As the U.S. economy moves into the second year of recovery, the engineering and construction industry has a big role in supporting the nation’s growth plan. The industry’s strong order books and better control over its leverage and credit led to a quicker recovery. The Infrastructure Investment and Jobs Act, with investments across health care, public safety, and other public infrastructure, is expected to bode well for the E&C firms and accelerate the recovery for the non-residential segment. The residential segment is expected to stay strong as the segment continues to show a significant uptick with building permits and housing starts at record high levels.

Despite a positive outlook, the industry faces considerable hurdles, some new but many familiar. Among the major hurdles is the rising cost of materials and equipment and supply chain disruptions, which continue to impact the industry’s margins. Furthermore, the pervasive talent shortage is quickly moving up the boardroom agenda.

Legislation to modernize the old infrastructure bodes well for the industry

The IIJA, which provides $1.2 trillion of federal spending for infrastructure and other investments, including $550 billion of new spending over the next five years, bodes well for E&C firms and is likely to propel growth. About $550 billion new federal investments would be made to upgrade America's infrastructure over five years, including $110 billion on roads, bridges and major infrastructure projects; $66 billion on passenger and freight rail; $54 billion on water infrastructure; and $39 billion in public transit infrastructure, according to Ibid. In addition to infrastructure work, E&C firms are likely to see a further mix of projects coming through with data centers, warehousing and health care driving more activity.

Supply chain disruption and sourcing challenges could impact project delivery and margins

The pandemic-induced supply shortages persist, impacting key materials such as lumber, paint and coatings, aluminum, steel, and cement, among others. Further exacerbating the situation are the disruptions in the movement of materials due to increased congestion and delays at major ports. Low profitability and margins have been a bane for the E&C industry for far too long, and a prolonged impact on margins will exacerbate the problem. Smart project management can also help bring suppliers, vendor and contract management, and materials management onto a single platform. E&C firms should make investments in analytics to make better-informed decisions and develop alternate sourcing strategies not just in isolated projects but across the enterprise level to bring their entire sourcing online.

Connected construction to help the industry unlock new value streams

The industry landscape is rapidly evolving as engineering firms, contractors, and participants across the value chain realize the benefits and increasingly deploy connected construction technologies such as building information management (BIM), prefabrication and modular construction. These technologies can help bring assets, people, processes, and jobsites onto one platform—making everyone and everything work more efficiently, reducing downtime, optimizing asset utilization and efficiency, and gaining greater visibility into operations. As the industry moves toward connected construction, developing data, analytics and user-based insights capabilities could be critical. Moreover, a larger integration of modularization and prefabrication approaches into the design and build processes should be at the forefront.

Firms continue to grapple with labor shortages as workforce landscape evolves

While the industry quickly implemented the required safety standards, it is still trying to overcome the challenge of attracting workers. The industry is yet to recover approximately 20% of the jobs lost to the pandemic, while many other labor competing industries, such as transportation and warehousing, had recovered all jobs lost. Most E&C contractors are eager to hire, as evidenced by job openings across the industry hitting a two-year high. As the industry is creating new roles that are digitally oriented, companies should seek data engineers, data scientists, coders and developers.

In addition to reskilling, two other important elements to unleash true workforce potential include engaging in open talent ecosystems and expanding talent and opportunity marketplaces. Companies should consider expanding their workforce beyond full-time and part-time positions and engage in external ecosystems that can help them access diverse external contributors.

Preparing for the future

To prepare for future growth and address hurdles, the industry should continue to increase its investments in digital technologies, including through mergers and acquisitions, especially as it prepares to shift toward connected construction capabilities. These technologies can help E&C firms drive growth in areas such as smart cities and help enhance internal operational efficiencies, reduce costs, and improve margins.