The coronavirus outbreak and its subsequent market shock have private and public Owners alike scrambling to figure out the impact on their projects. Some have chosen to push ahead with design and construction, while others have paused to adjust to changing revenue projections. While the decision to move forward with projects in the current environment is a weighty one, there may be real opportunities in doing so.
New data from the American Institute of Architects (AIA) illustrates a sharp downturn in demand for design services. AIA’s Architectural Billings Index (ABI) dropped dramatically in March, reflecting pandemic fear and shutdown policies. This steep decline will surely pass to the construction sector. The Associated Builders and Contractor (ABC) Construction Confidence Index, a survey of construction industry leaders, highlighted dramatically lower expectations for sales, profit margins, and staffing levels.
What does this shift mean for Owners? Those who can capitalize on this abrupt new shortage in demand may benefit from reduced prices. Projects that can be made shovel-ready in the near term will see increased bidding competition, driven by contractors chasing scarce work while looking to secure backlog.
The drop in demand won’t be permanent, though. While Q2 expectations are dire, the economy will eventually move towards full reopening, leading to a renewal in capital investment and project starts. Owners that pause now, then look to re-engage in late 2020, may face rising costs due to shortages. Projects that are put on hold also risk supply volatility down the road, in the form of cost premiums and longer lead times. While adjusted construction costs have been rising for decades, this unforeseen spike poses a risk to project budgets around the country.
While there’s little certainty around nationwide economic recovery, the coronavirus pandemic has underscored several best practices for project Owners:
Integration Decreases Risk. Owners using integrated delivery methods like Design-Build and CMAR will better navigate the upcoming uncertainty. The early connection of design, contractor, and supply experts leads to greater flexibility and adaptability to changing market, health, and regulatory conditions. In this context, Owners can more quickly adapt facility scope to changing needs. Project teams can also look further down the supply chain, using integrated contractors and suppliers to mitigate schedule and cost risk.
Expanded Preconstruction Services. While sourcing logistics are not always front and center to project teams, the current environment calls for a more hands-on approach. Owners should be asking where their materials are coming from and if their project is exposed to delays. In a time where long-established inventory and logistics practices are being questioned, sourcing awareness will become a key competency of project teams moving forward. A premium will be placed on management firms who can provide more advanced insight and leadership during design.
Digital Procurement. While eProcurement has been around for years, the pandemic has highlighted its benefits: ease of bidding, the quick transfer of information, automation, and time savings. Digital bid management, using in-house systems or services like BidNet, has proven to be more resilient than traditional paper bidding. Government, institutional, and even small project buyers should take notice.
Potential of Modular. The promise of modular construction has never been greater due to its ability to rapidly meet new demand for space. In addition to being well-positioned to provide emergency space, modular delivers speed and greater protection from supply disruption. Unlike conventional construction, modular and prefab methods take work off-site and into a controlled environment, resulting in greater safety for workers and more predictable quality outcomes. Owners and designers can pick their spots here too; items like modular wall/furniture systems are sure-fire ways to benefit without overhauling design.
The wider impact of the coronavirus pandemic is still not fully understood. What’s certain is that the Designers, Contractors, and Owners can work together to mitigate risks around the current crisis, all while preparing for the next.