3. Procedures of shifting workflows

Return to June 2021 Update

 Includes the following 6 subcategories:

• 3.a) Current situation
• 3.b) Remote work; Work from home (WFH)
• 3.c) Site procedures
• 3.d) Supply chain
• 3.e) Workspace re-entry
• 3.f) Financials; cashflow / Contracts/ Litigations

Length: 38 min read;  7,625 words.

Note: The following paragraphs summarize the category of Procedures of shifting workflows observed in June. More information about the specific category from June (and previous months) can be found in the downloaded report(s). The number in square brackets (e.g., [X]) refers to a reference where the reader can find more information about a specific statement. The references can be found in the References list below, on the Systematized References page or in the downloaded report.

This category had again the highest interest with 39% representation in the selected references. It has taken the number one position for the eighth time in the 9 monthly reports for the past 15 months. It remained of the highest interest due to challenges contractors are facing such as worker H&S, vaccination rates, project delays, new project starts, labor shortage, and supply chain delays causing less available products, material shortage and cost fluctuations. On the other hand, the construction data and statistics (for the US and EU) are around pre-pandemic positive levels and show that the AEC industry recovered, with growth expectations. Architectural Billing Index (ABI), an indicator of future construction spending, shows positive trend since March, contractors’ revenue expectations and backlogs are on the rise. The interest in all subcategories except Workspace re-entry increased in comparison to March.

a) Current situation

The increase of interest in this subcategory that covers news of quantitative and qualitative market changes globally, are due to continuous challenges but also optimistic news such as reopenings, new projects and restarts and various global news like governmental stimulus bills and supply chain issues affecting AEC. 15 months into the pandemic, in June ‘21, the US contractors continue to report major challenges: vaccination issues, workforce H&S, labor shortage increase, project shutdowns and delays, fewer projects, less availability of products, and, supply chain delays, material shortage and cost fluctuations. On the other hand, Architectural Billing Index (ABI), [75] an indicator of future construction spending, shows positive since March, and contractors’ revenue expectations and backlogs are on the rise. [76] According to Gilbane Supply Chain, building material prices are mostly increasing (including copper, furniture, glass, janitorial, lumber, oriented strand boards (OSB), plumbing fixtures and PPE are stabilizing), inventories are overall contracting and deliveries are delayed. [77] Construction input prices jumped 24%. The surge in prices is probably temporary as suppliers work to boost capacity and bolster output, a dynamic that eventually results in a downward shift in prices. [78] The US construction spending continues to trend upward. Construction jobs dance around pre-pandemic numbers. Architecture billings hover in positive range. Construction starts are above values in 2019 and 2020 for the first 6 months of 2021 - projects are growing more complex every year, driving the values of new construction up. Construction confidence grew in June (though Delta variant worries are looming over the coming summer months). Construction backlog continuously approaches pre-pandemic numbers. Construction vaccination rate at below 60% lags behind vaccination rates of other industries (80% on average). [76] Since the US construction vaccination rate, an important KPI today, is below other industry averages, the US Equal Employment Opportunity Commission greenlighted coronavirus vaccine requirements and incentives but with some limits. [20] In the EU, the production index in the first quarter of 2021 has been positive with 7.5% YoY increase. Construction prices and costs are steadily increasing.  [75] Examples of major new projects going forward are one of the Russia’s largest oil projects, with total investment estimated up to €140B [79], and in the US, Google’s multibillion-dollar mixed-use project in San Jose, CA [80], and Webuild and its US subsidiary Lane Construction US$16B agreement with Texas Central LCC to build a high-speed railway between Dallas and Houston in Texas, US. [81]

Growing supply chain issues are endangering the construction industry’s recovery. (More information in the section on Supply chain) The US construction industry has experienced a “relatively mild” contraction of 2.4% due to the pandemic. The US Federal Reserve committee predicted a growth of 4.2% for the country in 2021, and a slower pace of approximately 3% thereafter. [161]  The recovery in the US will be uneven – low-income households will likely not return to 2019 spending levels by 2024, especially US families that have lost jobs and face income uncertainty. The recovery in consumer spending is more uneven in the US than in Europe.[162] Many general contractors with a national footprint, such as Suffolk Construction, saw the uneven impacts of COVID-19 as it hit different regions of the country firsthand. In its hometown of Boston, where former Mayor Marty Walsh shut down all jobsites quickly at the onset of the pandemic, it had to actively look for ways to keep its crews engaged. But in other areas of the country, like Florida, business boomed.  [163] New York City and San Francisco, according to the Arcadis 2021 International Construction Cost Index, are among the top 10 cities around the world with the highest construction costs. Despite the pandemic, Arcadis said, most markets covered by the report, including those in the US, remained stable and resilient, leaving them positioned for a recovery. This means that many contractors will be able to take advantage of infrastructure and other building programs potentially funded by the $1.9T American Recue Plan Act. However, many uncertainties remain. Segments of the commercial construction market are expected to shrink somewhat, and it is still unknown how much American Rescue Plan recipients will spend on infrastructure and other public construction projects. The high cost of construction materials and lack of skilled labor could also present challenges. [161] Commercial subcontractors are primed for growth in 2021 but issues around cash flow and access to financing could prevent them from reaching their expansion goals. Difficulties accessing capital, irregular payment cycles and not having a long-enough period of time to pay vendor bills in comparison to when their clients pay them, are standard challenges. Slow payments in the construction industry cost general contractors and subcontractors approximately $64B annually. 72% of subcontractors are willing to offer 1% to 5% discounts to their customers in exchange for quicker payments. [164][165] Turner overtakes Bechtel as the country's top contractor, although with a slightly lower revenue than in 2019 (Turner's $14.4B in 2020 revenue was slightly lower than when it held the second-top spot in 2019 with $14.6B. Bechtel reported $15.9B in construction revenue in 2019 and $12.2B in 2020, a 19% drop in overall revenue. [166] Offsite construction company Katerra, which has raised more than $2B from backers such as Japanese mega-investor SoftBank, is shutting down. [167] Nooses and attacks on construction sites are reported. [168][169][160][170] The Champlain Towers South condo partial collapse brings focus on building inspections and timely retrofits. [171][172]

