FEATURE ARTICLE, MAY 2009

CONSTRUCTION TRENDS IN THE WEST

Going for the Green – The construction industry, including both major builders and smaller firms, will focus more on sustainable building practices, as an increasing number of institutional lenders and publicly financed projects will require Leadership in Energy and Environmental Design (LEED) certification.

Credit Rules – The vast majority of all construction work is paid for with borrowed money, from the mega projects down to the home remodel. Until the worldwide credit crisis is solved, the construction industry will continue to shrink, forcing more contractors with ineffective practices out of business.

No Dearth of Disputes – As competition gets tough and contractors are fighting for survival, the frequency of construction-related disputes will rise. Delay claims, claims for change orders, payment disputes, performance issues and virtually all types of construction-related disputes will increase as profitability diminishes and as weak, under-funded contractors with inadequate project management controls die out.

The IT Factor (Information Technology) – Smart, forward-thinking contractors will continue to focus more resources on information technology to make their operations more productive and profitable. Those who have already made the investment in technology-based solutions will have a much greater chance of survival, while those who are behind the IT curve may find the combination of increased competition and expensive technology overhauls to be fatal.

Public Works – Institutional construction is the only construction market segment in the West that is expected to be somewhat stable, only shrinking by about 3 percent in the past year. In the next 1 to 2 years, expect the federal government to pump significant money into our aging infrastructure. The country has built its way out of all major recessions going back to the Great Depression and this time will be no exception. 

Construction Costs – In the past year, there’s been an overall 10 percent increase in the cost of construction materials and a 3 percent increase in labor costs, while costs to owners have remained fairly stable. Increased competition from a shrinking construction market will continue to be absorbed by contractors, and their profitability will shrink, until the economy is in a clear rebound.

Ted Bumgardner is vice president of San Diego-based Gafcon Inc.

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