Contractors Bullish on 2023 Public-Sector Prospects

Contractors continue to struggle with supply chain and hiring constraints, reports the Associated General Contractors of America (AGC). The organization recently released its 2023 Construction Hiring and Business Outlook study, which indicates that while problems persist, contractors are optimistic about 2023, though not quite as confident as last year concerning private-sector projects.

The Los Angeles International Airport is undergoing modernization upgrades before the 2028 Summer Olympic Games. The renovation includes the addition of platform screen glass door systems from Horton Automatics.

The opposite is true of public-sector projects, especially infrastructure such as airports, for which contractors indicated bolstered confidence in available projects in 2023. This includes renovations, such as modernization updates to the Los Angeles International Airport, which featured 113 glass door systems provided by Horton Automatics and contracting partner Bagatelos Architectural Glass Systems.

“The net reading—the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink—is positive for 14 of the 17 categories of construction included in the survey,” state AGC officials.

Among the three categories receiving negative designations were lodgings, private offices and retail. However, AGC chief economist Ken Simonson says that while net readings remain largely positive, they are less positive than in 2022 for all but three project types.

AGC points to higher interest rates and evolving work and shopping patterns as reasons for the market shift. Those patterns impact office, retail, hospitality and multi-family residential demand, with the prospect of a recession resulting in similar declines in the outlook for warehouses, data centers and manufacturing plants.

Another reason for the continued bullish outlook in the public sector includes the potential for an influx of federal funds stemming from the Inflation Reduction Act (IRA). However, enacted in 2021, the act has yet to make a real difference for the industry, according to AGC officials.

Based on input from respondents, 5% indicate they have worked on projects funded by the law, while 6% were awarded bids but had not started work. Another 5% say they submitted bids for projects but did not receive an award, with 21% planning to bid on a project once a suitable offer is made.

“The fact so few firms have benefited from the infrastructure measure may be the result of the significant regulatory obstacles the administration has imposed that are creating confusion among state and local officials,” reports AGC officials. “In particular, the administration has fumbled the implementation of new Buy America regulations, leading to widespread confusion about which building materials are covered by the new measure and which are not.”

The U.S. Department of the Treasury and the Internal Revenue Service issued further guidance recently regarding the domestic content bonus credit under the IRA. The bonus credit aims to boost American clean energy manufacturing while meeting domestic sourcing requirements.

Supply chain issues and rising costs continue to be daily issues for contractors. For example, only 9% of firms say they did not experience any supply chain problems in 2022.

Supply chain issues and rising costs continue to be daily issues for contractors. For example, only 9% of firms say they did not experience any supply chain problems in 2022. Mitigation efforts include accelerating purchases after winning contracts, a step taken by 70% of respondents this year, and turning to alternate suppliers, which 56% of respondents have done. Additionally, 22% stockpile items prior to winning contracts, and 49% have specified alternative materials or products.

The survey also found that most contractors report delays or cancellations. Only 33% say they haven’t experienced such issues. Nearly half (48%) cite rising costs as the reason for delays or cancellations, while 12% fault a reduction in available funding from the owner.

A lack of workers or subcontractors is also a top concern for 70% of respondents, down from 73% in the 2022 survey. In fact, 72% of respondents say they increased base pay more in 2022 than in 2021, while 33% introduced or increased incentives and bonuses. Only 7% took neither of those steps.

Moving forward, 74% of respondents cite the possibility of a recession as their biggest market concern in 2023.

“Contractors remain optimistic overall about the construction industry’s prospects in 2023. But fewer contractors than a year ago expect continued growth, especially in private markets, even as public-sector funding appears poised to tick up,” says CEO Steve Sandherr. “This rotation among project types should help the industry keep growing despite a possible economic downturn. But a lot must go right for this market transition to be positive for the industry.”