As we conclude our series on navigating the construction industry economy and its ramifications in 2024, we now turn to synthesizing these facts in strategic direction.

Recap of Key Industry Challenges

Let’s briefly revisit the key challenges and opportunities discussed:

• We have seen significant sector-specific shifts, such as the dramatic decline in office space construction and the boom in industrial and data centers.
• Post-COVID, we are still seeing supply chain disruptions and inflationary pressures.
• The current economy, and most particularly the elevated level of interest rates, are driving second-order economic effects which increase project and land acquisition and decrease commercial property devaluations.
• These conditions are placing serious cash flow pressure on certain elements of the development and real estate industry, but not others.

Strategic Recommendations for Navigating Economic Uncertainties

With a firm grasp of the economic landscape, construction firms must respond to current conditions:

• Diversification: We all like to stick with our wheelhouse, but you need to be realistic when that wheelhouse is evaporating. You should consider venturing into some of the sectors like data centers or multi-use developments that are currently resilient if your traditional business is struggling.  Be prepared to invest and learn on the first few jobs as opposed to expecting the same level of efficiency.
• Technological adoption: Adapting to and adopting best technology practices may increase your delivery, project efficiency, and planning to help avoid timing problems and supply chain delays.
• Financial resilience: You need to think conservatively. Be disciplined regarding cash flow up and down your contract food chain. Strengthen your financial controls and oversight. Develop reserves where possible to manage through cycles of cash flow volatility. This will help ensure liquidity and the ability to leverage opportunities as they arise and avoid being crushed by avoidable problems.

Proactive Legal Planning

Legal preparedness is crucial for protecting interests amid the current economy:

• Contract flexibility: Understand your contracts. Know what is “market” and how that evolves over time. Be prepared to adjust to market movement to your advantage where possible.
• Scrupulously manage cash flow rights: Know and understand your claims and change order notice requirements. Know your bond and mechanic’s lien processes in each state where you do business. Be proactive to ensure you are preserving those rights. At a minimum, if you are letting these rights expire, do so consciously as a business decision as opposed to letting them lapse without even knowing it.
• Dispute management: Establishing clear protocols for dispute resolution that prioritize mediation and arbitration to avoid costly and prolonged litigation. Develop an understanding of the investment required to litigate and criteria for when litigation is worth it.
• Regulatory compliance: Staying ahead of changes in local and federal regulations that impact construction practices, zoning laws, and environmental standards. This is an evergreen recommendation but is often overlooked.

Maintaining Agility in Project Management

Adopting an agile approach to project management can significantly mitigate risks:

• Continuous risk assessment: Implementing a routine of regular risk assessments throughout the project lifecycle to identify and address issues before they escalate.
• Stakeholder communication: Enhancing communication channels with all project stakeholders, including suppliers, clients, and regulatory bodies, to ensure alignment and prompt response to changes. Contracts and laws matter, but generally relationships, trust, and respect are the key to effective project delivery and avoidance of legal conflict.

Conclusion

Every day, month, and year brings new challenges and opportunities in the construction industry. 2024 is no different. The hangover of COVID, the changes in remote work, and the current interest rate environment present a unique mix that are impacting some sectors dramatically and the entire industry at least marginally.

If you are prepared, agile, and strategic, you will be better positioned to avoid the worst risks and take advantage of the best opportunities of today.

If you have questions about any DMV construction issues, please feel free to reach out Timothy Hughes at Bean, Kinney & Korman, P.C. at (703) 526-5582, thughes@beankinney.com. Our firm practices in Virginia, Maryland, and the District of Columbia in addition to various other jurisdictions.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.