Four things we learned about the state of construction last week
By Neil Gerrard16 June 2023
Last week saw a glut of new surveys that took the temperature of the global construction industry.
Between them, the reports from KPMG, InEight, McKinsey and XYZ Reality attempted to gauge how construction professionals feel about the state of the industry, their concerns, and how they see the future developing.
International Construction examined those reports to come up with four key takeaways:
1) Confidence is surprisingly high
Despite the prospect of recession looming in some markets including the US, UK and parts of Europe, construction professionals were surprisingly bullish about their prospects over the coming year.
Four out of 10 engineering and construction (E&C) respondents told KPMG that they expect revenue growth of more than 10% in the next 12 months.
Meanwhile, InEight reported that 41% of construction project owners were very optimistic about their organisation’s prospects for the next 12 months, with 51% declaring themselves optimistic, and only 9% saying they were not very optimistic.
Among contractors, those figures were even higher, with 41% very optimistic and 58% optimistic.
Whether that confidence extends beyond 12 months remains to be seen.
Economist Anirban Basu, CEO at Sage Policy Group, said, “In North America at least, a construction backlog several quarters long is providing a buffer between contractors and an increasingly turbulent economy.
“Meanwhile, owners are feeling the effects of tightening monetary policy, with the cost of capital increasing and concerns over economic stagnation putting a dampener on optimism.”
Contractors in the Asia-Pacific (APAC) region were most confident, at 96% for project owners and contractors combined, compared to 93% in North America and 92% in Europe.
The biggest risk to growth for their own organisation cited by contractors was staff or skills shortages (46%), following by economic recession (36%) and lack of access to capital (35%).
2) Construction companies struggling to stay on schedule
Meanwhile, a report from augmented reality (AR) solutions provider XYZ Reality found that two thirds of US construction projects are delivered “somewhat or very frequently out of schedule”.
The results came after a survey of 300 construction company owners and executives. The delays to projects appear largely to be a hangover from widely publicised supply chain problems, with 52% of respondents citing this as a cause.
Some 43% also blamed poor communication on projects, rising construction costs (43%), inexperienced workers (39%), new sustainability requirements (36%) and insufficient supervision (34%).
The results chimed with the findings of KPMG’s report, which revealed that only half of project owners’ projects are meeting completion deadlines.
That represented a rise of 5% since the 2021 survey. A total of 7% of resopndents to the survey also admitted that they had missed budget and/or schedule performance targets due to a lack of effective risk management.
KPMG said that supply chain disruption, high energy and materials prices, and labour shortages were all pushing up costs and delaying project timelines.
3) Construction companies regard digital tech as key for growth
New technology will be a key driver for sustaining growth in construction, particularly amid a shortage of skilled labour, according to InEight’s report.
Chris Dill, vice president and CIO at Kiewit Technology Group, quoted in the report, said, “We have no shortage of work and no shortage of projects to be built, to the point where the limiting factor really is labour. We’re short of experienced people on all those projects that know how to build complex projects of that size and scope.
“The key is to supplement that with technology capabilities that can supercharge the productivity of the people we do have.”
InEight’s survey found that real-time project status and real-time stakeholder communication were the two technology features that would most positively influence project outcomes, followed by enhanced risk identification.
And it noted that supply chain pressures would drive a shift to different contract delivery models that would involve contractors taking on less of the burden of risk and greater sharing of resources among owner, engineer and contractor. More shared project data could provide better datasets to fuel emerging construction technologies like artificial intelligence, InEight noted.
KPMG’s survey also reported the growing significance of technology. It found that 81% of E&C firms are adopting mobile platforms, with 43 % using Robotic Process Automation (RPA) and 37 % adopting AI.
As a measure of the room for growth of AI, a mere 4% of respondents are currently applying it across every project.
4) Environmental, social and governance (ESG) high on the agenda
ESG remains high on the construction agenda.
Half (50%) of respondents to KPMG’s survey cited the need for appropriate workplace demographics, with diversity, equity and inclusion (DEI) ranked as the third most important factor for determining future success.
KPMG reported that ESG has climbed construction leaders’ agendas, with 54% “fully envisioning” the benefits and pursuing maturity. They cited reputational improvement and competitive advantage as key drivers for the strategy.
But whereas project owners were more concerned with reducing greenhouse gas emissions, E&C companies placed a higher priority on Diversity, Equity & Inclusion (DEI).
Meanwhile, embodied carbon is a growing concern and likely to be subject to future regulations.
Fortunately, a separate report by McKinsey found that construction could reduce emissions by more than 75% by 2030, using technologies that are already available. However they would need to be implemented at scale within the next 5-10 years.
Levers include low-carbon cement and concrete, ‘green’ steel, on-site equipment charging services, and low-cost, high efficiency heat pumps.
To read the reports in full, click the following links: