Labor Demand Drives Prices Higher
In Alabama and 17 other states, demand for skilled labor has outstripped supply, raising costs for construction users.
Although 32 states added new construction jobs in 2016, Alabama reported a decrease of more than 6,000 construction positions last year, according to figures from the Associated General Contractors of America (AGC). And nationwide, although infrastructure upgrades promise new construction opportunities, a dearth of skilled workers means many jobs may remain unfilled.
“There are a number of markets across the country where construction employment has declined because firms cannot find enough qualified new workers to hire to replace retiring workers or keep up with growing demand,” says Brian Turmail, senior executive director, public affairs, for AGC. “That is because we no longer have a robust pipeline in many parts of the country for recruiting and preparing new construction workers.” In fact, according to an AGC survey released in January, 73 percent of responding construction firms reported they are experiencing difficulty in finding enough qualified workers to hire.
Understanding the Challenges
A smaller skilled workforce doesn’t just create headaches for contractors who need workers. It also can translate into decreased competition and higher prices for the organizations hiring builders.
“The most significant impact of workforce shortages is that firms may not have enough workers to feel comfortable bidding on jobs,” Turmail says. “As a result, fewer firms will bid on work. Last year, 25 percent of AGC members reported that they have skipped bidding on at least one project because of the lack of skilled workers. The less competition, the more construction projects will cost.”
For example, the University of Alabama at Birmingham (UAB) is in the process of constructing a new 46,000-square-foot football operations facility, scheduled to open in July 2017. In the next several years, the university plans to construct several more new buildings, including a new nursing building, business building and a genomic science research facility. But because of nationwide shortages in the skilled construction fields, the university may be paying higher construction prices than it has in the past.
“We have experienced higher construction costs due to shortages of skilled labor such as electricians, plumbers, masons, glazers, equipment operators and carpenters,” says Robert McMains, senior facilities officer at UAB. “National construction data [calculated by organizations such as Engineering News-Record] suggests that costs have increased by 25 percent since 2010. These cost increases can have an impact on how many projects we bid each year.”
When construction users like UAB build fewer projects as a result of higher prices, those decisions can have far-reaching effects on the local and national economy. “UAB tries to positively impact the local economy with all the projects we do,” McMains says. “For instance, we cultivate the market and communicate the projects we have coming several months in advance, so contractors can plan their work and future business opportunities. We work to provide opportunities for small businesses to grow and develop their workforce on smaller projects.”
In addition to boosting the price of construction, workforce shortages may also contribute to a decrease in quality of the built environment. AGC’s Turmail says he has heard sporadic reports of contractors delivering projects behind schedule because of workforce shortages. And when there are fewer skilled workers available, “more money is often being paid for fewer skills,” says Daniel Groves, CEO of Construction Industry Resources and director of operations for the Construction Users Roundtable.
As construction users, also known as owners, grapple with the consequences of worker shortages, some are taking action. “UAB is responding to shortages in construction jobs, and inflation of the market, by taking projects to market and bid sooner, by being a good client, by being an institution that treats contractors fairly, and thereby making our projects more desirable,” McMains says. “If an area contractor has enough workers to only do one project and there are two projects to choose from, we want contractors to opt to bid on our contract.”
McMains is also partnering and communicating with other universities across the state and industry organizations to stay updated on how others are handling the workforce shortage. For instance, UAB is involved with the Associated Builders and Contractors of Alabama, AGC, SubAla, Society for College and University Planning and National Association of College and University Business Officers, all of which help share responses and best practices.
Such industry groups, in touch with many contractors and owners in various parts of the country, often have recommendations for how to make the most of the current situation. At the Construction Users Roundtable, Groves is encouraging owners to develop a better understanding of the demand and supply risk for skilled labor and get contractors involved earlier in the process to capitalize on that understanding.
“Typically all the planning is done before any contractors are involved, and by the time contractors are involved, they may say there aren’t enough workers available to meet the project timeline,” Groves says. “By involving contractors earlier, even if it’s just on a one-off consulting basis, owners can get a different perspective and make better decisions.” For instance, with input from construction leaders, an owner may decide to change the timeline to avoid conflicts with other nearby projects, or to modularize part of the project to decrease on-site labor demands.
Some owners are also requiring contractors to engage in workforce development and include detailed workforce data in their contracts, to allow owners to plan better. “Such requirements give the owner more information and influence over labor risk factors,” Groves says. “But it also levels the playing field among contractors, ensuring that one contractor won’t recruit and train workers and another come in with a higher wage and poach those workers from the first.”
Calls for Change
In addition to owners taking action, legislative and societal changes are necessary to alleviate construction workforce challenges into the future, Groves says. First, “we have to put a higher priority on these kinds of career opportunities,” he says.
While effective technical education was once a staple in American high schools, “we essentially dismantled what was once a robust vocational education system in school districts across the country,” Turmail says. “That is one reason for our current workforce challenges.”
Because federal education dollars flow more freely to high schools with higher rates of graduating college-bound students, Groves says high schools have encouraged all students to attend four-year colleges, even when the option wasn’t a good fit. In many cases, students who attend technical colleges to acquire skills, such as those needed in the construction industry, can earn as much or more than college graduates, and their skills fill a needed gap in the national economy.
“Education needs to adapt to the reality that technical careers can be as lucrative as those that require four-year college degrees, and offer students career path options that allow them to choose careers like construction as equal opportunities to others.”
The state of Louisiana, Groves says, provides equal funds for students attending technical education programs and those attending four-year colleges, which has been successful in building a larger technically trained workforce. “But it’s only state funds, not federal that treat both types of education with the same priority, and that needs to change,” Groves says.
In addition to education and funding changes, Groves calls for construction users and their shareholders to speak out about the needs for a larger, more skilled technical workforce. “The real stakeholders in these challenges are the shareholders in these companies [as more profits must be used to pay construction costs],” he says. “Corporate leaders need to be communicating about it in the marketplace and wielding their influence in order to change current educational and funding policies.”
Nancy Mann Jackson is a Huntsville-based freelance contributor to Business Alabama.