Infrastructure projects and bills continue to be at the center of economic recovery. For example, the Norwegian government’s 2021 budget has around 80B Kroner (€7.8B) allocated to the improvement of the country’s transport network.[82] The financial benefits of any federal infrastructure spending package to architecture, engineering and construction firms has been the focus of market watchers for months. According to Zack's Investment Research, construction sector stocks have risen 58.8% over the past year, outperforming the 44.1% return of the S&P 500. When the current bipartisan agreement was announced at the White House June 24, stocks of construction stalwarts jumped again. AEC firms should get $126B under bipartisan infrastructure deal. While the S&P 500 gained 1% for the session, Tutor Perini leaped 5.3%. MasTec gained 4.5%, while Fluor and Granite rose 3.6%. AECOM and Jacobs both closed around 2% higher. [83] The COVID-19 pandemic resulted in $9.8B in lost construction activity and 74,000 direct and indirect lost jobs in New York City, according to a report by the Building Trades Employers’ Association. The decline in jobs contributed to a $5.5B loss in total wages.[173] Lumber prices have spiked this year. Lumber futures contracts for May delivery hit $1,645 per 1,000 board feet, up from about 60% a month ago, and 374% over the last year. Those prices have added $12,966 to the value of an average new multifamily home and $119 a month in rent to new apartments. [174] It is the fastest rise since the post-World War II housing boom. This happened due to the median existing-home sales price in March 2021 jumped by a "record breaking" 17.2% to $329,110, according to the National Association of Realtors. At the same time, by the end of March, housing inventory slightly rose to 1.07M units but was still down by 28.2% YoY. New home starts for single-family homes dropped by more than 13% in April compared to March, the biggest drop since the start of the pandemic, according to the US Census Bureau. For those still moving ahead, they are trying to protect themselves too, with 22% of builders getting price guarantees from suppliers, and 47% adding price escalation clauses to sales contracts, according to the National Association of Home Builders. Reopening sawmills to address the lumber shortage wouldn’t be reasonable because there is labor shortage for sawmills and truck driving plus higher diesel fuel prices. The overall labor shortage can be attributed in part to expanded unemployment benefits but also because a second round of stimulus hit around the same time as tax refunds, according to Mark Vitner, managing director and senior economist at Wells Fargo. Plus, he suspects, workers wanted to be fully vaccinated before coming back on the job. The labor part of the sawmill problem to start resolving itself later this year but expects prices to remain high into 2022. That lines up with what a wholesale lumber distributor and former lumber trader told CNBC. Analyzing seven bullish cycles over more than three decades shows cycles lasting as short as nine months and as long as 41 months, Sherwood Lumber COO Kevin Little said. This current cycle is in its eleventh month. Sourcing wood from Canada is also problematic. The US Commerce Department lowered tariffs on Canadian Lumber to 9% from 20% in December. Removing tariffs entirely could help but Canada has had its own supply issues due to the mountain pine beetle, which destroyed about 9M single-family homes worth of lumber supply in British Columbia, Alberta and the Pacific Northwest, according to Bloomberg. But no matter what changes in labor, and tariffs, prices will stay high. [84]

Global construction equipment manufacturers are going digital and green. [124][175][176] Global construction equipment sales were stronger in 2020 than had previously been forecast, due to the spending stimulus implemented by China as a reaction to the pandemic and construction work being deemed ‘essential’ in large parts of the world, according to Off-Highway Research. [177] Total revenues at the world’s largest 100 rental construction equipment companies fell by 6.4% in 2020 reflecting the disruption caused by the health crisis. [178]

(More 2021 predictions for global building industry are in the March and December report.)

b) Remote work; Work from home (WFH)

