Contractors face tradeoffs in pressures in an unpredictable 2024 environment

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A significant number of large projects are on the horizon in Wisconsin, so the hope is that Wisconsin’s construction industry can avoid many of the pressures on profitability that was felt in other parts of the country.

Federal investment on infrastructure projects in the state ($5.2 billion for highway programs and $225 million for bridges over five years) remains a positive for the industry. Momentum for commercial construction across the country – including office and retail projects – is expected to slow.

Housing starts in Wisconsin are on the rise, though builder concessions on new construction homes are likely to continue despite greater anticipated interest rate stability in 2024. Dampened demand in 2023 led some construction firms to pivot to “build-to-rent” projects. The trend may continue in Wisconsin as demand to buy and rent far outpaces supply (at a reasonable price), thanks to population growth. The current state budget has earmarked $525 million for affordable housing.

It’s an environment that’s changing into 2024 as contractors have seen some hurdles – like supply chain blockages – fall by the wayside while others – lender appetite changes for project financing – have taken their place. Other issues, such as the persistent shortage of skilled workers, refuse to go away.

Economic issues are a concern but those are compounded by the unpredictability of the environment, according to two-thirds of construction respondents to the HUB International 2024 Outlook Executive Survey.

The concerns Wisconsin’s contractors must be prepared to manage include:

1. It takes skilled workers to drive a vital industry. But the shortage of them is a long-standing problem that saps its strength. And Wisconsin’s construction employment lags the rest of the country, growing by only 1.1% in the 12 months ended in October 2023, versus the national pace of 2.8%. Even presuming construction spending slows in 2024, the industry overall will still need to hire more than 342,000 new workers next year to meet demand.To a significant extent, turning the situation around will take changing the image of the job. On one front are health and safety issues. Safety is a priority among most firms, yet construction reports more workplace injuries than any other industry. Still, a positive safety reputation helps to attract workers. It’s leading forward-thinking firms to identify and address safety concerns before work on a site begins and also to create their own training programs to prevent accidents.

   Benefits and financial incentives that differentiate employers are also increasingly important. Many construction firms offer robust employee assistance programs, mental health benefits, retirement plans and financial wellness programs on top of health benefits. Also key: benefits strategies based on personalized offers. These create a quality employee experience (QEX) that enhances engagement, boosts recruiting and retention and improves overall employee wellbeing.

2. Managing threats to construction’s resiliency. It’s impossible to remove all the risk in construction, with threats to resiliency looming from many different directions.Defective products and faulty workmanship or maintenance account for about 18% of construction and engineering losses annually. Extreme weather delays impact 45% of construction projects worldwide each year, costing the industry billions in additional expenses and lost revenues. And we’re not out of the woods yet with inflation; as it drives up the price of materials, cost overruns may well proliferate in 2024.

   Among the many impacts are higher insurance rates for some coverage lines. For example, general liability rates for projects in high-hazard areas will rise 5% to 15% in 2024; and as much as 30% for builder’s risk insurance for large-frame projects in catastrophe zones. But rates for workers’ compensation, directors & officers (D&O) insurance and environmental coverage will remain flat or decline.

   In coping with the changing economic climate and insurance marketplace, construction firms increasingly view risk strategically to hedge against threats to their resilience. For example, a construction company with a well-capitalized captive could take a loan from the captive to alleviate a temporary cash flow issue. Further, firms that identify and address problems before they occur, can leverage their insurance program as a source of contingent capital, improving their long-term resilience and results.

Plan for 2024

It’s never too late to have a strategy in place that encompasses insurance, risk management and a vital employee workplace.

It takes an experienced broker to evaluate insurance programs for coverage limits and gaps and ensure risk management resources are provided to support business goals. A wealth of benefits options are available – and ways to evaluate individual workers’ needs. The right experts can help ease the challenge of designing a differentiated, personalized benefits program without breaking the bank.