The past year has brought considerable tumult to the nation’s economy, but somewhat surprisingly, the construction and design sector in this region seems to fare somewhat better than in other parts of the country.
A survey by the Association of General Contractors in the fall showed that 30 percent of respondent companies had furloughed or laid off workers during the pandemic, while 27 percent had added staff—a nearly even split. The math says that 43 percent held their ground, which reflects the observations of executives from key regional firms who commented for a remote “assembly” that carries the Industry Outlook series into a new year.
There’s more on their plates, however, than health-management concern for staff. Other agents of change hard at work in the sector are familiar ones that have shown no proclivity for mercy during a pandemic: labor challenges, rapid technological changes, big data’s influence on process, and public-sector funding questions.
The bad news in all of this is, COVID-19 is still with us. The good news? These executives say their firms are positioned to hit the gas in 2021 and keep driving the growthmobile.
For the most part, construction companies dodged a viral bullet in 2020. Having earned the distinction of being “essential” businesses, they largely forged ahead with projects. But not the way they did before.
“New safety protocols, including frequent hand washing/sanitizing, new PPE requirements, and especially social distancing made job sites much less efficient,” said Richard Wetzel, founder of Centric. “Supply chain interruptions did have an effect on deliveries and schedules. Luckily, we only had a few cases of COVID-19 on our job sites, so that didn’t have a huge impact.”
While the damage to the sector isn’t to be ignored, it is temporary, said Paul Neidlein, Midwest Division President for JE Dunn Construction Co. “Some public funding certainly will have a delay and the related projects are pushed out until more is known about the budget impact of the given municipality, but we have yet to see anything outright canceled,” he said. Other areas of public work, he said, specifically citing federal projects, “have not seen any change in planning for the next three-to-five years and may even speed up.” Unlike many businesses that operate week to week or month to month, said Travis Noble of McCownGordon Construction, the construction sector is unique by virtue of its lengthy pipeline.
“Much of the work we put in place in 2020 was planned 12-24 months earlier,” he said. “We saw positive momentum for public projects that were approved and funded, like school districts where capital improvement bonds already passed.”
For many of those, Noble said, the firm was able to accelerate schedules since project sites were significantly less crowded than a typical school year. “Where we saw the largest impact was with projects that weren’t funded yet, and in the corporate sector there’s a lot of uncertainty in the office area,” he said. “There’s excess capacity and owners are unsure of how soon associates will go back to work, how many will return to the office, and what types of additional safety protocols will become more permanent.”
For some companies that provide follow-on services at built structures, the wholesale shuttering of office buildings cut into revenues from maintenance and upkeep. “That probably hit a lot of people that way,” said Rosana Privitera Biondo, president of Mark One Electric. “A lot of things had to be put on hold.”
Multifamily construction builder Roger Neighbors says the biggest logistical problem for his Neighbors Construction team “is the material supply lines are very fragile. We are not receiving materials on time, even though they have been ordered for months because of COVID-19 affecting the supply companies’ employees.” And when product shows up, he says, it’s often not correctly made his order has been shorted, adding further delay to projects.
Perhaps the sunniest take on 2020 came from Matt Ralston, senior vice president for design-build at Burns & McDonnell. The firm experiences many of the same safety-protocol challenges, he said, but “we actually ended the year with an extremely strong construction backlog at Burns & McDonnell, ultimately stronger and more diverse than a year ago.” Some of that came because local, state, and federal governments acknowledged a vast amount of construction markets as critical infrastructure throughout the pandemic, he said, allowing most projects to move forward and not completely stall momentum.
Michael Campo, market president for IMA Corp., saw the impact through an insurance broker’s lens, noting the risk-exposure elements in the COVID-19 world.
“Contractors are required by law to provide a workplace free from known hazards,” Campo said. “OSHA has provided guidance that companies can and will receive citations for not taking prompt action to protect their work force from contracting and spreading COVID-19, by implementing a workplace prevention plan.”