This section has become a part of Workspace re-entry as new hybrid workplace includes remote work. Perhaps the most obvious impact of COVID-19 on the labor force is the dramatic increase in employees working remotely. McKinsey researched how extensively remote work might persist after the pandemic. Considering only remote work that can be done without a loss of productivity, they found that about 20 – 25% of the workforces in advanced economies could work from home 3-5 days a week. This represents 4-5 times more remote work than before the pandemic and could prompt a large change in the geography of work, as individuals and companies shift out of large cities into suburbs and small cities. Some work that technically can be done remotely is best done in person. Negotiations, critical business decisions, brainstorming sessions, providing sensitive feedback, and onboarding new employees are examples of activities that may lose some effectiveness when done remotely. Some companies are already planning to shift to flexible workspaces after positive experiences with remote work during the pandemic, a move that will reduce the overall space they need and bring fewer workers into offices each day. On average, leaders planned to reduce office space by 30%. Demand for restaurants and retail in downtown areas and for public transportation may decline as a result. Remote work may also put a dent in business travel as its extensive use of videoconferencing during the pandemic has ushered in a new acceptance of virtual meetings and other aspects of work. While leisure travel and tourism are likely to rebound after the crisis, about 20% of business travel, the most lucrative segment for airlines, may not return. This would have significant knock-on effects on employment in commercial aerospace, airports, hospitality, and food service. Remote work also offers companies the opportunity to enrich their diversity by tapping workers who, for family and other reasons, were unable to relocate to the superstar cities where talent, capital, and opportunities concentrated before the pandemic. [139] WFH employees have more control of how to craft workday according to their energy, task and volume level. [179] Hybrid work requires remote work policy. [180] Employees want more certainty about postpandemic working arrangements. [181]

Research of remote work shows that remote workers work longer, although not more efficiently. Early surveys of employees and employers found that remote work did not reduce productivity. The employees were working hard. Total hours worked were 30% higher than before the pandemic, including an 18% increase in working outside normal hours. But this extra effort did not translate into any rise in output; the correct way to measure productivity is output per working hour. With all that extra time on the job, this fell by 20%. The academics were able to analyze how much time the employees spent in “collaboration hours”, defined as various types of meetings, and how much time they had as “focus hours”, uninterrupted by calls or emails, where they could concentrate on their tasks. Despite working longer hours, the employees had less focus time than before the pandemic. Instead, all their extra time was taken up by meetings. Long-time readers may recall Bartleby’s law: 80% of the time of 80% of the people in meetings is wasted. This WFH study certainly offers evidence for the proposition. One possibility is that managers are less certain of their team’s commitment and are holding more meetings to check on them. Another is that managers call so many meetings to validate their own existence when they are not in the office. However, the greater need for meetings is the result of the greater difficulty of coordinating employees when they are working remotely. When working remotely, employees also spend less time being evaluated, trained and coached. They received no more money for the overtime. Although they saved commuting time, this did not offset the extra hours spent in meetings. Not all workers behaved the same way. Those who had worked at the company the longest tended to be more productive, suggesting that they found it easier to navigate the hazards of WFH. Employees with children worked around 20 minutes a day more than those without, implying an even greater fall in their productivity, presumably because they were distracted by child-care duties. [182]

The US is facing the Great Resignation: people may be unhappy at their jobs or unwilling to return to the office after working from home for more than a year. They were able to ditch their commute, have more freedom and family time, and perhaps save some money. Of the 38% of Americans who WFH at some point during the pandemic, 57% said it had a positive impact on their personal finances, a survey from Bankrate.com found. Millennials, those ages 25-40, and Gen Zers, those ages 18-24, were most likely to feel that positive effect. [141] Up to a third of office workers say they’ll quit their jobs if they cannot work remotely at least some of the time, and people are quitting their jobs at the highest level on record. Many people don’t want to work unless it’s from home. Companies are offering remote work. On LinkedIn, the share of US jobs that allow remote work increased fivefold, from less than 2% in May 2020 to about 10% in May 2021. Nearly half the jobs on Hired’s platform now include remote work. That’s up from 10% at the beginning of last year. For example, Zillow, the real estate marketplace, saw a huge spike in applicants due to a new remote work option. It announced last summer that it would allow the vast majority of its workers, 90% of its more than 5,000 employees, to WFH at least part of the time. Before the pandemic, it had demanded that most employees come to the office regularly. Remote work brings benefits for employers. Removing geographic and time constraints means employers can reach out to a much wider pool of qualified candidates. Women and people of color are much more likely to prefer remote work than their male or white counterparts. [183] On the other hand, according to Google, WFH salary won't be the same as the office pay. [184]

c) Site procedures

Construction site news in June ’21 include H&S measures, vaccination issues, increased number of inspections, digital technologies such as robotics and drones (covered in the section for Adoption of (new) technologies), racially motivated attacks, and supply chain induced material shortages and prices that have potential to bring construction sites to a standstill in summer later.

