MBEX Has the Scoop

How a Recession Could Change Employment Outlook for Construction

This article orignally appeared online with the Minneapolis / St. Paul Business Journal on August 10, 2022 and was written by Ashley Fahey.

Has the construction labor issue gotten better, worse or remained about the same since the pandemic started? What happens in the event of a recession? Below, we've highlighted a few key areas experts have studied to predict if the economy is headed for a recession, how to anticipate workforce shortages, and when IIJA funding will begin to flow.

ARE WE HEADED FOR A RECESSION?
The July jobs report from the Bureau of Labor Statistics found the industry added 32,000 jobs last month, with industry employment increasing by 311,000 jobs, or 4.2%, on an annual basis. But those numbers obscure the fact commercial construction in particular is facing coutervailing forces, based on property type, said Anirban Basi, chairman and CEO of Baltimore-based economic and policy consultant Sage Policy Group and chief economist for the Associated Builders and Contractors.

The sector's unemployment rate was 3.5% in July, on par with national unemployment across all industries and indicative of how tight the market remains.

The ABC's July Construction Confidence Index readings for sales, profit margins and staffing levels, which came out August 9, declined, suggesting a growing pessimism across the construction industry. Indices for sales and staffing remain above a threshold of 50, which indicates members surveyed still expect those metrics to grow in the next six months, but readings for profit-margins are less than 50 for the second consecutive month, according to ABC.

The cost of construction is also continuing to rise. The U.S. national average increase in construction costs in the second quarter was about 2.4% on a quarterly basis, and 7.5% year-over-year, according to Rider Levett Bucknall Ltd., a law firm that specializes in property and construction advisory services.

Basu said he thinks job growth overall will slow, and, specifically in construction, demand will increasingly shift away from private-sector projects to public ones. He'd predicting an economic recession will occur next year, which could start to materially affect the broader construction industry about a year later, given the long lead times on construction projects.

CONSTRUCTION WORKFORCE CONCERNS
A key worry for those who observe, or work within, the construction industry: If the pipeline of projects does start to slow because of a recession, existing workers that suddenly find themselves out of a job may leave the industry and not come back when the cycle picks back up.

That's what's happened in past recessions, perhaps most memorably in the global financial crisis of the late 2000s. It's an issue exacerberated by a retiring skilled workforce in construction, where the average age is now 42.3, according to the Bureau of Labor Statistics, and there are fewer younger workers to replace them.

Retaining and hiring labor has been one of the hotttest topics of the pandemic as workers have altered work and life priorities. More workers than ever before are remote, or have decided to pursue jobs in other industries that'll give them flexibility to wokr at home. Still others, in industries like hospitality, were laid off at the onset of the pandemic and have yet to return. The U.S. labor-force participation rate across all industries was 62.1% in July 2022, below pre-pandemic levels.

Julian Anderson, president of Rider Levett Bucknall, said, anecdtoally, he's also heard fewer people working in the construction are willing to move to follow work. In decades past, it wasn't unusual for construction workers to relocate after a major bridge or road project wrapped up. But with construction so busy across the nation in recent years, and overall attitudes toward work changing, people are more reluctant now to relocate to follow projects, he said.

Fewer immigrants coming to the United States, particularily since the pandemic onset, has also hit the construction workforce more acutely than other sectors.

"There were, I think, quite a few people who worked informally in the construction industry for many years, doing those...labor jobs norbody else wanted to do," Anderson said, citing jobs in the wet trades like painting, drywall and plaster. That's likely to be a persistent headwind for the construction industry. 

DON'T FORGET ABOUT IIJA PROJECTS
Although some government officials are only in the planning stages of potential IIJA-funded infrasturcture projects, Basu said elected officials love to cut ribbons on restored bridges and newly built interstates. With prices in some commodities like fuel and steel already having come down from recent spikes, it's likely more infrasturcutre projects with IIJA funding will begin later this year or in 2023. That'll boost demand and job in publicly funded construction projects, Basu said, at a time when privately funded development may be slowing.

"I'm expecting there will be a recessions --- I don't know how deep or how long, but this money [from IIJA projects and related spending] should help to prop up the construction industry for a good period of time," Anderson continued. 

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Read the full article in the Minneapolis/St. Paul Business Journal here.

If This is Your Current Password, It’s Time to Update

We have a serious question for you: is your current password “123456” (give or take a number or two)?

If you answered yes, you’re going to want to change it…and fast. It doesn’t matter if it’s the CEO of a company or a contractor; the most popular password remains to be “123456”.

MOST POPULAR PASSWORDS

According to a recent study conducted by NordPass, a business password management company, of all the industries out there, construction is the worst at keeping hard-to-crack passwords.

Inside this study, NordPass included a list of passwords complied in partnership with independent researchers specializing in research of cybersecurity and was conducted to study password habits of high-level executives. The study also looked at how vulnerable most businesses are despite years of warnings to create more sophisticated passwords.

