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Construction problems will need knowledge transfer to deal with an uncertain future



LAS VEGAS — One of the first sessions at the 42nd International Risk Management Institute Inc. Construction Risk Conference in Las Vegas on Monday addressed the question towering over a packed ballroom of those managing risk and insurance for the post-pandemic , recession-wary construction industry : what will an economic recession mean for current and future projects?

At its core, it’s a labor issue — but not exactly in the sense of the number of workers, said presenter Chris Daum, president and CEO of FMI Corp., a consulting and investment banking firm that works with builders.

While hiring and managing a construction workforce has been an issue in construction for the past decade, expertise in navigating the “endless”

; operational challenges that come with an economic slowdown will be a core issue going forward, he said.

Right now, the construction industry is “busier than ever,” he said, adding that the construction industry is 12 to 24 months behind economic reality, as buildings are planned in contracting phases before reality sets in. And because the degree and duration of a recession is unpredictable, “it’s going to make it increasingly difficult to predict” for the industry.

Top of the list currently are supply chain issues and labor, both of which are the result of the economy shutting down in 2020 as a result of the covid-19 pandemic and the influx of stimulus money that followed created a demand for durable goods. The effects of both remain as millions of workers have yet to return to the workforce and supply chain challenges are only “beginning to be resolved,” he said.

Add to that the reversal of a so-called “zero interest rate environment” over the past decade that helped borrowers borrow cheaply, fueling what Mr. Daum called “bad ideas” in business.

The construction industry is already seeing a depression in residential construction — often the first to be hit by a recession — and office and commercial construction, as workers continue to demand the hybrid work-from-home arrangements that Daum referred to as irreversible. post-pandemic work trend.

Another hit for the industry will be inflation. Even the $1.2 trillion federal infrastructure bill — passed a year ago Tuesday — won’t help, according to Daum.

“Most of (the federal Infrastructure Investment and Jobs Act funding) hasn’t hit the streets except for the fact that a lot of those dollars will discreetly fund things that were underfunded or needed to be funded,” he said. “The sad part of this whole story is that all $1.2 trillion of that is consumed by inflation; even (with) your most moderate assumptions about inflation over the next five to seven years that’s all eaten up.”

To meet the challenges, the industry will need to lean on those who lived through the last recession, many of whom are retiring, leaving “the burden to the millennial generation,” he said. “We are 10 years behind the curve in a generational change,” he added.

“This is the biggest risk to the construction industry,” Baum said of the generation that went to college when the industry last grappled with a slowdown. “In the next five years … how are people running out the door … going to transfer all their knowledge of how they worked their way through the last downturn which was 10 to 14 years ago?”

“You know what to do, you know how to coach and mentor,” he added. “But you’ve been so busy with cruise control, or putting work in place, that you haven’t taken the time to have those conversations and develop premeditated contingency plans that if this happens, this is what we’re going to do.”


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