H&S measures on jobsite go beyond COVID-19 protocols (established in March/April ’20). As the COVID-19 pandemic begins to wane in many areas of the US, construction employers are not letting their guard down when it comes to keeping their workers safe and healthy. Government agencies like OSHA and the CDC are also on the front lines of monitoring American workers' welfare on the jobsite. For example, a new guidance from May says “fully vaccinated people no longer need to wear a mask or physically distance in any setting, except where required by federal, state, local, tribal or territorial laws, rules and regulations, including local business and workplace guidance”, but employers can still opt to require social distancing and masks. [185][186] Other toolbox talks including jobsite safety presentations [187], OSHA launching COVID-19 national emphasis program in March prioritizing onsite inspections, which increased in number till June ‘21. NYC building inspectors crack down on large construction sites by stopping work on 322 jobsites. [188][189] The labor secretary has put the development of an OSHA emergency temporary standard on hold. [190] The National Institute for Occupational Safety and Health has released a free Worker Well-Being Questionnaire to help employers, workers, researchers, practitioners and policymakers better understand and target interventions to improve workers’ welfare. [191] Vaccine hesitancy continues among contractors. [15]

According to Greg Sizemore, ABC's vice president of health, safety, environment and workforce development, the safest construction companies typically have: 1) a robust substance abuse policy with provisions for drug and alcohol testing where permitted; 2) intensive onboarding and new hire orientation programs that clearly outline policies and expectations; 3) frequent and regular toolbox talks, at the beginning of every shift and in some cases even when crews return from a lunch break to bring everybody on the job back to focal point to perform their work safely; 4) leadership that practices safety from the top down, so that executives and supervisors on site follow the same safety initiatives and protocols as the front-line workers doing the day-to-day work; and 5) protocols to measure and use safety data from the job to consistently raise the bar and a focus on safety on the jobsite. ABC's 2021 Safety Performance Report found that on average, the recordable incident rate for all companies tracked by the Bureau of Labor Statistics dropped from 3.0 per 1,000 hours worked in 2019 to 2.7 in 2020. But among ABC's best-performing members that institute these five specific workforce programs, the rate was just 0.41 in 2020, and statistically flat compared to 2019's rate of 0.37. [192]

Nooses and attacks on construction sites are reported. [168][169][160][170]  “A symbol of hate is one thing. But a violent act against one of our workers would be the absolute worst-case scenario. We cannot have anyone get hurt on our jobsite.” RC Anderson working on an Amazon construction site ordered sitewide safety stand-down for 400 workers, distributed anti-harassment literature to its crews, and ordered the approximately 70 companies working at the project to hold toolbox talks to discuss what had happened. It also stressed the zero-tolerance clauses it writes into all of its subcontracts, to make it clear that whoever hung the nooses was in breach. Police and more cameras were placed on the site. Focus on mental health of workers, especially workers of color is paramount. [169]

High-tech machines helped two major tall building projects (one in New York City and one in Dubai) speed construction and keep employees safe while working hundreds of feet above the ground. [193] JCB has developed a hydrogen-fueled engine and also set up a specialist development team as the company believes the technology offers the quickest way to reach carbon dioxide emissions targets. [175] Supply chain induced material shortages and prices have potential to bring global construction sites to a standstill in later summer months. [194]

d) Supply chain

Supply chain challenges continue to hamper economic recoveries. Problems keep piling on for carriers and the cargo owners that rely on them to move inventory across the world's oceans. Demand for ship capacity has outstripped supply for months, a cargo ship stuck in the Suez slowed the system and created port congestion in Europe, and now an outbreak of COVID-19 cases is leading to issues at multiple gateways in southern China. [195][196] Yantian port congestion was caused by COVID-19 Alpha variant outbreak. Although full operations were resumed at the end of June, the lower capacity operations have already resulted in an uptick in rates on major East-West trade lanes, which could spread to other lanes over time. In addition, the overall surge in transport cost may causes shortages of goods across the world, and trigger inflation. [197] The challenges at Yantian are the latest in a saga of global container shipping issues that have plagued shippers, forwarders and carriers for more than a year, from port congestion, to equipment shortages, to blank sailing, to skyrocketing freight rates. Many importers have pivoted to airfreight given ongoing capacity and timeliness issues in ocean freight, although air cargo space is also limited. [198] Low capacity keeps airfreight rates high between Asia and the US. [199] The latest figures on schedule reliability do not paint the most optimistic picture for an ocean freight market that has struggled under the weight of increased demand and tight capacity for months. Not only are ships struggling to keep schedules, but they are also showing up later. The average delay for late vessels in May was 5.86 days, which is down from the February peak of 6.96 days but still higher than most of 2020. The carriers say the issue is congestion. Global schedule reliability of ocean carriers continued to struggle in May as on time dipped to 38.8%, down from 39.1% in April and from 74.8% in May 2020, according to the latest figures from Sea-Intelligence. If “demand patterns and volumes don’t shift, and there’s a chance they won’t, then shipping capacity could remain dried up for up to 3 years (the time it takes to build a fleet of new ships for a string), and freight rates more than likely remain sky-high.” [200] The congressional hearing in the House Subcommittee on Coast Guard and Maritime Transportation came in the context of an already stressed supply chain. High demand for ocean freight has strained networks, clogged ports, made containers tough to come by and resulted in shippers levying criticism on carriers. Federal Maritime Commission commissioners back audits of ocean carrier detention and demurrage. [201] Railroads post strong volume but struggle with congestion. Intermodal specifically “had the best January to May period ever for US railroads”. [202]

