Contracts and Controls Help Higher Ed Face Construction Disruption

Across industries, construction is facing a multitude of changes and challenges, including labor constraints, rising materials costs, and data security concerns. These consistent construction challenges in the higher education industry specifically have left universities and colleges with elevated levels of uncertainty. In an industry that highly values the development and maintenance of world-class facilities, higher education institutions find themselves in a precarious position as they look to the future. While there are no fixed rules for navigating general uncertainty, there are best practices when setting up contracts and controls that can, in turn, provide more certainty and protection for the future of higher education construction projects.

Image Courtesy of: Baker Tilly

Robert Zellmer, Director of Development and Community Advisory Practice, Baker Tilly

The current state of the higher education construction world

Resource and labor constraints

The skilled labor shortage is not a new challenge in the construction landscape. As the current work force ages and fewer people join the trades, skilled labor is harder to come by. We saw this labor shortage amplified during the COVID-19 pandemic, as a mass exodus occurred during that time. With this in mind, competition for skilled labor is especially heated in the higher education world as colleges and universities are consistently competing with commercial and residential projects. This makes it difficult to get proper help on a timely basis.

Price escalations, tariffs and supply chains

Almost all industries can feel the impacts of consistent tariff changes and market uncertainty, but the construction industry might be hit the hardest. Fluctuating prices and trade agreements consistently cross hairs with long-term capital planning. Because of this, higher education institutions struggle to lock in material pricing for multi-year builds. Over the past few months, almost every higher education institution we have worked with has experienced change orders on their capital projects due to escalating materials pricing.

Legislation and funding programs

Project funding is another factor that separates higher education construction projects from those in other industries. Other commercial or residential companies may be able to gather additional funds from additional loans or partnerships, but higher education institutions are often limited to a set budget for their projects. Raising the capital needed for price escalations often involves tough decisions such as delaying deferred maintenance projects or cutting future projects altogether. Additionally, many higher education institutions have been impacted by changes to the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) for capital improvements. The shifting funding levels of these initiatives could result in additional delays or eliminating higher education construction projects that are no longer viable. The evolving role of AI and data security, Technology and AI are rapidly evolving in the construction industry as a whole, leaving room for gray areas and unwritten rules. Adopting these advanced technologies to enhance efficiency, productivity, and safety comes with significant risks that must be carefully managed to protect sensitive information while ensuring the integrity of AI systems. Additionally, owners and contractors must have open conversations about data ownership before beginning projects.

Implementing contracts and controls for success in uncertain times

There’s no exact answer for navigating these unpredictable times in the construction industry. However, there are steps that higher education institutions can implement to prepare for when uncertainty strikes. Price escalations, data security breaches, and supply chain disruptions are project factors that can severely impact institutions. These not only have a cost impact but can also cause unwanted publicity and reputational harm. During this changing time, it is important that both contractors and owners understand that mitigating controls can be built into construction contracts to limit the impact of these factors.

With price escalations and delays becoming a regular occurrence in higher education construction projects, owners should review their contracts and confirm who is liable for the project price increases. Is the owner fully liable? Does the contract provide proper transparency and oversight? In other words, does the contract allow access to the information required to make these important decisions on a timely basis? Owners can have some peace of mind related to these factors by establishing the proper controls within their contract documents.

Additionally, the growth of AI and digital technologies has increased significantly in the construction industry, leaving space for gray areas related to data security and ownership. A significant amount of personal and proprietary information, data and designs is stored within these project management software and AI tools. In standard contracts, data ownership is not typically addressed, as it was not previously considered a significant risk. Now, owners need to consider the data that their partners may have access to and if they would like to protect its usage.

To efficiently implement necessary controls, higher education institutions should adopt a proactive risk management mindset. Financial, facilities and legal teams should be working together from project inception to make sure there is visibility and agility across all project phases.

Looking ahead

As higher education institutions look at upcoming construction projects, the uncertainty of the industry can feel daunting, but proactively addressing contract risks and mitigating controls can set institutions up for a bright future. Balanced contract terms and strong project controls do not just mitigate risk; they enable smart and more sustainable construction decisions that will pay their dividends in the long term.