Regardless of the potential fallout of a data breach, most workers insist on setting passwords that are simple word and number sequences. The following are the most popular business passwords:

- 123456
- Password
- 12345
- 123456789
- qwerty

Interestingly, this study also found that top-level executives are more likely to use names or mythical creates as an inspiration when creating passwords. A few of the most popular are “dragon,” “monkey,” and the name “Tiffany”.

DATA BREACHES COST $$$

When using a common password such as “12345” and “password,” it significantly increases the risk of cyberattacks at both the person and company level.

An IBM report reveals in 2021, the average global cost of a data breach reached $4.24 million, which is 10% more compared to 2020. The attacks that happen due to compromised credentials cost even more, at $4.37 million and account for 20% of breaches.

The industries with the most data breaches, in order according to the study, were construction, technology, finance, healthcare, hospitality, media, and marketing.

HOW CAN YOU KEEP PASSWORDS SAFE?

Avoid data breaches by following these simple steps to improve password security:

1.) Use a password manager. Password managers allow users to store all the passwords in end-to-end encrypted digital storage locked with a single keyword for the most convenience. Most password managers have additional features to check passwords’ strength and automatically generate unique ones. For organization, they can come in handy when sharing passwords with employees or managing their access.

2.) Introduce cybersecurity training. Since simple human mistakes remain the leading cause of data breaches, it’s worth investing in cybersecurity training sessions for employees. Starting from the basics might be a good idea given your team will most likely have different technology backgrounds and levels of experience.

3.) Enable multi-factor authentication. Known as MFA, it serves as an extra layer of security. It’s an authentication method that uses two or more mechanism to validate the user’s identity --- there can be separate apps, security keys, devices, or biometric data (such as facial recognition or fingerprints).

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Want to read NordPass’s full study? Find it here.

So, What Is BIM?

When it comes to BIM, even the acronym causes misunderstandings. It is certainly not a new term, yet the confusion surrounding it could be one of the major barriers to its implementation.

The volume of misconceptions surrounding BIM sadly doesn’t end at its name. As BIM is increasingly becoming part of daily lives for those in the built environment, it’s time to bust the most common myths and allow organizations to confidently move forward with their digitalization journeys.

What does BIM mean?
Is it building information modeling? Is it better information management? Well, BIM is indeed an acronym for building information modeling.

This term has been used for many years and was originally and primarily focused on 3D models and the associated data. Having said that, over the years, it has matured to describe the wider information management process across the lifecycle of a built asset.

Depending on what part of the industry professionals are from, BIM can mean different things, so you can see why there’s some confusion. Regardless of the ‘why,’ there is clearly a greater need to simplify the terminology and to give BIM the commonly understood description - one that will not only reflect the broader industry transformation and today’s digital landscape, but one that can spark instant understanding and confidence among all professionals in the built environment.

So with that, BIM could be considered as better information management, and associated with managing information in a smarter way.

Digital Assets for Project Management 
For years, many organizations in the built environment have imagined BIM as a 3D model that helps create a more visual representation of the project at hand. Certainly, the old acronym of building information modeling did not help to shift the common thinking that BIM is just a model. 3D manifestations are only part of a much wider process that at its heart fosters more collaborative working, seamless information sharing and easier access to data, to ultimately produce a wide variety of digital datasets and meet tight project deadlines.

Is BIM just software? 
BIM software does not exist. However, there are different tools on the market that can enable professionals to generate and share information more effectively. It is often the case that organizations need a range of software solutions to help them deliver different parts of the project.

The specific software will therefore depend on the specific needs and project goals, and it is up to the individual organizations to choose solutions that will help them improve efficiencies, reduce risk and improve collaboration. While the software is an important element of achieving better information management practices, BIM in itself is much bigger than just an online tool.

What are the Benefits of BIM? 
It is another common misconception that implementing information management practices is too costly and simply not worth the money.

While there is undoubtedly some upfront cost associated with changing traditional and legacy working processes, these should – and will – be countered by the long-term efficiencies and benefits that an organization gains.

These upfront costs can include software and extra training, but both do not have to be expensive. There are many tools out there that are free or at low cost to start the digitalization journey, as well as various readily available resources and guidance online that can help with smoother, cross-team implementation.

When starting, re-starting or moving onto the next step of BIM implementation, organizations should always keep the efficiency gains at the forefront, as there is a clear and direct correlation between efficiencies and the bottom line. Easier project information sharing equals met deadlines, no time-wasting, better communication, less risk, and subsequently greater trust among clients to deliver future projects.

Improving the Future of the Built Environment 
With the most common myths now debunked and greater clarity provided over what BIM means, both private and public sector built environment businesses can more confidently embark on their digitalization journey and succeed in their BIM implementation. While it’s only natural to hesitate to make a change, better information management has the power to greatly improve processes and productivity for all stakeholders involved in a project.

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This article originally appeared within CONEXPO CON/AG 365 Newsletter on May 27, 2022 and was written by Nigel Davies.

MBEX Announces New Executive Director

The Minnesota Builders Exchange (MBEX) Board of Directors has named David Siegel as the new executive director of MBEX. Siegel will begin his duties on July 5, 2022. Current MBEX executive director, Tom Getzke, has announced his retirement set for July 22, 2022.

