Off-Site Construction Resilience: A Strategic Response to Inflation Challenges in Construction in Postpandemic Canada

Abstract

The COVID-19 triggered a period of inflation in Canada, with the Consumer Price Index increasing by an average of 3.4% in 2021, followed by 6.8% in 2022, and 3.9% in 2023. This rising inflation presents significant challenges for the construction industry, which accounts for over 1.5 million jobs and more than 7% of the country's economic activity. Two years after the pandemic, the inflationary environment was characterized by high, persistent, and volatile rates and influenced by factors beyond the industry's control. One effective approach to address these issues is to identify high-risk inflationary materials and create a price index based on historical market prices. Such a strategy allows project teams to track fluctuations in material prices and adjust project cost estimate. Embracing innovative strategies such as digitalized off-site construction and industrialized building systems can enhance the construction industry's resilience in the face of persistent inflation. This paper examines the impact of inflation on construction project budgets and project costs. Correlation coefficient tests are used to analyze the relationship between inflation rates and building construction prices. The results indicate a 14% increase in the contract sum attributable to inflation, a factor that may result in cost overruns. The findings point to the benefits of adopting off-site construction techniques as a strategic solution aimed at specifically countering the detrimental effects of cost overruns resulting from material waste and project delays, factors that not only escalate project costs but also significantly amplify the adverse impact of inflation on the project budget. Inflation has significantly affected Canada's construction industry, especially following the COVID-19 pandemic. This research explores how rising costs affect construction projects and offers practical solutions to manage these challenges. Inflation has directly contributed to a substantial increase in the costs of construction contracts. This increase often leads to budget overruns, making projects more expensive than initially planned. The present study provides insights into how inflation affects specific project costs and identifies the particular construction activities that have experienced high inflation and exhibit high sensitivity to inflation, significantly influencing project costs. The method outlined in this study can be used for both short-term project planning and long-term strategies, helping to create a resilient and cost-effective approach to managing inflation. Additionally, the study results show that off-site construction is a suitable approach for divisions identified as high-risk inflationary works. This construction method can significantly reduce material waste and minimize project delays, two factors that exacerbate cost overruns during inflationary periods. By implementing these techniques, a construction enterprise can more effectively manage costs, while their broad adoption can be expected to enhance the construction sector's resilience to economic fluctuations. Practical strategies for better managing project costs in an inflationary environment are provided in this study, ensuring that projects are completed on time and within budget despite economic uncertainties.