Turning Challenges into Opportunities in Today’s Building Environment
This article is included in the Great Things: Issue 10 edition of the DPR Newsletter.
The construction industry is facing a number of challenges, exacerbated by a post-pandemic economy and shift in the way many people work. Strengthening and advancing the construction industry as a whole is a lofty goal–one that can only be achieved by working together.
FMI Corporation (FMI) specializes in helping engineering and construction firms create and execute strategies to achieve their business and financial goals. Chris Daum, FMI’s president and CEO, offers three fundamental issues facing the construction industry today:
- An industry dominated by discrete, unique projects
- An outdated construction procurement and delivery process
- An ongoing shortage of skilled labor
Exploring strategies some companies are using to work through these challenges can present opportunities and inform best practices. By posing questions, offering alternatives, and working together to find mutually beneficial solutions, it’s possible to improve the industry and move the needle of success forward for everyone.
The global economy also affects building projects; construction is a leading economic indicator in the U.S. that contributes 4% to the GDP, according to Forbes. With portions of construction on the brink of an industry-specific downturn, according to Daum, construction is both a driving force in the economy and a potential victim of it. Meanwhile, interest rates are soaring, prices are inflated, and financing has become more difficult.
Along with economic issues, lingering effects of the pandemic and shutdown remain. For the commercial sector in particular, higher interest rates increase the risk to developers and make it more difficult to get loans. Cash flow changes and volatility in the market affect pricing forecasts. People aren’t going back into offices at the rate they were pre-pandemic, leading developers to pause or cancel some projects. Developer Trammell Crow Company (TCC) awarded a 1.2 million-sq.-ft. office building project that was subsequently canceled because of the decreased demand for office space.
One way TCC is weathering the financial storm, according to Mark Fowler, TCC’s executive vice president of development management, is by diversifying its portfolio to include fee development projects. This is part of a long-term strategy developed in the wake of the 2008 downturn. By learning from experience, adapting and adjusting their strategies, they’re better positioned to meet changing financial climates. “We’re not sitting around waiting for the world to change. We’re slowly trying to make deals work.” said Fowler.
Benefits of Scale
Most vertical construction projects are one-off buildings where the owner builds one discrete project, rather than a series of projects. Why then should it be considered among the challenges? Examining the alternative to one-off projects may illuminate incremental improvements and lessons that can be adapted to other situations as well.
Owners who build repeatedly, or have an ongoing program that includes multiple construction projects, have advantages, including:
- Established relationships with builders, suppliers, transporters, permitting entities and financial institutions that facilitate successful outcomes.
- Economies of scale that increase buying power and potentially decrease costs.
- A more modern procurement process based on mutually beneficial partnerships.
- Improved processes (like prefabrication) and final products through both repetition and capturing lessons-learned on successive projects.
Meta is one example of an owner benefiting from a building program. To meet their goals, they partner with a group of general contractors who collaborate closely to drive the program forward. One advantage to this is that processes can be strengthened and refined based on ongoing experience.
According to DPR’s Austin Moore, “Key lessons learned get distributed across all the projects so that we as GCs can learn from what others have done.” Everyone gains by learning, and Meta benefits by having stronger teams on projects that proceed more efficiently. In cases where a program approach isn’t appropriate, owners can still benefit by working with builders who have experience working within similar programs and who continuously work to improve their own processes.
In another example, Atrium Health (Atrium) is warehousing and storing materials and equipment to be shared among different projects including the Carolinas Rehabilitation Charlotte Hospital according to Amanda Mewborn, vice president of planning, design and construction at Atrium. As the industry continues to struggle with supply chain issues and long lead times, having multiple locations can be advantageous. Atrium also tries to expedite the design items that take the longest to acquire, such as generators and electrical switchgear. By developing the designs earlier, they can order items earlier and reduce potential delays.
As an industry, contractors need to come together to share lessons learned and figure out a way for one-off owners to receive similar benefits of scale.
Collaboration Over Cost Alone
“There's this fallacy that you can get every piece at the lowest cost and build something great,” said DPR’s Atul Khanzode, a member of the company’s leadership team who focuses on technology, innovation and collaborative project delivery.
Today, it’s simply not possible for one person or company to have the expertise necessary to master everything that comprises modern building. As a result, the process can at times feel fragmented, which can prevent teams from maximizing benefits for the owner.
