To kick off the new year, TradeTapp recently released its initial report: the 2020 US Construction Risk Outlook. The report uncovers the biggest risks impacting general contractors and owners in the year ahead, with the goal of helping the entire industry make smarter decisions about risk.
When developing the report, our team also saw an opportunity to analyze construction risk in a valuable way that had not been previously available—by state and region. Builders across the country rely on economic reports and outlooks to anticipate shifts in the industry, but national metrics may not accurately represent the direction their specific region is headed. State and local trends, while more difficult to analyze, are more actionable for builders of any size.
Interested in what we discovered? Here’s a breakdown of some of the key takeaways from the report.
1. The need for specialized trade workers is higher than ever.
The labor shortage remains the number one risk for builders, as general contractors continue to struggle to fill skilled labor positions. According to a recent survey produced by Autodesk and Associated General Contractors of America (AGC), 80% of 2,500 respondents indicated they are having a tough time filling hourly craft positions, and around the same percentage holds true region by region.
While we found that construction employment is on the rise in almost every region of the United States, the growth numbers are not yet strong enough to signal relief. Not only does the industry need workers; it needs skilled workers. As older generations swiftly retire and the pipeline of skilled construction talent dwindles, the labor shortage will continue to be a pivotal challenge for organizations across the country.
To understand where variances occur across positions, the report looked at projections for every occupation that makes up the total US construction employment. Some of the construction roles with the highest two-year growth projections by 2020 include:
- Solar Photovoltaic Installers: Southern Region (27.3% growth)
- Tapers: Southeast Region (25% growth)
- Roustabouts, Oil and Gas: Western Region (28.6% growth)
More commonly, needed roles like roofers (4.3%), construction laborers (3.9%), and electricians (3.8%) have far lower growth projections.
Regional averages of state projections are shown throughout the report, and while the data is a starting place, it’s not enough for general contractors to anticipate and mitigate against specific labor shortages. Fixing the labor shortage will take time, money, and the resources needed to attract and train a new generation of construction workers. More immediately, technology can be used to help builders navigate the labor shortage via more detailed local estimates.
2. Modular construction—a double-edged sword?
Methods like modular construction continue to grow in popularity among builders for their ability to save time and money on the jobsite. However, when several subcontractors are replaced by a single modular vendor, the risk of default has far greater consequences.
While this new way of building has massive upsides, the risks are completely different risks from traditional construction. Recovering from issues with off-site fabrication may be harder than simply replacing a subcontractor. Because of this, it’s essential that vendors are carefully vetted during prequalification.
3. Subcontractor default claims are on the rise, both in size and frequency.
The labor shortage affects project risk in many different ways.
In the previously referenced survey, Autodesk found that almost half (44%) of the responding firms indicated labor shortages caused them to lengthen completion time for projects already underway.
Through conversations with our subcontractor default insurance (SDI) provider partners, we’ve seen anecdotal evidence that suggests rework is often a significant component of SDI claims. Assessing quality performance during the subcontractor prequalification process can greatly reduce the risk of these costly rework claims.
Our partners noted that rework can often be avoided through better communication between general contractors and subcontractors, citing unclear expectations and specifications as a major cause for rework. They also shared that monitoring quality reduces the chances of default—and even in unavoidable situations, it reduces the impact of a default.
See how your region measures up for construction risk
Though risk on construction projects is impossible to avoid completely, understanding how risk impacts your specific region is a good place to start. In the report, we focused on data around safety, quality, and subcontractor default to identify areas in which growing issues like the labor shortage may exacerbate existing risks even further.
By breaking down our analysis by state and region, we aimed to equip owners and general contractors with the resources they need to make smarter business decisions in 2020.
If you’re interested in checking out the full report, and see how your region ranks for preconstruction and site construction risk, download our 2020 US Construction Risk Outlook here.