Growing supply chain issues are endangering the construction industry’s recovery and with it the economic recovery of many nations worldwide. Amid growing demand, a lack of ready construction materials and products is said to be compounding challenges such as soaring materials prices, ongoing coronavirus measures and worker shortages, leaving many contractors unable to confidently move forward with major projects. Construction associations are looking to governments for help, particularly in allowing for the revision of project costs and deadlines. The president of the European Construction Industry Federation (FIEC) sent an open letter to the European Commission: “Suppliers are often reluctant to agree to a specific delivery deadline. With the constantly changing market conditions, this means that suppliers are therefore also unable to specify a final delivery price for basic materials. Consequently, construction companies cannot confirm the final price for their completed works and services.” Bauer also expressed his “alarm about the significant price increase in construction related raw materials and products in Europe” – a knock-on effect of the stretched supply chain; e.g., reinforcing bars’ price rised 110% in Italy between November ‘20 and March ‘21. In Germany and France, the product had increased in price by more than 70%. In the case of steel, Bauer blames China, that is responsible for more than 50% of the world’s steel production. He said the country was currently “hogging resources”, with its construction sector utilizing 40% of all the steel it produces. In the US, a government index that measures the selling price for goods used in construction jumped 3.5% in the month to March, while the annual increase to March was reported to be 12.9%. Both the monthly and yearly increases were said to be the highest recorded in the 35-year history of the index. Speaking in April, Ken Simonson, chief economist with the Associated General Contractors of America (AGC) said the report “documents just some of the challenges contractors are experiencing with fast-rising materials costs, lengthening or uncertain delivery times, and rationing of key inputs. The Australian government is pinning its hopes for recovery on an infrastructure-led economic revival and has directed significant sums in stimulus packages towards the sector. The Reserve Bank of Australia recently said supply chain disruptions would cause a “short-term inflation bump”. The current state of construction in the Sydney region is business-as-usual: “Everything is going full steam ahead to the point where supply can’t keep up, whether it be labor or raw materials.” Many builders are now stockpiling materials, while those who had not were having to turn down potentially lucrative projects. [194]

Technology companies are facing an industrywide component shortage that is driving up costs for manufacturers, according to executives from Dell and HP. “We expect supply constraints to continue at least through the end of 2021.” HP said the semiconductor shortages affect integrated circuits. And Dell's backlog of new orders has grown larger than normal and “higher than we would like”. But Dell has not seen this translate into a higher cancellation rate, as its lead times for customers have elongated as a result of the shortage. If a company makes a product that relies on semiconductors in any way, it's likely dealing with the same challenges. As industries, particularly automotive, struggle with shortages, they have taken steps to try and find alternative suppliers. The reality of multiple shortages at once is a result of high consumer demand driven by stay-at-home orders, along with plant fires and winter storms that hit production facilities. The combination means that manufacturers simply can't meet demand. Capacity increase is one solution. For example, the Taiwan Semiconductor Manufacturing Company plans to invest $100B over three years to increase its capacity. New capacity will take time to come online; by that time the demand will likely return to more normal levels. [60] For example, The Taiwan Semiconductor Manufacturing Co., the world's largest manufacturer of semiconductors on contract, has broken ground on a $12B, 3.8 million-square-foot manufacturing complex in Phoenix. President Joe Biden has called for $50B in funding to encourage domestic semiconductor production as part of his proposed infrastructure plan, and the Senate recently proposed $52B to help the US compete with China. [61]  White House supply chain report outlines reshoring ambitions. [62] The global semiconductor shortage threatens economic recoveries and poses an urgent problem for automotive industry, which have already announced production rollbacks, and billions of dollars in expected revenue losses, as a result. McKinsey experts highlighted the causes of the shortage, including a drop-in consumer demand for vehicles at the onset of the pandemic, which prompted semiconductor suppliers to shift production to other products. Automakers and suppliers should consider significant strategic changes to head off a repeat. [5] For example, Winnebago Industries, the motorhome manufacturer, is working to increase production after its backlog reached a “year's worth of demand” in backlog. [203]