Some have already been cited by the agency he said, for failure to implement such plans, which require “additional engineering and administrative controls to maintain social distancing, reduced stacking of trades, staggered work shifts, downsizing operations, delivering services remotely, and other exposure-reducing measures, which causes delays to an already tough schedule.” The pandemic has also raised worker absenteeism, compounding the longstanding labor shortage.
In response, he said, “contractors should explore their options for conducting essential operations with a reduced work force, including cross-training workers across different jobs in order to continue operations and provide a quality finished product.”
Labor, said Paul Neidlein, “is always a challenge because so much of the work we do for complex and highly technical clients is very specialized. The value of those skilled laborers, he and other executives say, is inestimable.
“We depend on these highly skilled laborers, and have been fortunate to provide jobs to these talented individuals,” Neidlein said. “Again, other than hopefully short-term challenges related to travel and on-site conditions, we have been blessed to work with a committed work force whose work ethic is beyond comparison.”
It’s an issue that has vexed Roger Neighbors for years, and continues to do so. “Labor is still short in all of the scopes of work,” he said. “I see no relief in sight. We have to work hard to keep the staff we have happy and busy.”
While nearly all general contractors have weathered the storm, they are feeling some of the pain shared downstream, by smaller subcontractors. “One challenging side effect of the current economic climate,” said Travis Noble, “is the difficulty some small trade partners are having maintaining their financial stability because of the issues with PPP and some of the additional expense involved in maintaining the safety of workers.”
Millennials—the largest generation in U.S. history—comprise more than half the work force today, and Gen Z, is entering the work force behind them. Yet the challenges of securing talent, said Richard Wetzel, have eased “not at all.” “We still find it difficult to find experienced construction professionals and skilled and even non-skilled tradespeople,” he said.
Even when the bodies are there, said Rosana Privitera Biondo, an experience gap looms. “There is less leadership, especially in the field, because the guys are getting older and retiring,” she said. With plenty of young workers available, she said, “the issue is getting people to run the work; we’re able to get people, but we need more leaders.”
The deep cyclical nature of construction work has always inflicted strain on work field employees, whose jobs can quickly vanish during a downturn. The experience of 2020 did little to ease that stress.
“With the construction market fairly hot, we continue to deal with skilled labor shortages on a regional basis, but not necessarily trending any more or less challenging,” said Matt Ralston. “To me, a bigger issue is the mental wear and tear on the people in the field with additional protocols, limited ability to travel home, and additional stress that has been brought on with the pandemic and political environment.”
The key to overcome those challenges, Ralston said, “continues to be in creating an environment on our job sites where the craftsmen want to come to work, and know they will be valued, safe, and productive.”
An odd feature of the pandemic—and its public-policy response—is that while some business sectors (hotels, restaurants, airlines, theaters, etc.) have nearly died off, others have blossomed. Where are the various strengths and weaknesses in this market?
“The immediate response typically comes from private-sector developers who pull back on capital improvements,” said Richard Wetzel. “During the pandemic, work on mixed-use, industrial and health care projects has stayed strong, while the office and retail markets have had a pull back and a “wait and see” response. Hospitality has shut down for the time being. The public sector will be the ballast to get the industry through the pandemic and its aftermath.”
Given the way federal spending increased during the Trump administration, it’s probably not surprising that a fair number of those dollars landed in the construction bucket. But the feds aren’t the only ones spending, even during a pandemic. “We are still seeing federal, government and military projects, plus K-12 education, data centers and other advanced-technology industries markets staying strong, if not growing,” said Paul Neidlein. “We have seen some early pullback in health care, but that is already coming back now.”
Hospitality and aviation were two markets that were clearly affected most, Neidlein said, and he expects it will be some time before they recover. The local exception to that is with Kansas City International Airport, where work had been proceeding apace well before the virus broke out.
“Not surprisingly,” said Matt Ralston, “we have seen significant reductions in capital spend in the aviation, oil, gas and chemical space over the last nine months. Those reductions have been offset by projects in the renewable energy, foods and consumer product manufacturing, and mission-critical spaces.”
