The Top Risks Affecting Project Schedules and Budgets in 2023
Key takeaways from a discussion on the state of the commercial construction market
Time to read: 4 minutes
A series of supply chain challenges and pricing uncertainties over the past few years made everyone wonder, “What’s next?” in the world of commercial construction. While the market shows signs of stabilizing, three major factors continue to affect every construction project: Cost, material procurement, and the availability of construction labor.
During a recent BLUbox Talk, a panel of Minneapolis construction experts discussed current challenges in each of these areas, and what we can expect as we wrap up Q3 and head into Q4 2023.
Construction Activity Remains Strong Despite Uncertainties in the Market
The American Institute of Architects (AIA) Architecture Billings Index for nonresidential construction remains positive, indicating a strong backlog of construction activity. Projects are ready to ramp up again, though some remain cautious due to rising interest rates. World events such as the Canadian wildfires remain on construction radars for potential impacts on material procurement and pricing.
Material Procurement and Lead Times Remain Somewhat Challenging
We’ve learned to expect and adapt to supply chain challenges. Though some of the more common building materials have stabilized, procurement of other products and materials remains a pain point on projects.
As of July 2023, structural steel, metal decking, and metal joists are all back to standard timelines, or trending in that direction—great news for commercial construction! On the other hand, windows, doors/hardware, and millwork are improving but still have longer than normal lead times. Precast also has long lead times, requiring products to be secured several months ahead of erection.
Widespread electrification, paired with the expansion of electric vehicle production, has also caused volatility in the electrical components supply chain, resulting in production delays. One growing market greatly affected by these delays is data center construction, as essential equipment like power supplies and generators can still have 24-month lead times. Custom AHUs, packaged RTUs, and air-cooled chillers continue to have exceptionally long lead times as well.
Commodity-Based Material Prices Are Finally Leveling Off
It’s been a while since we’ve heard good news in the world of material prices. After watching overall construction costs increase by 30% over the past three years, commodity-based material prices are finally stabilizing. With prices more predictable, companies can plan for a standard (and much more manageable) 3-5% annual escalation moving forward.
Stay on top of cost trends: Mortenson’s Construction Cost Index tracks and evaluates cost variations and regional pricing differences for commercial construction. Q2 2023 shows a single-quarter increase of 1.3% nationally and a 1.5% increase in Minneapolis.
These estimates are based on a project prototype representing a standard four-story building structure. Evaluation criteria used to develop the index include subcontractor work for in-place products and services, commonly used construction materials, labor hours for construction and professional trades, and equipment rental costs.
Construction Labor and Workforce Changes Present Challenges…and Solutions
Workforce shortages continue to affect the industry. A lack of exposure to construction and trades careers has left companies struggling to staff job sites, especially as more industry veterans retire and take their expertise with them.
Additionally, heavier reliance on Building Information Modeling (BIM) for design work and total stations for surveying has changed how people work. Processes previously done by hand now require specific computer and software program training.
Trades jobs are plentiful, and the historic Infrastructure Investment and Jobs Act of 2021 provided the funds needed to improve infrastructures across the U.S. In fact, it’s estimated that the construction industry needs to attract an additional 546,000 workers in 2023 to meet labor demands. With big projects ramping up and a lack of experienced trades workers available, there’s a sense of urgency across the industry to promote construction careers and develop recruiting and training programs.
How do companies cope in the meantime to keep projects on track? Innovative approaches like increased prefabrication and Design for Manufacturing and Assembly (DfMA) help teams stabilize workflow and level out labor demands across a project. Prefabrication not only reduces costs and overall schedules but presents an opportunity to bring in entry-level workers and train them on the job in the construction methods of the future.
Despite the challenges we continue facing, it’s reassuring to see a light at the end of the tunnel. Each challenge pushes us to be more innovative, and it’s helping us redefine the industry for the future.
This article is part of an ongoing BLUbox Talk series presented by Mortenson and its partners. Stay tuned for future quarterly insights on trending national and Minneapolis construction topics.
Thank you to our contributors: Julie Crawford, Market Leader, Mortenson; Leslie Seppamaki, Senior Project Manager, Mortenson; Clark Taylor, Vice President of Estimating, Mortenson; Charlie Zarembinski, Construction Executive, Parsons Electric; Chard Nelson, Executive VP of Construction, Metropolitan Mechanical Contractors.