e) Workspace re-entry

Companies are returning employees to offices in mostly a hybrid manner. For example, Google, which employs some 140,000 people worldwide, expects that in the post-pandemic work model 60% of its employees will meet in offices just a few days a week, and 20% of its workers will be in new office locations. The remaining 20% of "Googlers" are expected to WFH, with a different salary than their peers working in the office. [184] Companies around the world are reassessing their policies and working arrangements after the COVID-19 pandemic tore up traditional working practices. Employees are keen to see organizations put a greater emphasis on flexibility, competitive compensation and wellbeing once the pandemic is over. A hybrid model can help organizations make the most of talent wherever it resides. At the same time, it can lower costs and strengthen organizational performance. Most employees want to WFH for three days a week. Having strong, understandable policies and communicating them clearly is important. [145] Everybody is watching what everyone else is doing – because the war for talent heating up; up to 40% of employees are considering job changes postpandemic. Seamless technology use and access to information from anywhere is key for a successful hybrid workplace strategy that integrates hybrid workspace and mobile workers. As by 2022, most of the employees will be back in the office, RE needs office strategy. Investment in RE tech is required to create productive workplace for RE to be competitive. Challenges: 62% of RE teams lack the tech, 65% consider challenge to collect real time data; 5G will increase speed 100 times faster implying more data coming up to 100x faster in real time; 99% of teams need third party support as they invest in e.g., occupancy sensors and analytics, space planning management, touchless tech, way finding, air quality. Hybrid postpandemic workspace includes the big 5: 1) health, safety and wellbeing; 2) remote work + WFH (what is the new role of WFH, new patterns immerge); 3) purpose of place (how much we need it and where); 4) how to endure business continuity and resiliency; 5) environmental, social and governance (e.g., climate change impact & diversity). Key findings: 1) returning to the office of yesterday in not the answer; we need 2) a new system – an ecosystem of spaces; 3) to empower people; 4) to shift from fixed to fluid; 5) to rethink the purpose of place; 6) access is the new ownership (we don’t need a car or a place); 7) we need to leverage technology more efficiently. Be kind and empathetic, learn along the way, adjust accordingly, make better mistakes tomorrow. Don’t to be afraid to test new things and to fail. [179] Hybrid work requires remote work policy. [180] Employees want more certainty about postpandemic working arrangements. [181]

McKinsey analysis of the future of work after COVID-19 shows that the jobs in work arenas with higher levels of physical proximity are likely to see greater transformation after the pandemic, triggering knock-on effects in other work arenas as business models shift in response. The on-site customer interaction arena includes frontline workers who interact with customers in retail stores, banks, and post offices, among other places. Work in this arena is defined by frequent interaction with strangers and requires on-site presence. Some work in this arena migrated to e-commerce and other digital transactions, a behavioral change that is likely to stick. The leisure and travel arena is home to customer-facing workers in hotels, restaurants, airports, and entertainment venues. Workers in this arena interact daily with crowds of new people. COVID-19 forced most leisure venues to close in 2020 and airports and airlines to operate on a severely limited basis. In the longer term, the shift to remote work and related reduction in business travel, as well as automation of some occupations, such as food service roles, may curtail labor demand in this arena. The computer-based office work arena includes offices of all sizes and administrative workspaces in hospitals, courts, and factories. Work in this arena requires only moderate physical proximity to others and a moderate number of human interactions. This is the largest arena in advanced economies, accounting for roughly one-third of employment. Nearly all potential remote work is within this arena. The outdoor production and maintenance arena includes construction sites, farms, residential and commercial grounds, and other outdoor spaces. COVID-19 had little impact here as work in this arena requires low proximity and few interactions with others and takes place fully outdoors. This is the largest arena in China and India, accounting for 35 – 55% of their workforces. COVID-19 has accelerated three broad trends that may reshape work after the pandemic recedes: 1) remote work and virtual meetings are likely to continue, albeit less intensely than at the pandemic’s peak; 2) COVID-19 may propel faster adoption of automation and AI, especially in work arenas with high physical proximity; and 3) the mix of occupations may shift, with little job growth in low-wage occupations. [139]

Companies and policymakers can help facilitate workforce transitions. Businesses can start with a granular analysis of what work can be done remotely by focusing on the tasks involved rather than whole jobs. They can also play a larger role in retraining workers, as Walmart, Amazon, and IBM have done. Others have facilitated occupational shifts by focusing on the skills they need, rather than on academic degrees. Both businesses and policymakers could collaborate to support workers migrating between occupations. Under the Pact for Skills established in the EU during the pandemic, companies and public authorities have dedicated €7B to enhancing the skills of some 700,000 automotive workers, while in the US, Merck and other large companies have put up more than $100M to burnish the skills of Black workers without a college education and create jobs that they can fill. [139]

How we emerge from the pandemic is driving many return and wellness strategies, but that’s not the only priority on everyone’s minds. Over the past year, there has been enormous focus given to climate action and issues of social equity. For many, wellness in the workplace now includes sustainable and healthy buildings, as well as environments that promote diversity, equity, and inclusion (DEI). [153]

