By Anne Hunt
Every day, construction projects generate mounds of data that hold tremendous potential to inform business decisions and drive more efficient projects with better outcomes. Once thought only to be useful or financially accessible for large corporations, accurate data capture and analysis can be a secret weapon, providing insight into many aspects of the business, for any size of construction company.
To help industry leaders better understand the current construction landscape and assess how their own companies are tracking against industry averages, Viewpoint, a Trimble company and construction ERP leader recently soured data from nearly 1,000 customers between Jan 1–March 31. The resulting insights into trends related to project starts, contract values, hiring metrics, and cash-flow movement are published within its Quarterly Construction Metrics Index: Q1 2021. As we look back at the first quarter of 2021, what do the trends in the Index reveal, and how can contractors use that information to their benefit?
1. PROJECT BACKLOGS ARE SLOWLY REBOUNDING
Project starts are the lead indicator that business is getting back to normal. Without project starts, contractors can’t hire employees, bid on contracts, or spend money on materials. Although the impact of the pandemic is still being felt, the rate of projects in the pipeline still hovers around 20% below where they were in the first quarter of 2020. That being said, there are currently 26,000 pending projects in the Q1 2021 backlog compared to 30,000 pending jobs in Q1 2020, a 15% decrease that suggests backlogs are slowly rebounding.
When looked at by vertical, heavy highway and civil projects fared the best with 10% more pending projects in March 2021 than March 2020. This could be due to the fact that the vertical is largely funded by federal and state governments or municipalities whose budgets have already been allocated, with projects set to start accordingly.
Backlogs for general contractors have largely been holding strong, though there are still about 10% fewer pending projects in Q1 2021 as compared to Q1 2020. The decrease could indicate that general contractors are lowering their risk threshold by taking smaller jobs, which would help account for lower project starts.
Specialty contractors, who had the smoothest ride in 2020, had 25-35% fewer pending projects in January and February 2021 as compared to the previous year. This could be due to having service businesses and picking up work left behind by general contractors in 2020, resulting in an abundance of previous work finally catching up with them.
2. CONTRACT VALUES MIRROR PROJECT STARTS
Contract values have largely held steady since October 2020 but still saw a 52% decline as compared to Q1 2020. This is not surprising as contract values tend to mirror project trends. As projects decline, their values decline proportionately. The decline was seen across all three verticals during Q1 2021, with specialty and general contractors experiencing 50% declines in contract values, while heavy highway and civil saw a 30% decline.
With contract values holding steady since October 2020, lower contract values indicate that there is still uncertainty in the market as contractors continue trying to mitigate their risk. One dynamic that could affect contract values moving forward is cost fluctuations with construction materials. Trade tariffs, production challenges, shorter supply cycles, and transportation issues have all contributed to higher material costs for contractors, with many eating potential contract profits to keep work moving. Additionally, lower contract values may be the result of more competition with fewer projects available for bid.
3. HIRING STEADILY INCREASES
Although we entered the pandemic with a labor shortage, hiring has been net positive in 2021, meaning more employees were hired than fired. Hiring is still 12% below what it was a year ago but has steadily increased throughout the quarter with net employment up 45% in March 2021 as compared to March 2020.
Geographically, the Southeast experienced the largest net hiring increase—103% as compared to a year ago—which was followed by the Northeast, which also saw a 75% increase. Regional hiring will likely follow the overall hiring trends, which suggest that hiring will remain down in 2021; however, the Southeast and Northeast might fare better than the Plains, Pacific West, and Midwest given their more consistent employment track records. Regions in which manufacturing and warehouse construction starts are strong, particularly the Plains and Midwest, may realize an increased need for skilled labor.
4. CASH FLOW AND SPENDING VARY ACROSS VERTICALS
In 2020, construction companies tended to be more cash positive than in years past, as the pandemic and the uncertain business environment led them to hold on to cash rather than spend it on new projects.
In Q1 2021, heavy highway and general contractors remained cash positive, while specialty contractors were cash negative, spending roughly 150% more as compared to Q1 2020.
This uptick in spending could suggest increasing confidence among specialty contractors that new projects will soon be underway.
Although the specialty trades were hit particularly hard by the workplace restrictions imposed by the pandemic, cash flows for the specialty sector should normalize in the coming months as restrictions continue to ease.
While it’s always tough to predict the future, many are hopeful that the upcoming infrastructure bill will inject some much-needed investment into the industry, helping to modernize our aging infrastructure and stimulate the labor market. This could have a positive effect on all of the indicators examined above; however, if the bill doesn’t pass in its current form, it’s projected that even a more limited plan would still have a meaningful impact on the industry, leading to more projects, higher contract values, additional hiring, and greater cash flow.
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Anne Hunt is the director of data and analytics for Viewpoint, a Trimble company that delivers leading-edge construction management software. Hunt leads the incubation and innovation of new data first services to revolutionize how clients and the construction industry operate. For more, visit www.viewpoint.com. The Quarterly Construction Metrics Index: Q1 2021 can be viewed at www.viewpoint.com/quarterly-construction-metrics-index.
Modern Contractor Solutions, July 2021
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