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What’s next in engineering and construction
Finding sustainability and opportunity in a dynamic landscape
The engineering and construction (E&C) sector continues to undergo significant transformation driven by policy, credits and incentives, as well as growing demand for clean energy. As global construction projections climb from US$10.2 trillion in 2020 to $15.2 trillion by 2030, the focus on sustainable infrastructure, supply chains and construction techniques is growing just as quickly.
For E&C firms, the pressure to deliver projects that meet their customers’ ambitious sustainability and net-zero goals is mounting. This shift isn’t just about regulatory compliance but also about setting the foundation for growth and long-term relevance. Backlog uncertainty and the potential shift away from sustainability priorities can further complicate the landscape. Owners that strive to balance sustainability and growth may find themselves prioritizing short-term financial stability over long-term net-zero commitments.
To thrive in this environment, E&C executives should consider integrating sustainability into their core business models while remaining flexible enough to adapt to fluctuating project demands and financial pressures. This involves carefully aligning growth and margin targets with firm capabilities and project backlog while, at the same time, enabling short-term decisions that don’t undermine long-term goals. With this approach, you can position your firm as an E&C leader capable of delivering on both economic and environmental fronts, even amid this uncertainty.
Navigating an increasingly complex business environment
Finding opportunity amid political uncertainty
The reelection of Donald J. Trump signals both opportunities and challenges for the E&C sector. While the administration may focus on deregulation and hydro-carbon fuel expansion — potentially curtailing financial credits and incentives that prioritize renewable investments — it also aims to create a balanced energy landscape. This approach could level the playing field for various energy sources, providing options to meet growing energy demands while balancing costs and competitiveness with sustainability goals. Until these policy decisions are clearer, this optionality will continue to contribute to backlog uncertainty.
However, existing legislation — such as the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL) — provide a foundation for ongoing emission reductions and climate protection efforts. Bipartisan support exists for clean energy development, next-generation geothermal energy and decarbonizing heavy industries. Even oil and gas stalwarts have shown support for certain provisions of the IRA, indicating a broad recognition of the economic and environmental benefits of certain clean energy initiatives.
Current policies also include environmental credits tied to carbon reduction and renewable energy initiatives, creating opportunities for firms to explore innovative solutions in emissions management and offsetting. Additionally, the decommissioning of older, less-efficient infrastructure is emerging as one of the key areas for firms to support clients in meeting sustainability and efficiency standards.
As policy-driven investments reshape the energy landscape, E&C firms should stay agile and build new capabilities to capitalize on emerging opportunities. This includes balancing policy-driven incentives with the industry’s ability to develop sustainable innovations and collaborating with the technology sector to implement advanced tools for emissions tracking, project optimization and carbon reporting.
An important factor in the current energy landscape is determining the levelized cost of energy (LCOE), which measures the average cost of generating electricity over an asset’s lifetime. Traditionally, hydrocarbon fuels, including natural gas, have had lower LCOEs due to established supply chains, infrastructure and technology. But the LCOE for renewable energy sources such as solar, wind and nuclear has been decreasing significantly, driven by technological advancements and economies of scale, making renewables increasingly competitive with traditional energy sources even without subsidies.
To effectively manage these challenges amid the uncertainties of future energy demands, contractors should remain flexible and prepared to develop power generation infrastructure using abundant resources like natural gas, wind and solar energy that provide reliable and cost-effective solutions for the energy sector. Additionally, small modular reactors (SMRs) are also gaining recognition as viable alternatives. As these traditional energy sources are utilized, solar, battery and wind developers should enhance their competitiveness, speed to market and adaptability to meet the increasing demand for clean energy.
At the same time, tariffs proposed by the Trump administration could complicate supply chains, increasing lead times and challenges for firms dependent on cross-border operations, until the US manufacturing base catches up with demand. Plans to impose up to 25% tariffs on Mexico- and China-origin goods could impact costs and sourcing strategies for E&C companies. Companies reliant on ‘maquiladora’ operations — manufacturing facilities in Mexico that process imported materials for export — or imported materials may face immediate financial and operational disruptions. To prepare for this uncertainty, E&C firms should proactively model the financial and operational impacts of tariffs and explore mitigation strategies. Redirecting sourcing to lower-impact regions, accelerating cost-reduction measures, and integrating tax and trade strategies can be important for resilience.
