Material shortages are curtailing construction's recovery before it's even gotten started.
While contractors are still optimistic about projects coming back online in the second half of 2021, and the Architectural Billings Index, a key leading indicator of demand, notched up its first two-month win streak since the beginning of the pandemic, one leading construction economist has now pushed out recovery until at least next year.
"I think the nonresidential construction market, as measured by spending and probably headcount, will stay flat," said Ken Simonson, chief economist for the Associated General Contractors of America, during a webinar this month. "It will be 2022 before I expect a significant increase."
He cited spiking material prices and shortages, continued supply chain bottlenecks and hesitancy among owners to build in the current environment as reasons why.
Material costs and supply chain issues are taking the wheels off the recovery, even before they get rolling. Q1 2021 results have already started to paint a bleak picture.
According to Dodge Data & Analytics, supply chain delays took a heavy toll on civil contractors in the first quarter, with nearly three quarters experiencing serious issues getting materials to projects. Moreover, more than three quarters of civil contractors are now concerned with cost increases for construction materials over the next six months, whereas about half had similar concerns in late 2020.
Those results caused Dodge, which has been tracking construction data for more than 100 years, to question how quickly recovery will come.
"While it is unclear whether this would impact the large infrastructure investments currently recommended by the Biden administration, they may impact the degree to which the civil construction sector can successfully bounce back in the first half of 2021," the Dodge report read.
Contractors are taking various approaches to keep projects moving forward in the face of these challenges.
Some are scaling back the initial phases, to make use of the equipment and materials they can get. Others are changing the sequencing of their builds to put the materials they already have in place first. Still, some are using technology to track what supplies they have where to plan accordingly.
Take Matt Gramblicka at Graham Construction & Engineering, based in Calgary, Ontario in Canada, which focuses on commercial construction throughout the U.S. and Canada. As vice president of information technology and enterprise applications, Gramblicka has been trying to leverage technology to stay one step ahead of supply chain and material challenges.
Where projects had been booming in Alberta in Canada pre-pandemic, he's seen a shift to Seattle and Ontario, simultaneously, since then. That has caused him to have to pivot to get more equipment and materials in those markets from the suppliers who have them.
"It's really about having visibility into where that market shift is, and making sure that we have the right connections with people to actually get the supply in the first place," Gramblicka said.
Part of how he's doing that is by using enterprise software providers SAP's ETM.next tracking solution for equipment and tools management to make sure the right resources are in place where he needs them, while leveraging material tracking tools to make sure supplies will come when crews are ready for them.
"Before, for materials, you'd have a conversation and a handshake," Gramblicka said. "Now, it's about having visibility electronically, so you know where things are and how it is getting there. That's how we're combating it on our projects."
Past performance as leading indicator
Tools for gaining insight into where materials are in the supply chain — as well as who has been able to deliver them in the past — have gained prominence during the pandemic.
At enterprise-software company Oracle, vice president Burcin Kaplanoglu has been busy rolling out the firm's new suite of artificial intelligence and analytics applications, called the Oracle Construction Intelligence Cloud Service, which was introduced in February and uses past performance to gauge the likelihood of future outcomes.
"You can look at historical data and make awards based on the fact that one sub has been 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 the amount of requests for information they've had. Those are the tools our customers are starting to use."
One of those customers is Chicago-based Pepper Construction, which has seen long delays for ordering steel bar roof joists and precast wall panels for distribution centers, an area of construction that's seen increased demand during the pandemic. Those materials can now have lead times of 10 months or more in the Midwest, a challenge Pepper's been addressing by re-ordering the sequencing of its builds, or turning projects over to owners in phases.
"If you have a million-square-foot distribution center, rather than building the whole structure until complete, we'll sequence it so we can turn the first half over to the owner for their use, while we continue to build the second half," said Scott Higgins, senior vice president at Pepper.
The firm has also been using low-tech RFID tracking to make sure it knows where its supplies are. On a current casino project, for example, it's been using those tags to know where in-demand steel components are at any given time.
"The steel is the major driver of the schedule, so we have a whole process for tagging it," said Jennifer Suerth, Pepper's vice president of technical services. "We know when it's ready for fabrication, when it's leaving the shop and when it gets to the site so you can find it when you need it."
Tracking containers at sea
While ordering steel joists isn't the same process as buying toilet paper on Amazon, industry pros now say tracking construction materials has become much improved in recent years, as monitoring of deliveries in general has become more mainstream.
For instance, Senior Vice President of Integrated Solutions Chris Bailey, at general contractor XL Construction, based in the San Francisco Bay Area, said he can track his materials, even as they ride in a container on a ship bound for the West Coast.
"We're using the technology of the [building information modeling] model and the schedule linking in order to drive our procurement process in a big way," Bailey said. "We use our RFID trackers and QR codes on containers so that as they leave the plant, as they get loaded onto a ship or a plane, we have a pretty good idea of their delivery time."
In the end, while challenges remain, using technology to help source and track materials is giving contractors a better handle on the process. "The ability to see further out is what's really exciting us," said Graham's Gramblicka.
"If we could invent a crystal ball, that would be the next best thing."
This story is part of a series of articles looking at the COVID-19 pandemic's effect on the construction industry and how an expected rebound in construction work later this year could be slowed by a variety of forces. Click here for other articles in the series.