Contractors use technology to cope with supply disruptions, easing delays and price pressures

This story is part of a series exploring the impact of the COVID-19 pandemic on the construction industry and the reasons why the expected rebound in construction work later this year could be slowed by multiple forces.Click hereto view other articles in the series and follow along throughout the year.

Material shortages are constraining the construction recovery before it has truly begun.

Although contractors remain optimistic about project recovery in the second half of 2021, and the Architectural Billings Index, a key leading indicator of demand, recordedtwo consecutive months of growth for the first time since the pandemic, a leading construction economist has pushed back expectations for recovery to at least next year.

"I think the nonresidential construction market, measured by spending and probably by headcount, will be flat," said Ken Simonson, chief economist at the Associated General Contractors of America, during a webinar this month. "I don't expect significant growth until 2022."

He citedsoaring material prices and shortages, ongoing supply chain bottlenecks, and owners' reluctance to build in the current environment.

"While the economy overall is recovering, we do have a lot of bumps in the road," Simonson said. "Construction projects in many sectors will have to wait until owners are confident they have enough revenue streams to justify new projects and enough demand. I think that's a long way off."

Scaling back

The many headwinds facing construction right now have already limited project sizes. Take the Ag Innovation Campus in Crookston, Minnesota, a publicly funded agricultural research incubator and a favorite project of Governor Tim Walz. The site broke ground last fall to build a$5 million soybean processing plant。

but according to local news radio stationKROX 1260 AM, the planned 67,000-square-foot facility has now been scaled back to just over 16,000 square feet due to a 40% increase in costs since construction began in October.

"COVID caused us to scale back our original plans and reduce the size of the building," project manager Jim Lambert told the station. "This is just temporary. As COVID ends, we will be able to complete the building as originally designed."

The project now aims to build a small crush plant and two incubation bays before continuing with the nine planned bays and an office building, he said.

"This will allow us to get the project started and begin generating some cash flow," he said.

First-quarter woes

There is other evidence that material costs and supply chain issues are hampering the recovery, even before it begins. First-quarter 2021 results are already painting a grim picture.

According toDodge Data & Analytics, supply chain delays hit civil contractors hard in the first quarter, with nearly three-quarters of contractors experiencing serious problems getting materials to project sites. Additionally, more than three-quarters of civil contractors now worry about rising construction material costs over the next six months, compared with about half at the end of 2020.

These results prompted Dodge, which has tracked construction data for over 100 years, to question the speed of the recovery.

"While it remains unclear whether this will affect the massive infrastructure investment proposed by the Biden administration, it could affect how strongly the civil construction industry rebounds in the first half of 2021," the Dodge report stated.

Contractors' responses

Faced with these challenges, contractors are taking various approaches to keep projects moving.

Some, like Lambert at the Ag Innovation Center, are scaling back initial phases to work with the equipment and materials they can get; others are changing construction sequencing to prioritize materials they already have. Still others are using technology to track material locations so they can plan accordingly.

Take Graham Construction & Engineering in Calgary, which is headquartered in Ontario and focuses on commercial construction in the U.S. and Canada. As vice president of IT and enterprise applications, Matt Gramblicka has been trying to use technology to stay ahead of supply chain and material challenges.

Before the pandemic, projects in Alberta had been booming, but since then he has watched work shift to Seattle and Ontario. That has forced him to adjust strategies to source more equipment and materials from suppliers for those markets.

"It's about understanding where the market is shifting and making sure we have the right connections with suppliers to get supply first," Gramblicka said.

Part of his approach has been using the ETM.next tracking solution from enterprise software vendor SAP to manage equipment and tools, ensuring resources are in place, while also using material tracking tools to ensure supplies arrive when teams are ready.

"In the past, for materials, you could just talk and shake hands," Gramblicka said. "Now, it's about electronic visibility so you know where materials are and how they're arriving. That's how we're dealing with it on projects."

Historical performance as a leading indicator

During the pandemic, tools used to gain insight into where materials are in the supply chain and who has delivered on time in the past have become increasingly important.

At enterprise software maker Oracle, vice president Burcin Kaplanoglu has been busy rolling out the company's new suite of AI and analytics applications, called Oracle Construction Intelligence Cloud Service, launched in February, which uses historical performance to assess the likelihood of future outcomes.

"You can look at historical data and make decisions based on whether one subcontractor has delivered on time more than another in the past," Kaplanoglu said. "You can look at their relationships with suppliers, how often they communicate, and even the number of requests for information they receive. These are tools our customers are starting to use."

One of those customers is Chicago-based Pepper Construction, which has experienced long delays for steel joists and precast wall panels in distribution center projects, a building type that has seen increased demand during the pandemic. In the Midwest, lead times for these materials can now be 10 months or longer, and Pepper has responded by resequencing construction or handing over projects to owners in phases.

"If you have a million-square-foot distribution center, instead of building the entire structure until it's complete, we'll sequence it so we can hand over the first half for the owner to use while we continue building the second half," said Scott Higgins, senior vice president at Pepper.

The company also uses low-tech RFID tracking to ensure it knows where its supplies are. For example, on a current casino project, they use these tags to know the location of high-demand steel components at all times.

"Steel is a major driver of the schedule, so we have a whole tagging process," said Jennifer Suerth, vice president of technology services at Pepper. "We know when it's ready for fabrication, when it leaves the plant, and when it arrives on site, so you can find it when you need it."

Tracking ocean containers

While ordering steel beams isn't as simple as buying toilet paper on Amazon, industry insiders say construction material tracking has improved greatly in recent years as general cargo monitoring has become more mainstream.

For example, at XL Construction, a general contractor headquartered in the San Francisco Bay Area, Chris Bailey, senior vice president of integrated solutions, says he can track materials even when they're in shipping containers headed to the West Coast.

"We use technology with BIM models and schedules to drive the procurement process," Bailey said. "We use RFID trackers and QR codes on containers so when they leave the factory and get on a ship or plane, we have a pretty good idea of delivery times."

Ultimately, despite the challenges, using technology to help procure and track materials gives contractors more control over the process. "Being able to see further out is what really excites us," said Graham's Gramblicka. "If we could invent a crystal ball, that would be the next best thing."