Construction Industry Trends: April 2022 Roundup

A new malware threat has emerged that contractors (and other businesses) should be aware of. According to Construction Dive and a new whitepaper from Dragos, the threat was discovered by cybersecurity researchers with Mandiant, working with multinational electrical contracting firm Schneider Electric. Dubbed “Incontroller,” the new malware is a set of tools developed by state-sponsored threat actors that can “shut down, sabotage a facility or disable safety controllers at various industrial sites including power plants.”

Mandiant officials deemed the Incontroller malware “exceptionally rare and dangerous,” and federal authorities ranging from the FBI to the Department of Energy were urging firms to take immediate precautionary actions, including boosting cyber protections. The Incontroller tools target certain devices from Schneider Electric and Japanese electronics maker Omron embedded in different machinery across different industries.

The Takeaway: This new malware warning comes as the construction industry is already dealing with increased cyberthreats that may be tied to the war in Ukraine. It’s another example of the quickly changing cybersecurity playing field, and yet another reason why contractors should be quickly modernizing their business and project operations to better protect against breaches. Connected, cloud-based construction technologies can deploy the latest firewalls and cyber protections faster, and back up and protect data in real time to ensure business continuity should potential breaches occur. 

Those construction firms working with disconnected, legacy solutions find themselvessquarely in the crosshairs for threat actors like these, because A) their systems don’t offer modern protections, B) there are multiple points of entry for threat actors to gain access, and C) often don’t have the real-time data, workflows and backups that the cloud provides. And, threat actors know this and target these contractors regularly. In fact, construction is the most targeted industry. Maybe it’s time to make a move.

Google announced April 13 that it intended to invest $9.5 billion in expanding its data center capabilities and offices across the United States in 2022. This includes expansion in 16 states, with large new office and data center spaces in Austin, Atlanta, Portland and The Dalles in Oregon and Seattle and Kirkland in Washington.

Meanwhile, Meta (the company formerly known as Facebook), is investing $1.6 billion on a pair of new $800 million data centers in Temple, Texas and Kansas City, Mo. Construction Dive noted that Kansas City-based J.E. Dunn Construction Group and New York City-based Turner Construction will serve as the general contractors for each respective project.

The Takeaway: We’re seeing more and more of this kind of significant development with data centers. It’s a great sign that—although changing slightly in scope—commercial development projects are still very much on the table for contractors. These projects also typically mean more work and profitability for electrical contractors, many of which are hiring more data technicians and experts of their own to specialize in these data center projects and regular maintenance contracts. 

And, yes, it’s yet another sign that the very nature of business is changing, as more and more industries globally transform to connected, cloud solutions to run their organizations. Contractors should be reminded that modernizing their own operations and becoming more data driven themselves should be a matter of when rather than if at this point.

The United States is in the middle of one of the largest economic growth periods in nearly 40 years, but that rapid growth, mixed with rising inflation concerns, has some worried about a potential downturn or recession. So, is one coming? Opinions vary, but even if one does, it may not spell doom and gloom for the construction industry.

In early April, Deutsche Bank became the first of the large global banking firms to forecast what it said would be a coming “mild recession.” By late April, the firm pulled back from that forecast, instead revising to predict a significant recession ahead. While other major banking firms were not yet ready to sound alarms, others, including several experts in the construction industry, note the odds of a recession could be increasing.

In a recent presentation called “No Time to Buy,” by Anirban Basu, the chief economist for the Associated Builders and Contractors (ABC), he noted how recent price inflation rising to historic levels has pinched contractors over the past year. Prices for construction rose 24.4% year over year through February. “This will be a year of growth, but 2023 could be very different,” he told ABC members during a March 30 webcast.

The Fed, in order to combat rising inflation, is expected to raise interest rates again soon, and this time those rate increases could be sharper. That could wind up impacting the currently strong economy. “We regard it...as highly likely that the Fed will have to step on the brakes even more firmly, and a deep recession will be needed to bring inflation to heel,” Deutsche Bank economists noted in their April report.

The Association of General Contractors (AGC) also noted in April that rising gasoline and especially diesel prices are leading to growing inflation and recession concerns among contractors—especially those with large equipment and/or vehicle fleets.

“This period is unique in how broad-based price increases are,” said Ken Simonson, the AGC’s chief economist, who was quoted in an April Construction Dive article. “Previously, we’ve seen just a limited number of items soaring in price. This time, it’s much more extensive in the number and magnitude, long lead times, unexpected shortages and things not showing up in the quantities or times expected.”

Simonson, though, doesn’t necessarily see a recession ahead. “When I see the strong condition of state and local governments in terms of their budgets, corporate balance sheets, household balance sheets, all of these things suggest that there’s still plenty of buying power. And presumably, some of that is going to translate into continued demand for construction.”

The Takeaway: So, while it looks on the surface like a recession could be slightly more likely, it’s far too soon to hit any panic buttons. And even if one does occur, here are a few reasons why it might not be a bad thing for the construction industry:

1. Most contractors and construction companies have been here before—and real lessons were learned (like having cash reserves, maintaining workforces, etc.) during the mid-2000s recession that likely would not be repeated again.
2. Many also used that recession, and a much lighter early 2010s economic downshift, to retool by modernizing their organizations, making the switch to modern technology platforms and changing how they work—for the better.
3. While there may be a short-term pinch in the wallet in terms of some stalled projects, contractors that haven’t modernized can take this time (like many of their peers did before) to do their own technology upgrades while work is lighter. (Or, they can try and catch up on backlogged work, but smart money should be on doing the former).
4. COVID taught the industry how to truly be agile and pivot, proving that change can happen and better processes and workflows can become reality.
5. Even the worst projections right now seem to indicate that this would be a shorter recession cycle, with market corrections shaking out by mid-2024.
6. Many contractors have reportedly been “stockpiling” cash reserves and assets in rainy day funds to offset against the next business disruption. These contractors can theoretically float through a recession and spend to modernize at the same time.