People mark a new year in various ways, but most of us take the time to reflect on the past year while making plans for the year ahead. For those of us in the construction industry, the year 2023 was filled with highs and lows. We started the year with inflation on the rise, exceeding levels we hadn’t seen in decades. Inflation combined with volatility in material prices and the increase of labor costs meant that we had to remain flexible. Higher interest rates began to impact the construction industry, particularly toward the end of last year, with housing starts slowing down and new builds hitting a three-year low. As we begin the new year, I think many of those trends aren’t yet in our rearview mirror but are something we’ll likely see in the view ahead.
While housing starts are down, there is some good news for the nonresidential construction sector with the infusion of federal funding. We could see a real boom in construction projects as funds from three key pieces of legislation start to flow. Those programs – the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Product Semiconductors (CHIPS) Act – are all designed to promote manufacturing, transportation infrastructure and clean energy sources. In regular earnings calls, heads of large engineering, roadbuilding and granite contracting companies said these programs are already boosting their businesses.
As contractors seek to take full advantage of those programs, they can make necessary equipment investments because machine availability has normalized to a large degree. No longer needing to wait a year, contractors can generally find the equipment they are looking for. And, that’s a good thing because equipment and technology investments are going to continue to help contractors not only efficiencies but also address some of the realities of the market in the year ahead.
Unlocking New Levels of Productivity
Working with contractors across RDO Equipment Co.’s 12-state footprint, we’ve seen a steady increase in the adoption of aftermarket technology, like GPS machine control or machine monitoring. These are often more modest investments than buying new technology-equipped machines but can pack a big punch.
Take for example Hammett Excavation in Texas, a family-owned company that’s significantly grown its business over the past 60 years. The contractor decided to invest in GPS technology more than two decades ago and, over time, have expanded their investment across much of their fleet. Earlier this year, I spoke with Darin Stroud, Hammett’s project manager -- but operator at heart -- about his experience using Topcon GPS technology. Darin called Topcon a "game changer" in terms of efficiencies on the jobsite, even though he was initially hesitant to adopt what he thought might just be a bunch of “hocus pocus.” He worked with his partner at RDO to demo the technology and, after a week of using it, Stroud said he was ready to write a check.
Darin explained that before using the GPS technology, the crew relied exclusively on stakes in the ground and lasers to perform the process many of us are familiar with in terms of constantly and manually having to check the grade. The new technology helps operators improve their consistency and accuracy – all leading to jobs being completed faster and on budget. Darin estimates that using Topcon technology has helped increase productivity by at least 50% since they first started using it.
With the increased productivity, Hammett Excavation grew in size and skill to bid, accept and complete more complex jobs throughout several Southern states. Today, Hammett Excavation’s 300-plus team members work with GPS technology throughout their machine fleet – from dozers to excavators to motor graders to skid steers.
For those contractors that want to do more, there are plenty of examples of leaders who have invested in new machines with embedded technology and are using it to really ramp up productivity. For example, Northern Improvement, a highway, heavy and municipal contractor based out of North Dakota, has been building roads for almost a century and has achieved a high degree of recognition for their reliable road work. Two years ago, the company invested in Wirtgen’s WPS102i placer/spreader with a 3-D interface. Northern Improvement has described the embedded technology as giving them the ability to pave stringless, place faster and achieve a smoother ride.
Managing a Volatile Cost Environment
Last year, construction firms saw significant fluctuations in both labor costs and material prices. Cost variability can complicate project planning not to mention squeeze margins. I’ve talked to several customers who had to change or even cancel projects due to increasing costs. Managing such volatility can be a difficult task since none of us have a crystal ball, but attempting to forecast those fluctuations should remain a priority.
One way that technology can help with those changes is to help you accurately estimate and bid on new jobs. If you are using any kind of GPS technology, you know that it has helped you glean efficiencies in the jobs you are completing today. But also consider that by recording all that data, you can more accurately estimate how long it will take to complete similar jobs in the future.
When it comes to labor costs, specifically, we know that accurately estimating your projects is even more important as wage rates continue to climb. As of August 2023, hourly wages had increased more than 5% year over year and about 17% since the beginning of the pandemic. That’s a trend that’s likely to continue in the year ahead as we continue to see a shortage in the labor market. These types of cost increases are likely to really impact some of the smaller contractors and make it even more challenging for them to remain competitive in the labor market.
Adopting to New Norms in the Labor Market
Speaking of a competitive labor market, I know everyone in construction is aware of the lack of skilled labor. The Associated Builders and Contractors recently reported that the industry needs more than 342,000 new workers in 2024. And, a majority of customers I talk to are planning to add headcount so an already-tight market is about to get squeezed even further. Not to mention that the construction workforce is slowly aging and employers that want to attract a younger generation must pay attention to how they can offer safer and more flexible work situations.
To help construction employers retain and recruit new talent, technology can play a critical role by offering safer working conditions. No longer are crew members needed to be as hands-on – doing survey work for example – in the middle of a busy jobsite. Further, advancements in sensors and cameras are making it safe for anyone who is in the middle of a busy jobsite.
Beyond safety, technology is also helping employers improve the working conditions for crew members. With the introduction and adoption of autonomous machines, operators can work remotely, often in more comfortable working environments. As market conditions force the hands of some employers, they can consider adding technology rather than buying it – and maybe even doing so before they thought they were ready. Technology such as the Teleo Supervised Autonomy can be retrofitted to existing equipment, providing a faster path to automation.
While adopting technologies can seem like a major transformation for those of us who have been in construction for a few decades, most of us – and definitely the generation behind us – have found it relatively easy to integrate them. The average onboarding time for using GPS technology, for example, is about two and a half days of training time. Based on construction firms I’ve worked with, using these technologies is fairly intuitive and mirrors some of the ways we use technology in our everyday lives. Given that low bar to technology adoption, there may be an opportunity to expand beyond our historical talent pool and attract new people from the labor market – whether part-time, distant or disabled employees.
Providing a Competitive Advantage
As you know, working on government jobs requires a lot of reporting. Technology can help provide you with the reporting capabilities to document progress on key performance metrics such as completion rates.
In addition to reporting, another competitive advantage of technology is the ability to stay on schedule due to the preventative support offered through machine health monitoring, which can diagnose an issue before it becomes debilitating. Contractors say they've maximized uptime through access to behind-the-scenes management processes and enriched overall machine health. By connecting their whole fleet, they have a complete picture of their equipment’s working hours and productivity and plan for regular maintenance.
They say that “experience is the best teacher” and my experience is that we’re always best served when we can look behind us for those learnings while we also look ahead for opportunity and inspiration.