Deloitte: Construction cost pressures to continue in 2020

According to the 2020 Construction and Engineering Industry Outlook, a number of factors will put extra pressure on U.S. engineering and construction companies’ profitability in 2020. The report cites the 2019 Turner Building Cost Index, which measures costs in the nonresidential building construction market in the U.S., and noted that it increased to a value of 1177 in 4Q 2019, the highest ever in its 13-year history.

While firm revenues are steadily rising, E&C firms in the U.S. face considerable pressure, the study notes. Nevertheless, Deloitte noted several trends for 2020 that could help to improve builders' profitability and reduce margin challenges.

These include:

A move toward modularization and prefabrication

Modular building has the potential to significantly affect productivity and margins for E&C firms in 2020, the report states. The use of modularization and prefabrication techniques not only can save on labor costs but might also ensure better quality and shorten the project schedule with less labor required on-site. This can avoid rework and help improve safety. Advanced technologies such as BIM are now enabling better integration of components into offsite construction.

The launch of U.S. infrastructure upgrade initiatives

The study notes that America's infrastructure is due for approximately $4 trillion in repairs and that the federal government is planning to spend up to $2 trillion over the next 10 years, one of the biggest infrastructure investments in history. This plan to invest in upgrading infrastructure including roads, bridges, water systems, broadband, and the power grid will drive revenue and spur job creation for the E&C industry, although Meisels noted that the impending presidential election and the continuation of trade tariffs could hamper the potential benefits.

The rise of smart project management

Digital technology and real-time data can help project managers make better-informed decisions around scheduling labor and materials, for example, QuickBooks and Sage 100 Solutions. This type of project monitoring is moving beyond documenting cost overruns and construction delays to include more forward-looking insights, according to Deloitte. These new technologies can eliminate the need for time-intensive work like manual data entry and provide the data required to assess project status and identify trends and areas that should be addressed.

Not only project management technologies, the use of Accounting software can also help construction accounting professionals to manage job costing, progress billing, material tracking and equipment management.

Sources from: https://www.constructiondive.com/news/deloitte-construction-cost-pressures-to-continue-in-2020/569958//Jenn Goodman/ConstructionDive

If you need any advice or services on any aspects of construction bookkeeping, accounting or tax, our construction accounting specialists are ready to help. Get in touch with us for a free quote.