The following content was originally published February 2023 on IBM’s Category Insights Newsletter.
Our end of year newsletter covered a lot of ground.
First we looked at the market conditions for end-of-year for 2022. Then we considered which of those conditions were expected to have the greatest impact on the industry.
We closed our newsletter with a look at what trends we expected to see in 2023. Here is what we expected.
There are a couple of global trends that have been and will continue to affect the construction market and how construction service are procured.
In terms of contracting models, the trend I have observed among Clients is a desire for more collaborative agreements.
The term “collaborative” is sort of a loosely applied pseudonym for cost-plus, rates-based engagements that allow for a period of collaboration between the Architect and the Contractor.
I refer to the term as a pseudonym to clarify that corporations are still unable to adopt the use of “truly” collaborative contracting models such as, Integrated Project Delivery (IPD) or the UK equivalent Alliance Agreements. This so because the inherent need for parties to waive liabilities is unsupportable by corporate legal departments.
However, despite these not being “truly” collaborative agreements the trend is inherently positive. Owners benefit greatly from these forms of agreement by facilitating less combative, more cooperative construction experiences.
These arrangements also have many pitfalls and risks. Guarding against these pitfalls and risks demands careful and thoughtful consideration of the business terms in your agreement.
However, given a sounds well-crafted set of complimentary business terms, these agreements are a wonderful way to manage construction and a trend I expect to continue in 2023.
In terms of market forces, the biggest and most impactful trend is the move by governments around the world aimed at onshoring manufacturing.
In the US, the 2022 Inflation Reduction Act which includes provisions promoting manufacture of American-made equipment, and the CHIPS and Science Act of 2022 which earmarks federal dollars to promote domestic semiconductor manufacturing are examples of acts aimed at onshoring manufacturing.
In 2021 the European Union announced the European Chips Act, where the EU sought to address semiconductor shortages and strengthen Europe’s technological leadership. The plan earmarked € 43 billion of public and private investments with the goal of a more investor-friendly framework for establishing manufacturing facilities in Europe.
Similarly in August of 2022 policymakers in South Korea passed the Special Act to Protect and Foster National High-Tech Strategic Industry. This law provides tax benefits, regulatory easement, and other preferential treatment to companies in South Korea producing semiconductors.
Japan has also followed this trend by announcing 7.7 Billion in funding to support domestic semiconductor manufacturing.
In the short-term, as inflationary pressures reduce demand in residential and private sectors, these investments will keep markets healthy, but added demand will further constrain the market, so expect product costs to continue to rise.
However, as new manufacturing plants come online, supply chain constraints will subside. Costs and lead time for products will improve and the outlook for construction will be strong. This will take another year or so, but the prospect of a robust multi-channel supply chain is inherently good.
I expect governments around the world to continue to pass laws and set aside government funding to encourage onshore manufacturing. In the face of inflationary pressures, this trend will keep an otherwise waning construction industry busy in the short-term and is expected result in an improved less dependent supply chain in the future.
So how did I do? These predictions were made in December of 2022. This article will publish sometime in April of 2023. How have these government spending acts affected construction? Have they promoted onshoring of manufacturing? Have other countries followed suit? Are more companies seeking collaborative agreements? Or has something else been the trend thus far? Tell me your stories.
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