The opportunity that companies have to reinvent their cultures. Leaders can focus on helping employees find purpose and make the office the new off site, a place where intentional togetherness occurs. There is a risk, however, that a divide will grow between remote workers and those who come into the office. [5]

In response to the economic downturn and supply chain disruption accelerated by the pandemic, Consumer Goods companies see opportunity in consumer engagement and innovation through co-located experience centers and research and development facilities. Across the industry, there is sharper focus on flexibility for WFH with the following trends: 1) prioritize culture and connection in the workplace; 2) more of and safe collaboration space is in demand; and 3) workplace, R&D, and experience centers are converging. [204]

Health and wellness are emerging as major components of Environmental, Social and Governance (ESG) criteria, influencing responsible investors’ real estate decisions and shaping companies’ ESG strategies. 8 key elements of a spatial and work experience model that prioritizes wellness and resilience in the workplace: 1) emotional wellness (requires the ability to have outlets and spaces in support of reducing stress, meeting personal demands, and building and maintaining meaningful relationships); 2) physical wellness (relies on user control since things like acoustics, lighting, and thermal comfort vary from person to person - recognizes the need for being physically active throughout the day); 3) environmental wellness (benefits from the design and client team’s ability to future-cast and think about what’s next, by delivering spaces and buildings that are sustainable, resilient, and ready for change); 4) in the purpose dimension (the physical environment needs to both reflect and project the organization’s vision by communicating why you are here to allow this collective why and spirit drive the work); 5) professional wellness (dimensions rely on job performance); 6) intellectual wellness (is where new thinking and creative activities can freely happen - it’s an important lever to pull as a way to expand team member knowledge and skills); 7) social wellness (is often defined by the culture of an organization - when socially well, your team members see their unique value and how their contributions matter); and 8) for leaders, organizational wellness (is an assessment of the core values based on your business goals and linking values with the type of talent you look to attract and retain). [205][153]

(More information about hybrid and remote work published in June can be found in the section for Remote work; Work From Home (WFH).)

f) Financials; cashflow / Contracts/ Litigations

COVID-19 has slowed payments for general contractors and subcontractors. Just one construction business in 10 always gets paid in full, a 75% drop from before the pandemic. Just 9% of companies always get paid on time, a decline of 60% from last year. General contractors are four times more likely than subcontractors to get paid within 30 days, and 50% more likely to get paid in full. One in five subcontractors, suppliers and other sub-tier parties regularly wait beyond 60 days to collect payment. The gap widens even further when it comes to collecting retainage. which 61% of all businesses say is "very important" or "the most important factor" for cashflow. 56% of subcontractors wait more than 60 days to collect retained funds, compared to just 16% of general contractors. The study found that payment speed also correlates strongly to project type. Residential construction companies are three times more likely to collect payment within 30 days than those on commercial projects, and five times more likely than those on public projects. And while only one in five homebuilders (17%) say they always get paid on time, they vastly outperform those on government projects (7%) and commercial jobs (4%). [206] Almost 75% of Billd-surveyed commercial subcontractors said they planned to expand their businesses in 2021, but 46% said they have difficulties maintaining adequate cash flow. More than 60% of contractors said they had to pay their supplier bills before their customers paid them; 30% reported that it is "challenging" securing new financing; and 39% expect access to capital to have a major impact on their businesses this year. According to a report from Rabbet, a construction finance platform, slow payments in the construction industry cost general contractors and subcontractors approximately $64B annually. In fact, more than 60% of subcontractors, who often pay directly for most of the labor and materials used on construction projects and then have to wait on reimbursement from their clients, reported to Rabbet that they will not bid on projects if the owner or general contractor has a reputation for late payments to their vendors. The 51-day average turnaround on invoices have forced subcontractors to turn to using their lines of credit, credit cards, personal savings and retirement savings to pay their bills. This has led to 72% of subcontractors being willing to offer 1% to 5% discounts to their customers in exchange for quicker payments. Overall, contractors are undercapitalized, and working with lackluster credit & financing options [164][165] spiking construction material costs are not helping. [84][194][126][77] Nonresidential construction input prices increased 23.9% in May compared to the previous year. These input prices are 4.8% higher than in April. Crude petroleum has risen 187%, while the prices of unprocessed energy materials and natural gas have increased 100% and 90%, respectively. The price of softwood lumber has expanded 154% over the past year. The elevated prices will not decrease anytime soon, said ABC chief economist Anirban Basu. “While global supply chains should become more orderly over time as the pandemic fades into memory, global demand for inputs will be overwhelming as the global economy comes back to life.”  [78] 23% of supply chain experts said total cost of ownership outweighed proximity to market, demand for US -made products and exposure to shipping disruptions, as the most important metric to consider when deciding to reshore an element of their supply chain. Inventory availability, lead times and price per unit or service are the most important factors manufacturers consider when vetting new suppliers, as 100% of the 343 respondents who were asked to rank the importance of the factors said these were at least "moderately important" to their decisions. [207]

