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COVID-19 Reopening, Growth Trends & Risks
Construction Expenditures
Except for the 2020 interruption driven by COVID-19 pandemic, construction expenditures were on a steady incline since 2012. According to the U.S. Census Bureau, total Construction spending for February 2021 annual rate was $1,516.9 billion. That rate is 5.3% above February 2020 rate of $1,441.1 billion. The first two months of 2021 is 5% above the same period in 2020. Residential expenditures are 2% above the 2006 peak, non-residential are 8% above the 2008 peak, and public project 8% above their 2009 peak. Combined construction expenditures are 6% above previous peak expenditures.
Architectural Billing Index (ABI)
Architectural Billing Index (ABI) is a measurement of current projects contracts, billing and forecast based on project inquires from project Owners. Measurements above 50 indicate growth. Conditions continued to improve at a strong clip in April, with the AIA’s ABI score rising to 57.9 for the month. This is the highest ABI score before the 2008 recession, and indicates a majority of firms increased their billings. Interest in new projects remained extremely high with the Inquiries from Project Owners rising to 71. Newly signed design contracts reached 62 - the highest score since data collection started in late 2010 for that category.
Revenue and Staffing
Except for 2020, on average, the revenues for design firms have increased four to five percent (4 - 5%) for the last five years especially if they have been providing services in the private, residential market segments. However the design profession is much leaner today than prior to the 2008 recessionary period. According to Architectural Record, the net revenues of firms have recovered from the recession period however revenues are expected to surpass previous peaks in 2021 (above expenditures and ABI data). However architectural firms staffing has decreased by 17 percent, from 128,000 billable positions in 2008 to 106,000 in late 2016, meaning 22,000 fewer in staff are doing roughly the same amount of work. Technology advancements and improved efficiencies can be playing a role in the reduction of staffing levels, however when design firms have been polled, approximately 87% indicate they are trying to hire, however are having a difficult time finding qualified staff.
Technical Claims
Reviewing past ACEC member firm surveys regarding causes of claims with between 350 to 410 firms participating, in 2008 and 2009, 25% of claims were caused by an error or omission of a technical nature. When causes of claims are totaled, the primary cause during these years continues to be non-technical in nature including a breakdown in communication, documentation - 22%, unfavorable contracts - 15%, project management, training - 14% and client selection - 14%. In 2011 a change started to occur. An error or omission of a technical nature as a cause of claims rose to 40%. On average, a majority of claims usually occur between three to five (3-5) years after a project is completed - placing the time period for project completion for these claims at 2008, the beginning of the recessionary period. In 2012 it rose again to 49%, and in 2016 an error or omission of a technical nature was identified 57% as a cause. This same trend has also been identified in SmartRisk surveys.
SmartRisk Survey
In a SmartRisk recent survey, 57% indicated technical error or omission as the cause of claims and 43% as non-technical. Survey respondents stating a rise in technical claims were primarily caused by – 1) inexperienced and inadequate number of staff, 2) improper, incomplete quality assurance, quality controls, 3) lack of oversight of project team and sub-consultants. Surveys have shown that a major challenge for firms today - finding experienced, qualified staff including project manager (PM's).
Staffing Concern
Until a solution to the shortfall of finding qualified staffing is resolved (a non-technical cause of claims causing technical claims) it is the opinion of SmartRisk that technical error and omission claims will continue, and for three to five years (3-5) years following the completion of projects. The lack of having qualified staffing levels within a design firm can be related to any of the primary causes of technical, and non-technical claims identified in this survey.
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NOTICE: This article is for informational purposes only and should not be construed as legal advice. Please consult with a legal professional in your area for advice reagrding your firms individuals circumstances.
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