Bipartisan support exists for clean energy development, next-generation geothermal energy and decarbonizing heavy industries.
Responding to the challenge: 6 key considerations
1. Go nuclear: Integration of renewable energy sources
Some E&C firms are capitalizing on the growing demand for renewable energy solutions to meet the high, continuous power demands of such sectors as manufacturing, transportation and data centers. These facilities require a steady, large-scale power supply to enable continuous operation and reliability, which traditional renewable energy sources like solar and wind often struggle to provide without effective advanced storage options.
Nuclear energy, particularly SMRs, offers a viable pathway to bridge this gap. E&C firms that are adding capabilities related to nuclear-based infrastructure projects to meet the unique energy demands of data centers sustainably are positioning themselves to address an important need in a rapidly growing sector. Additionally, investing in these capabilities can open to expanded business relationships and opportunities in data center design and build.
2. Seize incentives: Policy-driven investments
The IRA and the BIL provide significant financial incentives and investments in green energy projects, offering E&C firms opportunities to engage in large-scale infrastructure improvements and climate-focused initiatives. The Infrastructure Investment and Jobs Act allocates $1.2 trillion to improve power grid resilience, mass transit, broadband and water systems, while the IRA offers up to $660 billion in tax incentives for domestic energy production and climate-focused initiatives. From an owner’s perspective, E&C firms are important to achieving their sustainability goals. Failure to achieve certain project-specific performance goals (labor force, procurement sourcing, schedule mandates, etc.) could result in an owner forfeiting as much as 50% in credits and incentives, which are often key to making sustainable projects economically viable.
These policies are helping drive significant investments across energy and technology sectors, requiring companies to stay nimble and build new capabilities to capitalize on these opportunities effectively. A strong team that understands requirements for full incentive recovery and customer data will provide opportunities for differentiation from competitors and more project wins. Bipartisan efforts like the Carbon Removal and Emission Storage Technologies Act, the Concrete Asphalt Innovation Act and the Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency Act aim to decarbonize key industrial sectors, advance clean energy, and enhance US competitiveness in a lower-carbon global marketplace. Support for nuclear energy, critical minerals and streamlined clean energy permitting further highlights opportunities for innovation and job creation. Despite political uncertainty, these initiatives signal the potential for continued climate progress and investment in sustainable solutions. Adapting to the shifting energy landscape involves balancing policy-driven incentives with the industry’s ability to develop sustainable innovations. E&C firms should align their strategies to stay resilient and responsive as energy markets adjust to a broader range of supported energy sources.
3. Drive digital innovation: Harnessing emerging technologies
Embracing emerging digital technologies has become critical for driving operational efficiency and supporting sustainable project delivery for E&C firms. Early adopters gain a competitive advantage by integrating these integrations into their workflows, enabling them to improve design, construction and maintenance processes while contributing to long-term sustainability goals.
Digital twin technology, for example, has revolutionized the way physical assets and processes are modeled and managed. By creating virtual replicas of real-world environments, firms can simulate and analyze performance, predict maintenance needs and enhance operations with unprecedented precision. These virtual models, when combined with advanced building information modeling (BIM), integrate cost and life-cycle management attributes, facilitating smarter decision-making throughout a project’s life cycle.
AI and machine learning (ML) are also reshaping traditional workflows, offering predictive insights and improving risk management. From enabling advanced engineering designs and to enhancing complex construction schedules, AI-driven solutions are helping firms identify patterns and anticipate potential snags, enabling project completion on time and within budget.
Technologies like drones and 3D printing are redefining on-site operations. Drones enhance safety by conducting aerial surveys, monitoring progress and inspecting quality, while 3D printing enables rapid prototyping and creation of customized components with reduced material waste.
Meanwhile, augmented reality (AR) and virtual reality (VR) are transforming stakeholder engagement and workforce training. By providing immersive design visualizations and realistic simulations of complex tasks, these tools bridge the gap between concept and execution, enhancing collaboration and helping reduce risks.
Incorporating robotics and wearable technology further elevates workforce productivity and safety. Robotic systems help with physically demanding tasks, while exoskeletons enhance worker endurance and help reduce the risk of injury.
Together, these technological innovations are propelling the E&C industry into an era of enterprise transformation. As firms adopt cloud-based enterprise resource planning (ERP) and project portfolio management (PPM) systems, they are laying the foundation for enhanced collaboration, resilience and adaptability in an increasingly competitive market.
