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Today’s project management software systems and processes—along with education and experience—can make project and construction managers more savvy and efficient than ever.

What construction professionals shouldn’t forget, though, are backup plans.

Smart managers assume that any project could be disrupted. Trouble spots could be in materials availability and cost, labor supply for projects, and/or along the supply chain. The construction manager who anticipates disruptions and creates backup plans has the best chance to deliver a project on time and within budget.

One reason: Political, economic and financial shocks to the economy can be improved through regulatory, political, financial, diplomatic and other means. By contrast, it’s not clear what fixes might work for the pandemic, how much is needed, and how long they’ll take. 

The tendency may be to load up on work while it’s available and worry about doing it when the time comes. That’s not necessarily the right risk to place on a company’s capital.

Construction is a necessity, but jobs are being postponed or canceled nonetheless. Owners might not be bullish if they don’t know what to expect or even when the uncertainty is going to clear.

Aside from the current pipeline, contractors can’t know what to expect for job bids in 2021. Public projects (roads, government buildings and schools) depend on tax revenue, another uncertainty. In the Southeast, for example, bridge inspections have indicated significant maintenance work is needed. In 2021, should tax revenues fall short, it’s possible the state could divert tax dollars to bridge maintenance and postpone other roadwork to the following year’s budget.

Another possibility, though, is that an economic recovery and/or an effective coronavirus vaccine could move construction into a higher gear in a hurry. Canceled or postponed jobs could come back on line.

The construction manager, no matter the circumstances, must try to avoid the financial, professional and reputational fallout from a delayed or incomplete project. That’s especially true given the experience and expectations many construction firms had in 2020 and might face in 2021.

Here’s a look at three of the risks for which managers need backup plans.

Materials: Shortages and Higher Costs

In 2020, there hasn’t been much evidence about concrete or steel shortages. However, prices on concrete products (+1.3%), cement (+1.4%), ready-mix concrete (+0.9%) and concrete pipe (+1.3%) have ticked up year over year through August. Concrete ingredients and related products (+3.9%), construction sand/gravel/crushed stone (+4.7%), and concrete block and brick (+3.6%) have gone up at higher rates, according to the U.S. Bureau of Labor Statistics Producer Price Index.

By contrast, the category of lumber and wood products has gone up in price 11% in 12 months through August, although shortages don’t seem evident. These prices might be touched by hurricanes in the Southeast and wildfires in the West.

The recommended hedging of this would be to require a price hold and guarantee availability for delivery from suppliers of the material.

Labor Shortages

There is no general way to categorize labor shortages in construction. The field hires a range of workers—carpenters, electricians, steel and iron welders/fabricators, project managers, supervisors, equipment operators and more. 

Even within one category, labor varies. For heavy equipment operators, for example, the skill set for a highway construction project—which requires meticulous, smooth grading—calls for a greater skill than for a shopping center project.

Contractors traditionally hire subcontractors to help them deal with hiring and onboarding of workers. But they might experience a nuisance when subcontractors spread their existing workers among a number of jobs.

Contractors are shortening leashes to minimize these annoyances. When a contractor receives a “complaint letter” from an owner, that contractor in turn has to call out its own labor force and subcontractors. Small to mid-sized contractors can be especially affected.

In response, surety claims departments open claims for these situations. 

If there’s a spike in tax revenue and a surge in work, the industry may face a labor crunch in certain lines. If labor prices head upward, it might be because some contractors are keeping their top talent, making them off-limits to others. Contractors that pay top talent what they’re worth are better positioned.

Other companies may face high price tags or job candidates who are solid, but don’t fully fit the needs of the project. They may require grooming and training—and while “growing your own” is a proven success model, the contractor must have the luxury of time. Hiring from outside can expand a company’s network of revenue sources and bring in fresh perspectives, potentially sparking future best practices or smarter, faster ways of tackling tasks.

Whether to promote from within or to hire from outside is a question that only management can answer. Either way, there’s always a learning curve when hiring a new employee. In the high-pressure construction environment, the labor risk is also heightened. Managing workers to deliver the project at the right quality levels has always been a risk, and the pandemic heightens the risk.

Generally, my sense is that workers are available and getting jobs done, despite the high-anxiety environment presented by COVID-19. This only goes to prove how resilient and risk-minded contractors are in today’s market.

Supply Chain Disruption

This realm of the contractor’s world seems to be the most stable of the three risks discussed in this article. But if bidding on work, contractors may need two supply chains or suppliers. It comes down to having that backup plan. And adjust costs accordingly in case an alternative is needed. This may fall into a “contingency” bucket to cover the increased cost.

Supply chains can be affected for contractors when they hold off on bidding and/or planning phases for work, given the current economic uncertainty. Projects don’t break ground the day after a bid is submitted, but contractors must commit to a timeframe of 45 to 60 days out. It can be problematic when project timelines begin six to nine months out.

Recommended hedging of this would be to require a price hold and guarantee availability for delivery from multiple suppliers. Going with the most trusted (but not necessarily the least expensive) provider may be the best course to get the job done on time and to earn the profit expected.
Meanwhile, it’s important to keep up with activity outside the United States Foreign economies can impact U.S. material stockpiles, equipment and the economy.

Heading into 2021, contractors should make sure the organization has supply chain availability in advance and anticipate shortages of materials and labor the economy can bring. Make those backup plans. 


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