With another year of the coronavirus pandemic nearing its end, owners have mostly moved past reactionary plans for completing stalled projects and are now actively planning new ones. Looking ahead, how will fundamental changes to market sectors lead owners to potentially reconfigure business models?

An uncertain market outlook is giving many owners a case of “analysis paralysis” when it comes to planning for the future, explains Stephen Mulva, director of the Construction Industry Institute. Reported labor shortages and supply-chain disruptions caused by COVID-19 are still top-of-mind concerns in the decision-making process, he says, including “quality problems” with the raw materials that are actually available.

The Construction Owners Association of America (COAA) reports that some of their members are pre-purchasing materials and storing them in bonded warehouses to directly ameliorate supply chain issues. “This works especially for owners who are allowed to select the builder long before construction,” says executive director Howie S. Ferguson. “The cost of that storage is thought to offset the potential price increase of those materials in six to 12 or more months. But in many cases the advantage has even more to do with ensuring the materials will be on hand when they’re needed.”

But owners in some sectors are increasingly hesitant to move on current business opportunities because, while they may offer short-term returns, the prospects might be obsolete in the long term. One such example is how the upcoming energy transition will transform the oil and gas sector, says Mulva.
“Companies like Shell and ExxonMobil see business opportunities for plastics, chemicals, different kinds of fuels,” he says, “yet maybe they shouldn’t hit the go button on that because of the upcoming energy transition. Maybe they should be thinking more green: hydrogen and carbon-capture projects.”

Headquartered at the University of Texas at Austin, the CII is a consortium of more than 140 leading owner, engineering-contractor and supplier firms from both the public and private sectors. The institute serves as a research and development center to enhance the business effectiveness and sustainability of capital projects.

Mulva sees many owners mulling larger societal issues that are causing them to rethink projects. “[Owners] are doing a lot of studies and they are not really pulling the trigger yet on the projects,” he adds.

Construction contractors are often at a standstill until owners have the information they need to move forward. But such conversations seemingly haven’t stalled construction-in-progress (CIP) spending among owners—at least not yet.

Construction Spending on the Rise

Despite disruptions from the ongoing COVID-19 pandemic, CIP spending among ENR’s Top 425 Owners rose 7.5%, to $356.09 billion in 2020 from $331.4 billion in 2019. This marks the fifth consecutive year of CIP growth since a slight 0.8% dip between 2015 and 2016.

Overall, CIP is up 28.8% since 2016. Major tech firms, particularly Google, Amazon and Facebook, are driving a significant portion of that growth. That trio has increased their CIP spending by over $37 billion since 2016.

Amazon alone increased its CIP over $9 billion between 2019 and 2020. For Facebook, (recently renamed Meta Platforms Inc.), CIP increased nearly 500% since 2016, moving from $1.89 billion to $11.29 billion in 2020.

The business services sector, which includes Google and Facebook, has risen 218% overall since 2016. In addition, the tech industry has had healthy growth outside of the big two with CIP up 70.2% between 2019 and 2020 for the remaining firms in the sector.

Only Google ranked in the top 10 on the 2017 Top Capital Expenditures list. This year Amazon, Google and Facebook are ranking first, second and eighth respectively, with over $77 billion in reported capital expenditures.

The primary and fabricated metals sector has also seen a sharp rise in recent years. The sector vaulted 70.4% between 2019 and 2020. A large portion of that increase is attributable to Cleveland-Cliffs reclassification in the sector after a switch in operations from a pure mining company to an integrated mining and steel producer. But even if the Cleveland-Cliffs’ CIP was excluded from this year’s total, the sector would have risen 43% last year and over 176% since 2016.

Joe Dardis, senior structural steel specialist at the American Institute of Steel Construction expects that trend to continue. “Most steel producers are looking to invest right now as they have had record quarterly earnings in 2021,” he says, citing Nucor’s recently announced plans to build a $2.7-billion sheet mill as an example.

Although the oil and gas extraction sector is up 32.3% from last year, the sector as a whole has still fallen 57.1% in the last five years. However, the transportation sector had the largest drop in CIP, 42.2% between 2019 and 2020.

