Back in the spring of 2021, after the darkness of the pandemic\u2019s first winter had cleared, there was momentary optimism that rising inflation and supply chain hurdles were transitory. Chris Bailey was having none of it. <\/p>\n
As senior vice president of integrated solutions at San Francisco Bay Area-based general contractor XL Construction, he was telling his clients that the clouds hanging over construction markets, financing and the supply chain were far from lifted. <\/p>\n
Chris Bailey
\nCourtesy of XL Construction<\/p>\n
\u201cPeople are starting to become a lot more buoyant and confident,\u201d Bailey told Construction Dive then<\/a>. \u201cBut there needs to be some degree of caution as to how we re-engage with all of this, because we can\u2019t just do what we did in 2019. Product is not coming online as quickly as projects are.\u201d<\/p>\n Nearly 18 months later, after the U.S. experienced inflation levels not seen in 40 years and general contractors engaged in everything from ghost orders to product hoarding<\/a> to get materials to jobsites, Bailey\u2019s comments seem particularly prescient. <\/p>\n Given his early recognition of challenges to come, Construction Dive had a digital sit-down with Bailey to gauge his take on the current state of construction, inflation, the possibility of recession and construction\u2019s immigration problem. <\/p>\n Editor\u2019s note: This interview has been edited for brevity and clarity.<\/em><\/p>\n CHRIS BAILEY: <\/strong>Inflation seems to be returning to more normal rates, with 2022 trending towards about 7.5% by year\u2019s end, roughly half what we saw in 2021. <\/p>\n But construction costs have generally outpaced inflation by about 1.5%, so the best indication is that cost escalation will be around 9% at the close of 2022. <\/p>\n There are some bright spots. The reduction in oil prices is slowly being reflected in materials like roofing products, but that remains an area of concern. <\/p>\n Similarly, delivery costs are easing, but there is still a shortage of drivers.<\/p>\n We are seeing some clients take a \u2018wait and see\u2019 approach prior to starting projects, but jobs that are already underway are moving ahead. <\/p>\n For example, some of our clients have put all new developments in the Bay area on hold to conserve cash. Other projects are in a go-slow mode. <\/p>\n And when it comes to long term, multi-year projects, owners have really become increasingly concerned with accurately forecasting price escalations, as well as managing their financial risk.<\/p>\n Constant communication with owners and pre-ordering of long lead time materials. <\/p>\n You also want to be very aware of market, and be prepared to use alternate materials. <\/p>\n That\u2019s why it\u2019s so important to stay in contact and be transparent with clients so that contingencies and escalating forecasts don\u2019t come as a big surprise. <\/p>\n Interior finishes. Steel is trending flat or downward. We are also still seeing good bid coverage in most trades, so those are positives.<\/p>\n Our greatest challenges are anything that involves metal, wood or glass in construction. <\/p>\n Also labor shortages \u2013 field, manufacturing and trucking. And the possibility of strikes, that\u2019s becoming a bigger issue. <\/p>\n Pricing in the electrical installation market is also still very challenging to accurately predict. <\/p>\n Given the long lead times for things like transformers, which can be more than a year out, as well as items like switchboards and lighting fixtures, electrical providers are still escalating their services at disproportionate rates. And they\u2019re limiting pricing guarantees.<\/p>\n I\u2019ll go with a bit of both: soft recession. <\/p>\n The job market is still healthy \u2013 so we are looking forward to a soft landing there. <\/p>\n And the slowing down of escalation to somewhat normal levels is a positive. <\/p>\n But global influences are still at play. <\/p>\n You\u2019ve still got these wildcards, like the Russian war and the pending impacts of the mid-term elections.<\/p>\n It\u2019s going to require higher wages, better working conditions, a re-invigoration of trade schools and focusing on craft skills as a real career opportunity.<\/p>\n Immigration reform, hands down. <\/p>\n Our growth is going to be hampered without new labor sources. <\/p>\n You\u2019ve got to find some way to attract the workforce back into the market to re-establish the status quo, or identify another source of labor to replace workers who abandoned positions during the Great Resignation over the last two years.<\/p>\n They\u2019ve got to come from somewhere. \u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/p>\n There has been a lot of interest in these topics in recent media and industry events. But it\u2019s a multi-faceted problem and it\u2019s not easy to tackle on all fronts simultaneously. <\/p>\n We are trying to combat political, global, labor, delivery, schedule and cost impacts. And we\u2019re trying to do it all at the same time. <\/p>\n But as one eases, another gets worse. <\/p>\n Construction is not a linear process, like automotive production, so it\u2019s harder to contain a bunch of different impacts at once. It will continue to take time.<\/p>\n There are some common denominators, but there\u2019s no one magic bullet. Isolated impacts are going to continue to influence the market. <\/p>\n \u00a0<\/p>\n This item was originally posted here: Read More<\/a>\u00a0<\/p>","protected":false},"excerpt":{"rendered":"CONSTRUCTION DIVE: Where are we at the end of summer 2022 in construction with inflation, material costs and increased interest rates? What impacts are you seeing? <\/strong><\/h4>\n
How are owners faring? What is the general environment in terms of delaying or canceling projects?\u00a0<\/strong><\/h4>\n
How can construction pros mitigate the impact of inflation now?\u00a0<\/strong><\/h4>\n
What are the bright spots? You mentioned initial improvement in supply chain and some better material pricing. Which areas give you hope?\u00a0<\/strong><\/h4>\n
Okay, what about challenges? What is keeping you up at night? What\u2019s the biggest challenge you\u2019re dealing with right now?\u00a0<\/strong><\/h4>\n
Looking ahead, recession or soft landing?\u00a0<\/strong><\/h4>\n
We’re already in the middle of a labor crisis in construction. How are contractors going to staff up as government funding from three major investment acts works its way into the economy?\u00a0<\/strong><\/h4>\n
If you could solve one problem for construction that would have the biggest positive impact for contractors, what would it be and why?\u00a0<\/strong><\/h4>\n
Any other thoughts?<\/strong><\/h4>\n