Rather than choosing partners with which to collaborate, owners may prioritize overall cost and select the lowest qualified bidder, noted Daum. The typical bid-build approach is at best transactional and at worst encourages an adversarial process. Various parties are forced to make decisions that are more about mitigating risks.
“One of the challenges in a downturn is everyone kind of retreats into defending their own turf. People are looking after their own interests, their own balance sheets, their own risk exposure,” said Daum.
Construction is a very integrative process that requires incorporating the right knowledge and expertise at the right time throughout the project lifecycle. A relationship-based approach places the contractor in a better position to provide greater certainty on projects and support owners through the decision-making process, noted Khanzode. When partners are chosen early based on the expertise they bring to the table, rather than cost alone, collaboration becomes possible.
A more collaborative process also enhances the human experience. Atrium, as an example, takes time early on to assemble and develop team culture, according to Mewborn. “We all have different strengths,” she said. “And the way that all of us get more joy out of the work we do is by capitalizing on people’s strengths, assigning work based on those strengths and working as a team.”
Building relationships and fostering trust is not just a feel-good exercise. Fowler points out that at TCC, “We want everybody to be successful, from the smallest subcontractor up to the GC. If you make money, we’re going to make money. We need you to be successful for us to be successful.”
TCC takes a different approach but ultimately agrees that having the right team on a project is key to its success. “Everybody’s got to be on the same page, otherwise, you’re going to end up fighting it out,” said Fowler. “The schedule’s going to slip. The quality of the work slips. Nobody’s happy. Lawsuits or liens get filed then you spend a bunch of time and effort working on things that don’t make money for anybody.”
Despite widespread agreement about the value of more collaborative project delivery methods, implementing this change has proven challenging given the risks associated with projects that are expected to have decades-long lifespans.
Improving the process through increased benefits for both owners and the builder can help. “I believe the industry could undergo a faster evolution if contract terms and financial incentives were better aligned with the owner’s goals, particularly in terms of on-time project delivery and staying within budget,” said Digby Christian, executive director of project delivery at Sutter Health. “While good intentions are valuable, it's the influence of market dynamics that has the potential to drive significant transformation.”
Attract and Develop Skilled Labor
The industry continues to struggle with skilled labor challenges. Daum suggests this may be due to newer generations being discouraged from entering construction because society has devalued vocational and skilled trade education. This has proven short-sighted. As Daum explains, the jobs that build infrastructure still exist and are among the best-paying professions anywhere in the American economy.
Lack of diversity also contributes to the labor shortage. One paradox of diversity, equity and inclusion, according to Jorge Quezada, vice president for people and culture at Granite Construction, “is that none of us created the systemic issues we face. But we all have a responsibility to do something about it.”
Daum points out that economic stressors often exacerbate labor shortages because companies put communication, training and development of people on a back burner. Thankfully, this doesn’t appear to be happening this time. Finding and retaining qualified workers remains a priority in the face of the current labor shortage.
Atrium is approaching the labor shortage by trying to get people excited about working on healthcare projects because they are meaningful and have a lasting impact on communities. They’re also looking to partnerships to address some of the shortages. Other forward-thinking companies have training programs targeting students graduating from high school or even still attending high school, including DPR.
Some states are also seeking to promote the return to vocational training as a means of addressing labor shortages. In Arizona, for example, the governor recently announced the “BuilditAZ Apprenticeship Initiative” which includes the goal of doubling the number of apprentices in construction and trades by the end of 2026. It includes funding to expand employer-funded apprenticeship programs aimed at increasing access to women and other underrepresented segments of the population.
Apprenticeships are another attractive option for learning a skilled trade. According to a 2023 study from the Institute for Construction Employment Research, union apprenticeships and workplaces are increasing diversity across the U.S.; 88% of women who finished apprenticeship programs are still linked to trade work.
The challenges are very real, but so are the solutions. A contractor’s role necessitates adaptability, responsiveness and consistency. It also demands a willingness to see things from the owner’s perspective—to share the same priorities and work together as one cohesive team.
There is no ‘one-size-fits-all’ solution. But there is an opportunity to shift the paradigm to one that rewards teamwork, promotes mutual success and advances the construction industry at the same time.
Posted on January 22, 2024