Companies ranked on ENR’s Top 425 Owners list must be publicly traded on a U.S. exchange and headquartered in the U.S. The list excludes limited partnerships, public limited companies and companies classified as real estate investment trusts (the latter of which are ranked separately).

Changing Ownership

股票市场达到历史高位businesses creating value and a need to expand, now is the time for owners to begin capital projects, says Mulva. But when shovels can hit the ground generally lags behind market demand. Mulva points to the global microchip shortage impacting everything from consumer electronics to car manufacturers as an example of supply lagging behind a surge in demand.

Intel CEO Pat Gelsinger recently made a plea for Congress to help shore up chip manufacturing in the U.S. by subsidizing the semiconductor industry to reduce reliance on foreign chip making factories. If passed in both the Senate and the House, the CHIPS Act would invest $52 billion in the effort—yet still fall short of the estimated billions of dollars needed to close the gap on the shortage.

Chipmakers such as Intel have responded to the shortages with plans for more factories; the company recently broke ground on two making foundries in Arizona. However, Intel estimates the foundries won’t be completed until 2024. Mulva notes a shift in the owner needs and overall role, and contractors report seeing companies move away from the traditional owner-operator model and decentralize their capital workforce.

Rather than being blue chip companies like Ford and Procter & Gamble, owners are becoming more akin to investors, he says. “They’re more like 20 people in an office building who have some venture capital … and their approach to projects is vastly different.” One reason for this change is a general reduction in capacity among owner-operators. In some cases, CII reports major layoffs among capital project staff.

No matter the ownership structure, relationships are at the heart of successful projects, says Ferguson of COAA. “All owners would do well to remember that people are ultimately what makes a project succeed or fail—not tools, technology, contracts and processes,” he says. “With that being the case, those people who come together once to execute a project must have a solid relationship.”

Tech Focus

GM (ranked no. 23) has been dramatically impacted by the global microchip shortage. The company has had to sporadically suspend production at car plants due to chip shortages, leading to a decrease of supplies and record-high prices for new cars. However, the company is still pushing forward with its plans to become less of a car company and more of a tech company that happens to make cars. With a planned pivot to electric vehicles, the company recently started construction on the Wallace Battery Cell Innovation Center—which will significantly expand GM’s battery technology operations and “accelerate development and commercialization of longer range, more affordable electric vehicle batteries,” according to the company.

Leaning into becoming a tech company over a car company has changed construction needs as an owner, the company said in a statement provided to ENR. “Many traditional processes were linear in nature with construction data going from the AE to the constructor and finally to the owner,” the company explains. “With the advent of cloud-based construction solutions, it is now possible to automate many of these processes and to perform many others in a much more condensed timeline.”

The company says it has taken a high-level look at both the data it creates and the data it requests and how that can be leveraged for future projects. Nearly all of GM’s facility construction projects have been either design-build or integrated project delivery (IPD), according to the company.

“Data ownership and the contents of shared data are both issues that when coordinated between partners can benefit both equally and in unexpected ways,” says GM. “Having multiple partners utilizing either a common platform or agreeing on data exchanges also enables greater use of emerging technologies.”
在大流行开始之前,通用汽车已经开始了the transition of more than 20,000 employees to “unassigned agile space” to give them the flexibility to focus on virtual work. “This gave us a head start as our transformed workplaces include a variety of spaces for collaboration and group work—something our previous spaces lacked,” the company says.

Greg Sizemore, executive vice president of the Construction Users Roundtable, says that construction contractors are only just beginning to scratch the surface when it comes to tech and how technological solutions can remedy workforce shortages and reduce waste. But forward-thinking owners like GM can lead the way in bringing more of the construction industry’s players on board.

“这也是一个机会,我认为这是ripe for technology improvement” says Sizemore. “How do we bring technology to the foremen, the supervisors? How do we use it to assess optimal workforce crews? Communication is more robust than ever. So there are opportunities here to address these challenges, and these challenges are going to drive, in my opinion, technological improvement in the way we do business” for owners and construction contractors.