This post is part of a series sponsored by IAT Insurance Group. As construction industry professionals gear up for 2024, they are faced with a landscape marked by potential challenges, much like the preceding year. Recession concerns, persistent inflation, rising interest rates, critical labor shortages and ongoing supply chain disruptions remain at the forefront of construction industry considerations. There are, however, proactive ways to address these challenges and position your company in the best light going into the new year. Consider the following seven trends and potential solutions.
Tight labor supply
The construction industry is grappling with a shortage of skilled workers, which is expected to worsen in 2024. In 2023, it was estimated that over 546,000 additional workers would be needed beyond normal hiring to meet rising labor demands.[1] This shortage is driven by a lack of younger workers entering skilled trades, coupled with an aging workforce. Nearly one in four construction workers is older than 55,[2] and even when those workers are replaced, they are not as experienced.
Solutions
The construction industry will need to increase outreach efforts and focus on dispelling the stigma associated with blue-collar work to address the lack of skilled workers. Here are some ways to do so:
- Recruit from local trade schools
- Build rapport with local high schools, many of which are now starting technical programs
- Get involved with local trade associations and help educate individuals about construction careers
- Provide on-the-job training
- Retain experienced workers with incentives like stay bonuses, excellent employee benefits, a positive work culture, and opportunities for leadership and promotions
Increased subcontractor default
Subcontractors have had to shoulder substantial additional costs in the past year, totaling over $97 billion,[3] creating cash flow problems and making subcontractor default a significant concern across the construction industry. This issue is closely linked to labor shortages and exacerbated by rising interest rates and the possibility of an impending recession. The result: a rise in claims where subcontractors fail to pay their obligations and default on their project commitments.
Solutions
To mitigate subcontractor defaults, prequalify your subcontractors, and consider mandating that subcontractors obtain surety bonds, or as an alternative, consider subcontractor default insurance. Ask for references from other contractors who’ve used their services; check experience level; and don’t be afraid to discuss their financial wherewithal. Ask subcontractors about their surety relationship. If they have a surety program, request a letter of bondability from their surety company. Also, if the general contractor has a surety relationship, they should ask their surety agent and company for input on the subcontractors they plan to use. Finally, make sure you have favorable terms in your subcontracts, such as “paid-when-paid” clauses.
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