Q&A … With Lynn Newkirk

PUBLISHED JANUARY 2024

Q: Heading into the new year, can you give us your thoughts on where construction, broadly, is positioned for 2024?
A: I would say confidence is pretty high in construction right now. People are generally busy. The sectors that we focus on have remained strong and overall been less affected by economic factors like interest rates, etc. The increase in construction spending is a little difficult to analyze, because while it’s been up 17 percent over the past year, how much of that is due to inflation factors vs. the number of projects and volume of work being performed? I would bet that people in those sectors that haven’t slowed are actually doing more work this year than last, or their revenues have increased. Labor costs are high, and labor is tough to find, but that remains an ongoing challenge in our industry. From a post-Covid materials availability, the supply chain, to me, continues to improve and is more predictable than it’s been over the past three years. 

Q: Now, you all are more institution-focused than the private sector; how does that specialization impact your ability to keep the pipeline full?
A: In the institutional markets, we do a lot of publicly funded, government-funded work. And those markets, because it’s public money, seem to be less impacted and volatile than the private sector money out there. Developer-led projects, for someone who is without the cash in hand but working to get funding/financing in place, find that the cost of borrowing money is much greater than in the past and you are probably getting a lot less project for your investment. Those people are struggling to get started or get the returns they want. I feel like those, unless there is a strong return the project, they have slowed, stalled or haven’t happened.

Q: So what’s the difference with public money?
A: Projects like education, with publicly funded money, when you have a project you need to do, you just need to do it, and if your tax base supports it then you can make forward progress. When costs are high, maybe you have to do less, you can’t get as much building or program, but you still have to do the project, and you find the most economical way to do it. This can include education, municipal projects, higher education and health care. 

Q: How does that stewardship of public tax dollars affect the equation?
A: With increases in the tax base, new things are being built from tax dollars or federal funding of some sort. Whether that involves federal incentives like those for advanced-manufacturing or for computer-chip plants, there is funding there, and that gets put to use every  year, for example, with schools trying to put dollars toward educating kids. Some of those dollars have to go for capital improvements and facilities, etc., just to maintain and for upkeep. That’s where that spending is different—it isn’t like a developer with an opportunity to build, thinking should I do this or not? These are existing buildings or current needs that have to be met sometimes serving an immediate need or ensuring you maintain current assets. Some is the need driving it, and also the funding is less restricted.

Q: Do you find that spending from public entities is more constant than with private?
A: In our sectors, municipal and healthcare especially, there’s a variety of things at work. In K-12, the opportunities are there over the next three-five years, and that is about as far out as  you can look. We see some of our partners planning in decades—developing their 10-year plans, with the expectation that those can flex. The backlog for us is healthy. When look at opportunities and how they stack over time, in construction, what you try to avoid are big peaks and valleys in revenue, so you can maintain some sort of consistent revenue stream. As you know, those can affect whether a project starts early or may start late. Look at what’s coming, and it flows with your organizations talent pool, and try to diversify into different sectors that make sense for the business. What we see as we look out over the next 24 to 36 months, there is a good, strong group of projects out there that we would pursue.

Q: What are you sensing will happen with interest rates, and what has been the impact of higher rates over the past couple of years?
A: What we’ve seen is, where the project is viable, you have to go back to when rates started to climb. A list of viable projects became less and less appealing to parties laying out those dollars. They slid or stalled out in their construction timeline. What happens is the projects may become smaller or take on a different scale to make them more viable, or the returns somebody envisioned early are adjusted. It may still be good project and over long term may be a great one, but there’s a kind of risk tolerance for each specific party your working with. Developers in town still are very active in sectors they focus on like multifamily, but with office buildings, a few were started over the last 12 months, but not a lot of them. It’s impacting everybody’s risk profile.

Q: You mentioned supply chain improvements; are there gaps within the chain that still complicate project timing?
A: You can break hat into things that have gotten better and things that haven’t. For a time, roofing materials, insulation took super long to get, you needed a long lead time, and it was very costly. Structural steel was in the same boat. Bar joists went form three months to get to eight months to get. Those have eased. Those are now back in line, not completely normal lead times, but very predictable lead times. 

Q: So what’s less predictable now?
A: Gaps where the chain is still broken are electrical components, switch gear, panel boards, anything with a chip in it, electrical, audio-visual components, HVAC equipment, all has a longer lead time. It’s better than it was, but still missing some, or the lead times are still very extended. You have to do things differently today to plan for that, like use early-release packages if we have an A/V system we know is going to be 18 months on the lead, which has happened. Releasing that project the day it’s awarded, we get more time ticking on it and get in line for it sooner. We focus on early involvement with our owners and design teams to get ahead of this as soon as possible as it can have a major impact on budget, schedule, etc. 

Q: Any other areas of concern?
A: Precast, but it’s not supply issue, it’s a manufacturing issue. Precast is component we’re seeing issues with a lot. There are only so many precast plants in the region, and they are maxed out. We’ve seen their lead times go from five or six months to 12 moths. Have to be asking that question as the project is being designed. It may be a situation where you don’t use precast, you may use other material to sub, or put an early release out there for precast. The most important thing an owner or client can do is involve the construction party early in the design process, at the same time a designer is hired, because what they’re able to do is work with designer to help select the structural system or modify where they see long lead time for equipment. What we need to do is change to load-bearing masonry, for example. It can greatly impact the cost and schedule of the project.   

Q: That sounds like a planning nightmare.
A: It is, but if you get ahead of it and can make decisions early, we’ve done that for several school projects. A school needs to open at semester or end of summer. You can’t do it during the middle of a semester. So hitting those dates is critical, and maybe you modify materials so you can always meet deadlines.  

Q: Drilling down a bit further on labor. Any changes in the bottleneck there?
A: I’m hopeful that prospective interest does realign with the sector. It is a good career. There seems to me there was a period of time where trade schools did not look up on this as a truly viable way to make a living. It was “college, college college—go get  your degree.” But two things you need to consider: the debt incurred to go to school, weighing that vs. trade school where that wage is a good wage. And having consistency in your job, not getting laid off. I feel like trade schools and craftsmanship is coming back and becoming something that is equally weighted now. I wish, honestly, for my own kids’ stake, that trend had started earlier, because there could have been a better path for my kids vs going to college. 

Q: Within that overall tight market for labor, are there particular skills needed, tougher roles to fill?
A: I would say, for us, we are growing every year and at this point, as a 50-plus person firm, there are two different directions on this. One is the trades, then you flip over to general contracting with specific gaps there with supervisor or project manager. I don’t have a good answer for you on trades, as a large portion of our skilled workforce continues to age; I think all are facing their challenges equally. On the construction management level, I feel a tighter squeeze on project managers. For us, retainment and recruitment is a pretty big aspect of what I’m involved in every day of the week.   

Q: How does the specific type of work appeal in different ways to prospective talent?
A: The types of projects we build really go to our core value for our company. Some projects have a great purpose—if you’re building a school, you’re thinking about why it’s being built. It can change lives, education can, or create a better environment for kids and staff. That’s a fun thing to be a part of and rewarding, vs. another type of building that is really built for a monetary purpose. But we struggle like everybody else to find people. I do believe people want to have a purpose in their work, to do something that at the end of the day has some meaning. Construction is very tangible; you can see every day something is being done, and  you want to be proud of that.