“We are delighted to have someone with David’s management, nonprofit expertise, and construction industry experience as our new executive director,” said Randy LaFaive, president of MBEX. “Under David’s leadership, MBEX will continue to be a regional leader in the digital construction plan distribution service market,” he added.

Siegel brings over 28 years of experience in the residential construction, hospitality, education, and media industries, serving as executive director of Housing First Minnesota (former Builders Association of the Twin Cities) from 2010 to 2022, and executive director of Hospitality Minnesota from 2003 to 2010. He is the immediate past chairman of Associations North, the trade association for association executives. He has earned a CAE designation (Certified Association Executive) from the American Society of Association Executives and is a graduate of the University of Minnesota.

“I strongly feel that MBEX is healthy and poised for growth,” said Siegel. “I am anxious to collaborate with a talented staff, a dedicated Board, and highly-motivated volunteers working together to meet the needs of the 1,375 MBEX members,” he added.

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Download Press Release

For questions, please contact Ashlee Hartwig, MBEX Communications + Membership Manager, at ah@mbex.org or (612) 381-2631.

How to Make the Construction Industry Eco-Friendlier

Happy Earth Day, construction workers!

Today, April 22, is the much-celebrated annual holiday known as Earth Day. As an industry, we should strive to make construction more efficient and eco-friendlier. What choices can we make across all parts of the industry that fill our need for infrastructure while keeping an eye on the future and protecting our world at the same time?

Start with Your Equipment
New technology and equipment investments can help improve the ROI on a project. Technology, which might feel scary at first, helps contractors get jobs done faster, reducing fuel consumption and allows contractors to move on to more jobs faster. Not to mention the carbon emission being saved by completing jobs faster and more efficiently.

Recycle, Recycle, Recycle
Seems like a no-brainer, doesn’t it? However, many construction companies do not recycle materials on their jobsites. Estimates show that if all concrete and asphalt pavement generated annual in the U.S. were recycled, the energy equivalent of 1 billion gallons of gasoline, or 1 the removal of 1 million cars from the road, would be saved.

It’s not just good for the environment. Recycling can have economic benefits for your business, too! Some recyclers charge less to accept materials that can be recucled, especially if they are separated from other materials. Recycling or using material onsite can also reduce material hauling and disposal costs.

Research and Try New Materials
The industry also needs to look to more sustainable building materials to help preserve finite resources. For example, asphalt pavements are the number one recycled material in the U.S., using reclaimed asphalt pavement materials from old roads and parking lots and recycled asphalt roofing shingles. These reused materials are used in new asphalt pavement mixtures.

Other sustainable materials making waves inside the industry are composite roofing shingles, smart glass windows, bamboo floors, insulated concrete framing, solar panels, and eco-friendly hemp-based insulation.

Get to Know Green Rating Systems
If your company isn’t familiar with rating systems like Leadership in Energy and Environmental Design (LEED), Envision: Institute for Sustainable Infrastructure, Green Globes, Greenroads, Greenlites, etc., this is your sign to get to know them.

Learning about these programs can help put your company ahead of the competition.

Let’s work together toward a greener, healthier planet, and make everyday Earth Day.

Construction Bond Claims - Part 3

So far, we have covered Bid Bonds and Payment Bonds. For our third and final exploration of bonds claims, we will take a look at Performance Bonds.

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Performance Bonds, a common type of surety bond, are issued either by a bank or surety company and provide a guarantee that a contractor will finish a project on time while meeting the agreed-upon specifications. Should a contractor fail to deliver on a project, either by not completing it or otherwise failing to meet their obligations, the developer of the project can attempt to recover their losses by demanding payment equal to the bond's value. This is known as "calling the bond."

It's been said that handling a performance bond claim is like driving an ambulance and not a hearse. Every claim has varying levels of urgency, cooperation/agreement among the participants, and unique challenges. 

When a bond obligee, the project owner, decides to call a performance bond, the claims process is set into motion. When a call is made on the performance bond, the first thing the surety company will do is launch an investigation.

The typical process is as follows:

- Acknowledge receipt of the claim and send an intial request to the project owner for information and documents;
- Send an intial request to the principal for documented position;
- Review the underwriting file, which is comprised of a credit file and a bond-specific file;
- Review the contract documents and bond form;
- Perform an accounting of remaining bonded contract funds;
- If appropriate, assemble an investigative team, which can include outside legal counsel, a construction consultant, and sometimes an accountant; and
- Attend a site visit and in-person meetings.

If the surety company determines that conditions have been met when the performance bond is called, they will then move on to one of four different options for handling the situation:

1.) Help finance the principal,
2.) Find a new contractor,
3.) Complete the project, or
4.) Do nothing.

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The right surety partners will work with contractors to avoid claims, and if the situation is unavoidable, to mitigate the severity of it. Choosing the right surety with a track record of resolving claims while minimizing legal fees is important for any contractor to consider.