# Presentation: 327599

## Emerging Trends and Issues for the Construction Industry

***Emerging Trends and Issues for the Construction Industry***

- Subcommittee on 2001 AASHTO Highway Construction
- August 9, 2001

## What is our clients’ future?

- In order to understand and meet our clients’ needs we must understand:
- Industry trends in design
- Trends in America’s workforce
- Trends for those who purchase construction services
- Delivery Methods
- Product/service needs
- Drivers in owners market

- © 2001 FMI Coporation

## Contractor and Design Professional Trends

## Key Questions

- How do the trends in the A/E marketplace affect contractors and owners?
- What changes can you expect to see in the products you receive from A/E firms and contractors?
- How will  relationship with A/E firms and contractors be affected as a result of these changes?
- What can you do to prepare for these changes?

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 1
- Continuing consolidation toward a two-tiered market
- Industry consolidation is accelerating
- Large design firms keep getting larger
- Smaller design firms specialize in niche practices and markets
- Midsize firms caught in “no-man’s land”
*Effect on contractors **** fewer choices and less attention to construction-related issues*

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 2
- Growth through increasing acquisition activity
- More money available for investment and speculation
- Only exit strategy for many owners
- Becoming a bigger entity is more attractive
- Rate of acquisition may decrease as business owners wait on the sidelines

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 2 *(continued)*
*Effect on contractors **** change in relationships with firms . . . less likely to have access to “top guy” as firms become “business-centered practices”*

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 3—Corollary 1
- Convergence of design and construction
- By 2005, approximately 50% of construction will be performed via design-build
- Full in-house services
- Opportunity for de-commodification of services
*Effect on contractors ****  A/E firms will be getting into their business . . . increased opportunities for teaming relationships *

- © 2001 FMI Coporation

## Construction Value Chain

**DBOOM**

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 3—Corollary 2
- Design professional role changes
- Design professionals valued for their business skills, not just creativity
- Competitive position—A/E firms follow clients, not projects
*Effect on contractors ****  A/E firms will get more opportunities to be in positions of authority on projects because of relationships with owners*

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 3—Corollary 2
- Architecture lags behind engineering in responding to changed marketplace
- Architecture is generally more risk-averse
- Architecture is slower to acclimate to changing environment
*Effect on contractors ****  less and less involvement by pure architectural firms in the construction process*

- © 2001 FMI Coporation

## Architects/Engineers/Designers

- Trend 4
- Extraordinary battle for ordinary people
- Significant demand for skilled labor nationwide
- 1998—Lowest number of engineering grads in 17 years
- 1999—Lowest number of new PEs in a generation
- Attraction of top candidates to other industries
*Effect on contractors ****  significant decrease in competent personnel at key positions...especially project manager*

- © 2001 FMI Coporation

## Construction Ownership Structure

- © 2001 FMI Coporation

## Construction Labor

- Not enough
- Recruiting labor from nontraditional sectors
- Contribution of immigration to population growth
- 1961 to 1970	13.9%
- 1971 to 1981	19.3%
- 1981 to 1990	28.4%
- 1990 to 1993	34.0%

- © 2001 FMI Coporation

## Construction Labor

- Rates of growth by ethnic group in U.S. population ethnic groups from 2000 to 2010
- Anglo – 2.5%
- African-American – 12.9%
- Hispanic – 28.5%
- Other/Asian – 38.4%

- © 2001 FMI Coporation

## Nonresidential Construction

- © 2001 FMI Coporation

## Profit Trends

***Subcontractors***

- © 2001 FMI Coporation

## Profit Trends

***General Contractors***

- © 2001 FMI Coporation

## Total Value of Construction

*FMI Forecast **	**Source: Annual Value of Construction*

**Billions of Dollars**

- © 2001 FMI Coporation

## Construction Put in Place

**FMI Forecast **	**Source:  U.S. Dept. of Commerce*

- © 2001 FMI Coporation

## Highway Construction

- © 2001 FMI Coporation

## Forecast 2001

- © 2001 FMI Coporation

## Business Outlook

**According to *****Construction Management Journal ***** readers,**
**in the next 12 months, business should:**

-  Increase greatly................9%
-  Increase somewhat...........54%
-  Stay the same.................29%
-  Decrease somewhat...........7%
-  Decrease greatly...............1%

- © 2001 FMI Coporation

## Industry Outlook—Summary

- Like the overall economy, the outlook is cloudy
- Any “corrections,” “downturns,” or “soft landings” might be hard landings
- Over time, however, the construction industry still reflects low real growth associated with a mature industry

- © 2001 FMI Coporation