Robinson+Cole Hosts Fifth Construction Industry Roundtable
Robinson+Cole’s Construction Group hosted its fifth Construction Industry Roundtable on June 15, 2021. The Roundtable was conducted virtually for the second year in a row, which allowed representatives of major design and construction industry organizations and stakeholders throughout the Northeast to participate. The discussion focused on the state of the regional market, nationwide trends, and what to watch for in 2022.
The Roundtable opened with a presentation on modular construction from Tom Hardiman, the Executive Director of the Modular Building Institute. Modular construction is a delivery process that shifts some construction to off-site locations and fabrication sites. Hardiman noted that the modular industry market share has doubled in the last five years from about 2 percent of new construction starts in the U.S. to about 4 percent, and he expects that growth to accelerate. He highlighted the benefits and challenges of modular construction. The advantages derive largely from the more controlled setting of offsite work, increasing worker safety and efficiency while limiting waste and on-site congestion. The market conditions that have driven growth in modular construction include a shortage of skilled labor, continued pressure to deliver on time and on schedule, increasing demand for environmentally-friendly construction, a heightened focus on worker safety, and the growing needs in groups amenable to modular construction, such as housing and healthcare infrastructure. Particularly in areas of high housing costs, modular construction may provide a cost-efficient alternative to traditional construction.
The ensuing discussion highlighted industry conditions that operate to maintain the status quo and hinder greater use of modular construction. Labor laws and most construction contracts are designed for site-built construction. Prevailing wage laws and local building codes with inspection and supervision requirements contemplate a delivery model in which labor is local and city officials can easily access in-progress construction. In fact, New York City recently considered, but did not pass, a bill that would have required continuous supervision of modular construction by NYC-licensed inspectors, regardless of the location of modular construction. Such laws threaten the feasibility of cost-efficient modular construction. The modular industry and ANSI (the American National Standards Institute) are working to develop standards for review of off-site construction. If no uniform standard is adopted, and it were left by default to local building codes, which differ materially across the country, compliance by regional, national and international modular suppliers would only continue to be a challenge.
Other challenges include a lack of quality contract forms for modular construction delivery (although the recently-released ConsensusDocs 753 is a promising start). Without industry-tested and accepted contracts and usage, some owners, general contractors, and construction managers simply may view significant off-site construction as too risky. Hardiman also noted that although there are about 125 factories across the U.S. and Canada, each of which can ship within 500 miles with reasonable efficiency and shipping costs, factories suited to specific project types are not always available in the geographic area of the project.
The Roundtable next discussed the topic of price escalation and market impacts. The group noted that price escalation affects the current prices of not only lumber, steel and other materials, but also skilled labor. With limited options for contractors to get relief for increased material costs on projects already under contract, increasing attention is being paid to escalation (and de-escalation) clauses in contracts. Some attendees noted that projects in their markets are being put on hold because of cost escalation, some at the recommendation of construction managers. When the original program becomes too expensive, owners and developers are faced with the difficult decision of whether to buy less building or attempt to extend the life of current buildings through adaptive reuse. There was optimism in the group that costs will drop again this year; there already is evidence that lumber prices are going down as COVID-19 restrictions start to lift.
The Roundtable weighed in on the potential passage of a federal infrastructure package. Most agreed that the infrastructure bill would not pass in the form that originally had been proposed, but all hoped that something could be passed. Most believed that any passed infrastructure bill would likely include green construction. Some already have observed contractors in their regions preparing for infrastructure procurement by teaming up with major players from Europe who have more experience with green construction. For many large design-build projects, whether green or not, contractors will be teaming up. Workforce will likely be the largest concern in implementing projects under any eventual infrastructure bill. With pre-pandemic labor shortages that have not improved, there will need to be a larger workforce to meet the demands of an infrastructure bill.
The other major federal legislation discussed, the Protecting the Right to Organize (PRO) Act, was a significant concern to several in the group. While there has been some discussion as to potential compromises related to the bill, all agreed that it is unlikely to go anywhere this year in its current form. Some senators from non-union states face little public pressure to pass it and the breadth of the PRO Act has led many organizations, both inside and outside of the construction industry, to oppose the bill.
The Roundtable concluded with participants sharing recent programs and initiatives in their sectors to promote diversity and inclusion within the design and construction industry. All participants recognized the need for the construction industry to redouble its efforts to appeal to people of diverse backgrounds. It was emphasized that the industry needs to do a better job of recruiting from diverse neighborhoods and opening access points to the industry at all levels, especially considering the general labor shortage. Many firms and groups have taken concrete steps to support equity, diversity, and inclusion, and even arbitration panels are becoming more diverse. Steps have been taken to examine the impact of various state set-aside laws, and hiring practices are changing to better promote a diverse workforce. The group agreed that it is important to continue this discussion and for all involved to take affirmative steps to continue and accelerate progress on this front.