Construction executives say their project backlogs are healthy for 2022 and well into 2023.
The construction-sector outlook for 2022—and perhaps well into 2023—is presenting itself as a case of Good News/Bad News.
The good? Executives say their pipeline of future work is running at near capacity for the coming year, with some even projecting billings that could top record years in 2021.
The bad? No matter what factors you discuss when it comes to forecasting for this sector, all roads seem to lead back to two familiar yokes on the necks of executives: an unmercifully tight labor market, and crushing increases in materials costs—and delays in actual deliveries to the job site.
And, just for good measure, the worst COVID-19 outbreak since the pandemic began two years ago, sidelining both field workers and office staff, and forcing many others into remote-work arrangements.
But first, back to the Good News.
“Robust is a good word for the 2022 outlook—we’re full,” declares Tim Chad-wick, chief executive for MMC Corp., which operates four construction and engineering brands. “From our standpoint, we’re full in almost every one of our vertical major markets. The challenge is balancing timing, supply chain, labor and human-capital availability. Opportunity is not the challenge.”
So it’s good on top of good at McCownGordon Construction, as well, says COO Steve Levy.
“We had a record year of revenue in 2021, and 2022 looks like it’s going to be record year as well,” Levy said. “And for 2023, our sales goals are very strong. All things considered, I think we’re in a very good place.”
Pipeline-filling, or creating a backlog of work, is as much an art as a science for general contractors, who draw on decades of experience, crunching metrics on economic trends, and vast networks of contacts among clients and companies in the market for new and upgraded facilities.
But the “art” part of it ran into huge questions in early 2020, with the arrival of the pandemic. Almost immediately corporate spending slammed to a halt, as did plans for large-scale public-sector projects, because state and local revenue streams dried up as their tax bases did, too.
“In terms of project types, we’ve gotten more scientific about it” in longer-range planning said Paul Neidlein, president of JE Dunn Construction’s Midwest division. “I think we’re a lot better now at predicting outcomes one, two or even three years in advance; beyond that, we don’t pretend to know what might happen. But now, we tend to have a good idea on a percentage basis how many projects we win, how many go forward, how many stall or go away.”
Part of the planner’s challenge is to understand not just the volume in a pipeline, but the respective construction disciplines that are filling it, or soon might, at a given time. With the economic upheaval inflicted by COVID-19, and the strong recovery, the elements filling that backlog have changed, but not, as yet, decisively for the long-term. Office construction, of course, has been scaled back, but in its place, health-care facilities—for hospitals and medical office buildings—has been strong.
And a little nudge from Washington prompted administrators from school dis-tricts, universities and other public-sector organizations to get their orders into production.
“We thought initially that the public work, the city-county-state work would almost be gone,” Neidlein said. “Budgets were going negative early in the pandemic, everything was on hold. That’s really flipped, and a lot of those entities’ budgets have recovered a lot with various stim-ulus packages. That’s probably the biggest switch.”
Much to the relief of contractors.
“I think everybody was concerned about how the pandemic was going to affect their pipeline,” Chadwick said. “At the outset, I wasn’t near as bullish on 2022 as I was in the middle part of last year. We’re heavily invested in the industrial market, but e-commerce, on-shoring, health care are strong. And mission-critical is a big market for us. There was fear of the unknown at the onset of the pandemic, but the opportunities continue to fill in for 2022.”
While some of the biggest projects were the first to be pulled, volume made up the difference, Levy said.
“For 2021, our average project size was down, and we were still able to set that record, but by doing a lot more projects,” he said. “I think that was COVID’s impact. Now, we see larger projects on the near horizon for 2022 and a similar trend for 2023. It kind of gets us back to a pre-pandemic assortment of project sizes, project diversity, that kind of thing.”
Across the area, two major infra-structure projects are keeping general contractors and subs engaged: the $1.5 billion single-terminal remake of Kansas City International Airport, which will continue through spring 2023, and the $351 million extension of the Downtown Streetcar to UMKC. Requirements for minority and women-owned business participation on each project give those companies additional opportunities well into 2023 and beyond.