear need to be more flexible with contracts, more creative with labor and materials challenges and more realistic with timelines. However, the question remains: how do you address the relationship between the construction company/landlord and tenant to make sure that everyone is on the same page, and everyone is working closely together to do what they can to mitigate the challenges of the current market?
It starts with communication, especially early in the design and development process. Don’t be afraid to get all parties (landlords, tenants, contractors, key representatives) on a call together to lay the groundwork for the project, assign roles and responsibilities and ensure that everyone not only recognizes the challenges ahead, but understands what they can do to address those challenges.
Promote an atmosphere of teamwork. Discuss obstacles. Present options and opportunities to potentially save both time and money. Setting realistic expectations and establishing a collaborative group mindset can be a difference-maker. Don’t leave interior designers and space planners out of the conversation, as supply chain issues in that space can be just as problematic as the construction materials themselves.
Make creative use of the resources available to you. While the option isn’t available to everyone, construction companies that have existing partnerships or relationships with real estate companies may be able to take advantages of helpful resources. From goods and materials to temporary space for tenants, these connections are valuable when timelines present a challenge.
Ultimately, it’s about being realistic, proactive, and creative. Understand that issues and delays are unavoidable. Need to start identifying and addressing them before they arise. Recognize reality, but don’t limit yourself to traditional options when it comes to navigating this challenging new environment. Think and prepare differently. Because in unprecedented times, business as usual is not setting yourself up for success..
John Line is Executive Vice President of Southfield, Michigan-based Huntington Construction, a general contracting firm that has completed thousands of high-end, cost effective projects for more than 40 years. Contact Line directly at [email protected]