All business sectors were forced to adapt to the COVID-19 pandemic in 2020, and the construction industry was no exception. While many companies can operate with all their employees working from home, this is not possible for contractors who have projects to deliver. A building can be designed and approved remotely, but workers must interact in person when construction starts.
In addition to the pandemic, the US construction industry faces several challenges in 2021: the price of key materials and inputs has increased significantly, unemployment rates are high, and many projects were disrupted by harsh winter storms in February. However, there are also opportunities: engineering firms and contractors have adopted emerging technologies, and the COVID-19 relief package approved on March 10 includes funding and incentives for construction.
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In this article, we will discuss the main challenges and opportunities for US contractors in 2021. There is some uncertainty in the sector, but there are also emerging technologies and government incentives that can help construction projects.
Challenge #1 - Construction Materials Are More Expensive
Supply chains in all industries were disrupted by the coronavirus lockdowns, and the price of many construction materials increased between 2020 and 2021. However, two important materials have been affected the most:
- Iron and steel became 15.6% more expensive between January 2000 and January 2021.
- Softwood lumber became 73% more expensive in that same period.
The increase in lumber prices has had a major impact on the residential construction sector, which depends on the material for house framing. According to the National Association of Home Builders, a single-family home is now $16,000 more expensive due to lumber prices alone. The impact of iron and steel prices has been felt most in the commercial sector, since reinforced concrete structures and steel structures both depend on these materials.
Depending on how a construction contract is written, the increase in material prices is assumed by the contractor, the owner, or both. However, the end result is the same: the project becomes more expensive, and someone must absorb that cost. In addition, some companies have been hoarding materials to protect themselves from price spikes, and the increased demand drives the prices even higher.
Challenge #2 - Construction Employment is Low
Many construction projects were slowed down or paused completely in 2020. The COVID-19 lockdowns issued by some states only allowed critical projects to continue, and all others were paused completely. This reduced both construction revenue and demand for labor, and thousands of construction workers lost their jobs in a matter of months.
The construction industry had already recovered over 70% of the jobs lost during the pandemic, but February 2021 was a very difficult month, due to the harsh winter storms. The weather disrupted projects directly, while causing large-scale blackouts in many parts of the US. As a consequence, the construction industry lost 61,000 jobs in that month alone, according to Associated Builders and Contractors.
However, the short-term outlook is promising: Construction activity tends to increase in summer, and that will drive demand for labor. Also, the second COVID-19 relief package has extended the employee retention tax credit into 2021, giving companies a deduction of up to $10,000 in payroll taxes per employee.
Opportunity #1 - The COVID-19 Relief Bill Has Construction Incentives
The second COVID-19 relief bill has a total value of $1.9 trillion, and part of that budget can be used for construction projects. The bill gives high priority to sectors like education ($125.8B), Federal Transit Administration ($30.5B), restaurants ($25B), healthcare ($8.5B), COVID-19 research centers ($1.8B) and tribal governments ($600M).
The bill has introduced $340 billion in coronavirus recovery funds, which will be managed by state and municipal governments. These funds can be used for various purposes, including construction. State governments will get $219.8 billion, while cities and counties will get $120.2 billion. The bill also created the Coronavirus Capital Projects Fund, with a value of $10 billion: each state will get $100 million, and the rest will be allocated based on demographics and population needs.
Opportunity #2 - Using Technology in Construction Projects
Many companies used technology for social distancing in 2020: videoconferencing, cloud-based file sharing and working from home are some examples. However, companies soon found that technology brings permanent benefits in addition to COVID-19 prevention, and many of their processes have become more efficient as a result.
Contech is a promising field in the construction industry, and many emerging technologies are now being deployed in project sites. For example, wearable sensors can help workers stay safe, and drones can be used to survey sites without entering high-risk areas.
Contractors who deploy technology can gain a major competitive advantage, which will help them face the challenges brought by the year 2021. For example, they can use BIM software to optimize the use of construction materials, and they can deploy technology in projects sites to keep workers safe.