COVID-19 ruined finances across the US, especially people of color, women and LGBT community. [208]  While we are in a recession, particularly in New York, things actually cost more now than they did before. The only saving grace that is keeping costs somewhat manageable is that subcontractors did not book a lot of work for a prolonged period of time. If they worked on a 10% margin before, maybe they'll pick up work at a 3%-5% margin now, to keep the doors open and their team employed. It seems like we’re in the middle of a long waiting period until the recovery truly gets started. People are waiting to see if the price of curtain walls, steel, lumber, oil, all the things that go into the mix of a building, go back to normal. [163] Many lenders are hesitant to finance hotel projects, especially in dense cities, as the future of corporate travel is still uncertain. [209] COVID-19 cost NYC construction industry $9.8B in lost construction activity and 74,000 direct and indirect lost jobs in New York City. Each $1 spent on construction yields $1.31 spent in the city. Each $1M spent on construction creates a total of eight jobs in the city. Each job on a construction site results in a multiplier of 1.32 jobs. Construction and real estate comprise 20% of the city’s GDP, while providing 10% of jobs and 5% of wages. [173] Congressional COVID funding helps reopening education. [210] Green finance goes mainstream, lining up trillions behind global energy transition. [211] One argument in defense of holding shares in polluting firms is that it is the only way to engage with a business and make it change. Divestment, the reasoning goes, would only raise polluters’ capital costs, and make spending on carbon-cutting projects less likely. This is the thinking behind Climate Action 100+ (CA100+), a global investor-engagement group. Founded in 2017, it now has 575 members, together holding over $50trn-worth of assets. They include asset owners, such as Japan’s Government Pension Investment Fund, as well as asset managers. So far the CA100+ has mostly asked companies to do three things: set decarbonization targets, disclose their climate risk and improve governance around those risks. [212]

The average value of construction disputes increased by 76% during 2020, a year that was dominated by COVID-19, according to a report from Arcadis. The report revealed that the average vale of construction disputes in 2020 was US$54.3M, up from US$30.7M in 2019, but that the average length of disputes continued to decline. Over 60% of survey respondents said their projects were impacted due to COVID-19. The Middle East was the region of the world with the most disputes, as it was last year. The average value of construction disputes in the Middle East was US$86M in 2020, a 38% increase from the previous year, and the number of reported disputes increased. The top cause of disputes globally was owners, contractors, or subcontractors failing to understand or comply with their contractual obligations. This was the number three cause in 2019. Owner-directed changes was cause number two in 2020, and third-party or force majeure events was number three, not surprising due to the pandemic. The fact that disputes have increased indicates that construction continued in much of the world during the pandemic. there is a strong emphasis on increasing construction activity across the globe to jumpstart economies in the wake of COVID-19. [213] Former Turner exec gets 46 months for tax evasion and bribery.[214] Public contractors' tax rates are among the lowest of any industry. [99] New York state legislature passes construction wage theft bill. In a usual wage theft case, a worker files suit against whomever directly employs them, such as a subcontractor, to recover unpaid wages. With this bill, general contractors are directly liable, as a way to incentivize them to police their subcontractors' wage practices, as well as their own. The Associated General Contractors of New York State, which represents construction employers, opposes the legislation as it is flawed and problematic. The bill means a GC is liable for up to three years after a project has been completed, even if the wage theft was by a subcontractor tiers down, and not detected by the GC. [215] Safety programs can help contractors save on workers’ compensation insurance. This includes a documented safety program that includes proactive processes to help employers find and fix workplace hazards before workers are hurt. The programs should include: leadership involvement, worker participation, hazard identification and assessment, hazard prevention, education and training, program evaluation and continual improvement.[216] US Equal Employment Opportunity Commission has greenlighted coronavirus vaccine requirements and incentives, with some limits. “The updates should reassure and help guide employers seeking to mandate or encourage employee vaccination in accordance with their obligations under federal law while further clarifying confidentiality requirements for vaccine documentation. This continues to be a developing area of law, however, and we advise employers to reach out to counsel for guidance on specific questions.” [20]

With 38% of projects over budget and 35% behind schedule, according to the 42nd Annual Deltek Clarity Report, architecture firms are focusing on the fundamentals. This includes tracking metrics and adopting new technology to keep a closer pulse on performance and profitability. Many architecture firms have a ways to go as only 25% currently see their business as digitally mature, but 76% of firms envision firm digital sophistication in five years, according to the report. Architectural firms’ firm’s metrics to keep projects and profitability on track. The 10 essential metrics to track, along with industry averages, include: 1) operating profit on net revenue – 19%; 2) net labor multiplier – 2.97; 3) overhead rate – 146%; 4) total payroll multiplier (revenue factor) – 1.75; 5) utilization rate – 61%; 6) projects on budget/on schedule – 65%; 7) net revenue growth forecast – 4%; 8) win rate/capture rate – 48%; 9) employee turnover rate – 12%; and 10) staff growth/decline – .05% .[217]

See March Category Summary

References