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6 construction industry trends for 2020 will keep contractors on their toes

February 14, 2020

Construction industry trends indicate contractors need to balance opportunities and risks associated with modular construction, digital technologies and volatile weather, among other things.

Karen Reutter

Head of Construction, U.S. Commercial Insurance

Karen Reutter is the U.S. Commercial Insurance Head of Construction for Zurich North America. In... About this expert

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Like most industries, construction is undergoing a renovation, and “change order” is taking on new meaning. Construction industry trends indicate materials and technologies are emerging that could greatly streamline engineering and construction projects over the long term, benefiting quality, safety, schedules, budgets and morale. In the near term, adopting new technologies requires investment and comes with a learning curve for contractors and their crews. Upskilling and reskilling workers to become comfortable with new systems and processes can be a bit challenging when labor remains tight. Adding to the complexity: Weather volatility, a trend with countless ripple effects. Here’s a look at six key trends that E&C firms and others will be watching as they build in 2020.

1) Modular construction and prefabrication

Prefabrication and modular construction, where three-dimensional pieces (modules) of buildings are manufactured elsewhere and then delivered to construction sites for assembly, are becoming more common in large commercial real estate projects such as hotels and office buildings. In the U.S., the modular construction business has doubled in size in recent years, reaching $8 billion in 2019, according to the nonprofit Modular Building Institute.

But change is rarely a smooth path on a construction site, and the many changes associated with new construction materials and techniques could make it an especially bumpy road. For example, requirements associated with prefabrication and modular construction may be unfamiliar to designers and crews. Some efficiencies depend on the existence of an offsite assembly yard, so different work can be performed simultaneously. That could help explain why one study found that labor savings from switching to modular fell short of contractors’ expectations of 5% to 10%.

Prefabrication and modular construction also can shift traditional project timelines and increase dependencies on factory schedules, with greater margin of error if factories are overseas. At the same time, fixed-bid projects are becoming more common and those demand greater precision in predicting schedules and pricing. Digital project-management tools can help reduce the friction between those two trends. (More on those below.)

2) Reskilling the workforce

Over time, contractors who commit to integrating modular construction and prefabrication likely will benefit from repetition and familiarity, leading to efficiencies that will help reduce rework, boost crew morale and improve margins. For now, one of contractors’ biggest challenges is changing habits, including their own, and reskilling workers who are already stretched thin. To ease the transition, contractors may need to take time, even when it’s precious, to communicate the vision and strategy to their crews – in other words, answering “Why are we doing this?”

Contractors who can’t integrate advancements or wait to do so face a different kind of risk: becoming less competitive as their counterparts and potentially new challengers — think Ikea and Amazon — forge ahead and build muscle memory. In a 2019 AGC/FMI Risk Management Survey, 57% of respondents said they are using prefabrication and 25% said they are using modular construction to manage organizational risk.

3) Technology advancements, from project management software to robotics

A variety of new technologies are being integrated into the construction industry, from project-management software to onsite equipment robotics that can automate highly repetitive tasks, such as bricklaying. The AGC/FMI study found that:

  • 84% of respondents are using project-management software.
  • 78% are using Building Information Modeling (BIM).
  • 68% are using jobsite and mobile connectivity.
  • 63% are using drone technology.

When integrated via enterprise resource planning software, new digital technologies can improve project management and decision-making while reducing safety risks, change orders and schedule delays. Digital project-management tools can reduce manual data entry and integrate real-time data to alert contractors to issues on the site. With 3-D printing, contractors can test loads and see how pieces will or won’t fit together in the project war room, troubleshooting small problems before they become big ones on the work site. The European contractor Royal BAM Group says artificial intelligence and machine learning have altered their design and preconstruction process to one in which they “build it before we build it,” allowing them to spot design incompatibilities, such as a water pipe running through a concrete beam, before they pour.

4) Cyber risks

On the flip side, greater use of software and connectivity, including interfacing with subcontractors’ systems, exposes contractors to cyber security risks. That’s leading to new risk transfer efforts. Many larger client companies are writing specific data security provisions into construction contracts. Contractors who work in Europe and certain states also must know and comply with data regulations by region. Seeing the need for cyber risk protection specifically geared to contractors, Zurich recently launched a construction-specific endorsement to our Zurich Cyber Insurance Policy.

5) Storm-related risks

Climate-related risks are raining down on construction, in the form of flooding from hurricanes, burst pipes during a polar vortex, destruction from tornadoes and other increasingly intense and volatile storms. Severe weather events make projects even more challenging to schedule and price precisely.

For the past several years, Zurich has been a strategic partner with the World Economic Forum on The Global Risks Report. The report presents the results of an annual survey of 1,000 decision-makers in the public sector, private sector, academia and civil society around the globe, who are asked their views on the most pressing risks facing the world. This year for the first time in the 15 years of the report, all of the top five risks in terms of likelihood are climate-related.

In this era, front-end preparedness and post-storm recovery plans are essential to resilience. Zurich Risk Engineers often confer with E&C firms on weather-related safety plans, including referrals to vendors who can quickly help remove, repair or replace damaged equipment and materials after a storm. Details such as procedures and timelines for securing cranes also need to be integrated in storm plans.

6) Potential infrastructure investment

Once resilience plans are in place, firms can look to some encouraging opportunities, as Deloitte reports in its 2020 Engineering and Construction Industry Outlook. The U.S. government and states are looking to invest in infrastructure such as bridges, water systems, roads, ports and power grids that have been battered by years of deferred investment, increasing use and punishing weather. The President’s 2020 Budget Fact Sheet on Infrastructure calls for legislation to generate at least $1 trillion in infrastructure investment. Possibilities for public-private partnerships involving E&C companies would emerge.

Cities and communities are investing to become more resilient and environmentally sustainable. Some are gravitating toward E&C companies that are well-versed in LEED standards for construction, which cover energy and water systems and more. At Zurich, we’re proud to be at the forefront of this movement with our LEED Platinum-certified headquarters outside Chicago. Come see it sometime.

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