If you consider where we are and the challenges the industry, and pretty much everyone else, is grappling with – inflation, the economy, interest rates, the Federal Reserve, recession fears, COVID, China, Russia, Ukraine…the list goes on and on. There’s so much uncertainty, with construction companies and contractors smack in the middle of some of the turmoil we are seeing. Some of the challenges we are seeing are:
1.) Labor shortage:
The construction industry (like many others) is facing a shortage of skilled labor, which can lead to project delays and increased costs. This is due to a number of factors, including an aging workforce, a lack of interest in construction careers among younger generations, and immigration policies that make it more difficult for foreign workers to enter the country. This shortage of skilled labor can also lead to increased competition for workers, which can drive up wages and make it more difficult for companies to find the workers they need. Companies need to embrace new ways of attracting talent, while retaining the valuable talent that they already have. Embracing technology, employing new recruiting methods, and appealing to very young candidates may yield positive results and help offset the otherwise shrinking employment pool.
2.) Rising material costs:
The cost of materials, such as lumber and steel, has been increasing in recent years, making it more difficult for companies to turn a profit. This has been due to a variety of factors, such as tariffs, natural disasters, and supply chain disruptions. While some relief has been felt lately, companies may have to pass these increased costs on to customers and consumers, which still can make it more difficult to compete with other companies. A close review of expense overhead and materials sourcing could lead to positive results in this area. Running a lean operating is essential in an inflationary marketplace.
3.) Lack of affordable housing:
The shortage of affordable housing is a major issue in many regions, and construction companies are struggling to keep up with demand. This can be due to a variety of factors, such as zoning regulations, land costs, and the high costs of construction.
4.) Environmental regulations:
Construction companies must comply with a variety of environmental regulations, which can be costly and time-consuming, and of course, ever-changing. These regulations can include requirements for energy efficiency, water conservation, and the use of sustainable materials. With changes in administrations and lack of consistency in leadership, it can often feel like hitting a moving target. Understanding the regulations upfront is essential. Invest time, effort, and energy before embarking on major projects to avoid penalties, litigation, and assessments later.
5.) Safety concerns:
Ensuring the safety of workers on construction sites has always been a major concern for companies, and they must comply with a variety of safety regulations, which, like environmental regulations above, seem to only be getting more complicated and involved. This can include requirements for personal protective equipment, fall protection, and safety training. Companies need to conduct regular safety audits and inspections to ensure that they are complying with safety regulations.
6.) Economic uncertainty:
The construction industry is closely tied to the overall economy, and economic downturns can lead to decreased demand for new construction. This can lead to a decline in construction activity and a decline in employment in the construction industry. Right now there are differing views on whether inflation is slowing quickly enough, if the economy is destined to enter a recession, and really what comes next. Fear alone can manifest itself as detrimental to consumer and business confidence, which in turn can impact the appetite for construction projects and activity. Companies may have to adjust their business strategies to adapt to changes in the economy. Stay nimble and connected to what’s going on in the economy in general.
7.) Technology and innovation:
Companies must adapt to the new ways of working, with the incorporation of new technologies and processes. This can include the use of Building Information Modeling (BIM) software, drones for site inspections, 3D printing, and virtual reality for design and planning. Companies that are not able to adapt to these new technologies may find it more difficult to compete with other companies. Embrace these technologies or risk losing business to more aggressive tech-savvy competitors.
8.) Delays and disruptions due to COVID-19:
The pandemic has caused many delays and disruptions in the construction industry, including supply chain disruptions, worker shortages, and changes to regulations. Companies had to implement new safety procedures and protocols to protect workers and comply with regulations related to the pandemic. While COVID-19 no longer seems to be the sole focus of the world and news cycle, its ill-effects are still being felt today.
Economic uncertainty seems to benefit no one. We’re all in this together, facing similar trials and tribulations. At least some of the matters raised above are hopefully transitory, but until these pressures abate, it’s important to stay vigilant, flexible, and attentive to what’s going on around you.
We are here for you, to help you work through your challenges, to provide insight into the sector, or to be a resource to bounce things off. Please stay connected … we are here to help you, any way we can.
Joseph M. Sciacca, CPA
Partner
Joe has been providing consulting, tax, and accounting services for over 35 years to closely-held businesses with a concentration in the construction and real estate industries. He regularly consults regarding credit matters as well as representing them before various governmental and taxing authorities.