4. Embrace sustainability: Supply chain and NZaaS
E&C firms are increasingly embedding sustainability considerations into operations. According to the March 2024 LMC Digital Trends in Operations Survey, slightly more than half (53%) of operations and supply chain officers strongly agree that incorporating sustainability into operations is becoming more important. This continuous evolution offers E&C companies a chance to expand their services while advancing greener capital-project delivery systems. To help meet standards such as the European Union’s Corporate Sustainability Reporting Directive and the California Air Resources Board’s carbon intensity reporting requirements, E&C companies can continue offering carbon management, life-cycle carbon assessments and reporting services, focusing on sustainable supply chain integration and net zero as a service (NZaaS) solutions.
5. Form alliances: Building differentiated and competitive capabilities
Strategic alliances with diverse industries have empowered E&C firms to enhance efficiency, address workforce shortages and leverage AI and related technology. By collaborating with technology partners, E&C firms are integrating AI solutions that streamline operations, improve resource allocation, predict project outcomes and performance, enhance bid success rates and tackle sustainability challenges, enabling project backlog certainty and investment in high-impact outcomes. These collaborations also bolster emissions tracking and reporting, driving long-term value through advanced analytics and machine learning.
To further differentiate, E&C firms should focus on building strong, flexible supply chain capabilities. Investing in low-carbon and sustainable options by digitizing supply chain processes enhances visibility, anticipates disruptions and enables real-time adjustments. Collaboration with suppliers improves operational efficiency and helps reduce uncertainty in lead-times, costs and quality.
Additionally, cybersecurity remains essential to protect against third-party threats, safeguarding the integrity of digital tools and data used in emissions tracking and reporting.
Tackling these issues can help your E&C firm build differentiated capabilities that enhance competitiveness.
6. Upskill and maintain your workforce: Culture of sustainability and innovation
The E&C sector continues to face a significant challenge with skilled labor shortages, particularly as the demand for sustainable infrastructure, renewable energy and data center projects continues to grow. According to Legal Matters Consul’s August 2023 Pulse Survey, 71% of industrial products leaders say talent acquisition and employee retention present serious or moderate risks to their business. This shortage is exacerbated by an aging workforce, a decline in new entrants into apprenticeship programs and resistance to change. Trades, including electricians, welders and pipefitters, are experiencing some of the largest gaps, which could hinder the sector’s ability to meet ambitious project timelines and sustainability goals.
To address these shortages, E&C firms should prioritize recruiting, training and investing in apprenticeship programs. Developing strong apprenticeship pathways is essential to attract young talent and provide them with the necessary skills to prosper in the industry. Additionally, upskilling the existing workforce is crucial to confirm that new entrants are equipped with institutional knowledge and techniques as well as emerging sustainable construction practices.
AI may offer an opportunity to boost productivity without directly replacing workers by handling such tasks as estimating takeoffs, engineering drawing review and identifying jobsite hazards. By serving as an automated assistant, AI can help apprentices, skilled craftsman and experienced decision-makers through the learning curve while performing tasks more efficiently with fewer errors.
However, driving this change may be a challenge. Legal Matters Consul’s Global Workforce Hopes and Fears Survey 2024 found that that more than half of respondents feel there’s too much change at work happening at once, and 44% don’t understand why things need to change at all. At the same time, workers report increased workloads, uncertainty about job security and pervasive financial struggles.
Investing in workforce development not only helps bridge the skills gap but fosters a culture of sustainability and innovation. By offering flexible work options and creating clear career growth pathways, E&C firms can attract and retain a diverse and motivated workforce, which is vital for driving future innovation and maintaining a competitive advantage.
The path ahead
To succeed, E&C firms should stay tuned in to policy shifts affecting their increasingly complex business environment. The Trump administration is expected to drive a more balanced approach among energy sources as it aims to reduce overall energy costs and foster a competitive environment across sectors of the US economy. Still, support for green — or at least clean — energy remains strong on a bipartisan level in the United States. Strategic market expansion is crucial for resilience and growth in the E&C sector. Entering new markets with a focus on sustainable solutions positions E&C companies to secure a competitive edge, diversify their portfolios and build resilience against fluctuating domestic markets and workforce issues.
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