Rosana Privitera Biondo also cited the emergence of big-box logistics companies here. “And health care was completely down, but now it’s turning around because hospitals don’t have enough beds. Those are the two hottest areas,” she said, adding that the jury was still out on how office work—and demand for office space—will play out in a post-COVID world.
For Roger Neighbors, whose com-pany has been near the vanguard of a multifamily construction boom since the Great Recession lifted, the party’s not over quite yet. “Multifamily is still steady, with ample work as far as we can see for the next two or three years,” he said. “Crystal ball doesn’t go out past that.”
Ken Block, managing principal at Block Real Estate Services, noted the stratification of activity in the built-out portion of that niche. “It has certainly been difficult for some of the multifamily, but primarily at the lower levels of product, and not the higher,” he said. “As whole, the market has done much better than what everybody expected.”
He also sees no cooling in a red-hot industrial sector. “E-commerce has expanded dramatically, and industrial is being built at record levels across the country,” Block said. “Certainly, with our location in the middle of the country, two days from almost every part of the country, that’s becoming more significant.”
Word that extension of the Kansas City Downtown streetcar had been approved for a total of nearly $225 million in federal assistance was indeed welcome among contractors. The work to extend that project by 3½ miles, from Union Station past the Country Club Plaza to UMKC, will be transformational.
“We are really excited by the recent news,” said Paul Neidlein. “First and foremost, we want Kansas City to succeed. Creating a larger “Downtown” area for visitors is critical to both the success of the Plaza, and to making the city marketable for convention-goers and visitors alike.”
Free transportation to some of the region’s historic architecture landmarks and visitor attractions, he said, helps the entire metro area in the long run: “We will always benefit from sustainable growth, directly or indirectly, as a company and a corporate citizen.”
Mark One landed a significant share of the original streetcar system work, but even though it was unsuccessful in bidding for the extension—Evergy has already hired a contractor to move utilities—Rosana Privitera Biondo is glad to see it happening. “I do think it’s a positive for the community,” she said. The benefits of such an extension, said Richard Wetzel, can’t be discounted. “While we work metro-wide, about 75 percent of our work is in the urban core,” he said. “We are already seeing the impact of the streetcar extension project in new work inquiries and we are currently pricing two significant projects solely due to the extension.”
Travis Noble agreed. “I think there will be a lot of opportunity along the line for development, which of course benefits the local construction companies and the economy as a whole,” Noble said.
But there’s more at stake for the region than boosting project work, said Matt Ralston.
“Our city is in continuous competition with other metropolitan areas across the country for attracting jobs, a talented work force, and tourism,” Ralston said. “It is attractive and functional amenities like the streetcar that can further drive our brand as a forward-moving city, so I hope that we can make it happen with the next phase.”
Beyond the streetcar project, Richard Wetzel offered a concise sum-mary of a project that could continue Downtown’s 20-year transformation: “Two Words: Downtown baseball,” he quipped.
Every business sector is being whipsawed by technological advances, but are we really close to seeing robots on the job at construction sites?
McCownGordon, said Travis Noble, anticipates “a rise in the use of robots to complete work like field layout, and other components that include significant repetition and can be handled by machines. The pandemic also advanced the speed at which we adapted technology to control access to job sites.”
Tech solutions today allow contractors to monitor who is on a site and for how long, he said, and who they came in contact with, which speeds contact tracing in the event of virus exposure. “Additionally, we’re seeing an increase in the use of drones,” Noble said. “We’re using daily drone flights on some projects to track productivity and match it to the schedule to ensure they are staying on track.”
Not all the tech advance is digital, though. “We are seeing trends in materials—less heavy concrete and steel, more light-gauge, and timber,” said Richard Wetzel. “We’re seeing more modularization of building components. And all buildings are getting smarter, with more and more connected components creating more energy efficient and ‘healthy’ environments.”
