Construction Industry Eyes Public Sector in 2023May 17th, 2023 by Travis Rains
The Associated General Contractors of America (AGC) released its 2023 Construction Hiring and Business Outlook report, showing that contractors continue to struggle with supply chain and hiring constraints. However, many indicate reinforced attraction and retention efforts, and optimism that public-sector projects show promise for the year ahead.
According to the report, contractors are generally optimistic about the outlook for 2023, though not quite as optimistic as they were last year with respect to private-sector projects. The opposite is true of public-sector projects, especially infrastructure such as airports, for which contractors indicated bolstered confidence in available projects in 2023.
“The net reading—the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink—is positive for 14 of the 17 categories of construction included in the survey,” the organization writes.
Among the three categories receiving negative designations were lodgings, private offices and retail. However, AGC chief economist Ken Simonson says that while net readings remain largely positive, they are less positive than in 2022 for all but three project types.
AGC points to higher interest rates and “evolving” work and shopping patterns as reasons for the market shift. Those patterns impact office, retail, hospitality and multi-family residential demand, with the prospect of a recession resulting in similar declines in the outlook for warehouses, data centers and manufacturing plants.
Another reason for the continued “bullish” outlook in the public sector includes the potential for an influx of federal funds stemming from the Inflation Reduction Act. However, enacted in 2021, the act has yet to make a real difference for the industry, according to AGC officials. Based on input from respondents, 5% indicate they have worked on projects funded by the law while 6% were awarded bids but had not started work. Another 5% say they submitted bids for projects but did not receive an award, with 21% planning to bid on a project once a suitable offer is made.
“The fact so few firms have benefited from the infrastructure measure may be the result of the significant regulatory obstacles the administration has imposed that are creating confusion among state and local officials,” AGC writes. “In particular, the administration has fumbled the implementation of new Buy America regulations, leading to widespread confusion about which building materials are covered by the new measure and which are not.”
Continuing to factor into the report, and therefore the day-to-day for contractors, are supply chain issues and rising costs. For example, only 9% of firms say they did not experience any supply chain problems in 2022. Mitigation efforts include accelerating purchases after winning contracts, a step taken by 70% of respondents this year, and turning to alternate suppliers, which 56% of respondents have done. Additionally, 22% stockpile items prior to winning contracts, and 49% have specified alternative materials or products.
The survey also found that most contractors report experiencing delays or cancellations. Only 33% say they haven’t experienced such issues. Nearly half (48%) cite rising costs as the reason for delays or cancellations, while 12% fault a reduction in available funding from the owner.
Insufficient supply of workers or subcontractors is also a top concern for 70% of respondents, down from 73% in the 2022 survey. In fact, 72% of respondents say they increased base pay more in 2022 than they did in 2021, while 33% introduced or increased incentives and bonuses. Only 7% took neither of those steps.
Moving forward, 74% of respondents cite the possibility of a recession as their biggest market concern in 2023.
“Contractors remain optimistic overall about the construction industry’s prospects in 2023. But fewer contractors than a year ago expect continued growth, especially in private markets, even as public-sector funding appears poised to tick up,” says CEO Steve Sandherr. “This rotation among project types should help the industry keep growing despite a possible economic downturn. But a lot must go right for this market transition to be a positive one for the industry.”