And the changes extend to other areas, noted Matt Ralston. “There are a lot of shiny objects out there right now, but wearable augmented reality tech, continuing advancement of 4&5D BIM modeling, and other augmented/virtual reality technologies promote both design and construction productivity,” Ralston said. “Really, anything that automates data-gathering and analysis, expediting data-driven decisions and planning throughout the project lifecycle.”
Paul Neidlein concurred. “I’ll admit to always being careful in suggesting there is some silver bullet technology trend that is going to completely change construction,” he said. “However, we do see more and more uses for augmented and virtual reality–they aren’t just buzzwords anymore.”
Because of those advances, “we have people working effectively from multiple locations, including clients, and our design partners,” Neidlein said. “They are more able to experience the job site, field conditions, and real-time issues in a virtual environment. We can also effectively present information, like our estimates and construction planning, in a much simpler manner that anyone can understand. Some of this technology is proprietary, while some is widely used in our industry.”
Almost hand in hand with job-site technology, the world of builders is being remodeled by advances in Big Data. The ability to gather information at such a granular level, and to extract new insights from it, can’t be overstated, executives say.
“Every piece of software we utilize now is cloud-based, and most are on an app platform, which gives everyone in the company more data in real time,” said Richard Wetzel. “The question is not the amount of data—it’s figuring out how to use it.”
At JE Dunn, said Paul Neidlein, “we are constantly finding new ways to use project and real-time data to allow us to make better and more informed business decisions, as well as recognizing trends that we see on projects all around the country. Especially evident during the early stage of the pandemic, our data analytics allowed us to accurately predict the impacts to our markets, revenue, work force, etc.”
With KCI work well under way and a streetcar extension gaining momentum, those who hope to fill contractor work pipelines are peeking around the corner for what might be next.
“We are all hearing a lot of talk about baseball Downtown,” said Paul Neidlein. “I think that would have a large impact as a single project, but more importantly help continue the growth in the Downtown and adjacent areas.”
Another big impact could come from a cap over Interstate 670 on the south part of the Downtown highway loop, a recommendation floated by hopeful developers.
From that, said Paul Neidlein, “a great urban park could be created, while adding to the opportunities in the adjacent areas.”
With the red hot expansion of mission critical facilities, renewable energy, as well as infrastructure for e-commerce, said Matt Ralston, “we should be positioned to take advantage for growth in those areas. In addition, as a city/region, we should be aggressive in attracting new process and manufacturing facilities that drive not only design and construction jobs, but provide a long-term boost to the regional economy, as well as creating other construction opportunities for ancillary supporting infrastructure projects.”
And, somewhat from left field, Rosana Privitera Biondo offers this: “Hydroponics.” “That is the next big thing—growing lettuce here, and other things, inside. I see a big push in that market; big investors are coming to town because we’re right in the center of the country, and it’s more economical to ship from here than California.”
Beyond projects of that type of scale, and with new legislative seasons under way in Congress as well as the capitols in both Missouri and Kansas, construction and design executives are trying to read the tea leaves to discern how public policy may fuel future growth.
“In the public sector, we would love it if our new president signs off on an infrastructure bill,” said Rosana Privitera Biondo. “It gets us more work, right?”
With the accelerated increase in e-commerce, said Travis Noble, “Kansas City has tremendous opportunity to serve as a hub for companies leading the sector. And we’ve seen they are interested in our region because of our location, ease of access to highways, etc. Now that those big players are starting to focus on the ‘last mile’ to the customer, infrastructure to support will be critical.”
Said Paul Neidlein: “We are all watching the national, regional and local discussions and politics around continued public investment, economic stimulus, and development incentives and the direct impact that will have on the growth, slow down, and/or viability of building and infrastructure projects.
“This has such a wide impact on the entire industry, whether you are in the design and construction of projects in diverse markets, like JE Dunn, or in a specific unique market,” he said. “Our business, the hundreds of subcontractors we work with, and our design partners all look forward to the continued positive momentum in the Kansas City metro area. Now is not the time to suggest this region can sit back and hope everything will continue. We love our hometown and we are really excited about the path we are on today, and want that to continue for decades.”