Angelle Bergeron/ENR Construction license applications have doubled, but crews still work without them.

The hurricane-shattered Gulf Coast is a petri dish for construction’s national work force crisis. The issues are not new, but their concentration is unprecedented. Ever since Katrina and Rita cut through the area, industry firms have struggled to find enough labor and resources to perform demolition and emergency work in the region, while maintaining schedules for ongoing capital and infrastructure projects throughout the nation.

Insiders now fear that once residential construction kicks in to replace some or all of an estimated 200,000-plus homes lost, capital projects already booked for the Gulf’s huge oil and gas industry, combined with labor demands nationwide, will further strain work force capacity.

“My gut feeling is that we haven’t seen anything yet,” says Jeffrey M. Robinson, president of Personnel Administrative Services, Saline, Mich., which tracks nationwide wage and benefit trends. PAS is working on a two-year forecast of work force needs in the Gulf Coast, and although results are not yet in, indicators are already sobering. “We really are seeing very serious concerns right now from just about every one of our clients. Two years from now they are really starting to panic...and this is on booked work,” he says. “Katrina is on top of that. It’s a wild time down on the Gulf Coast right now.”

Related Links: Work Force Drain to Gulf Coast Has Consequences Elsewhere

Experts and insiders say capacity problems they see now may not soon fade away. More likely, they are a preview of the future of construction. Owners, contractors, government officials, and legal, labor and insurance experts are focused on the implications for industry productivity, safety and risk. Most worry about finding enough skilled employees and keeping them in the Gulf’s wildly competitive market. Others worry about the risk and liability of hiring so many outsiders—many of whom have little or no English, insufficient skills and uncertain immigration status.

But in the midst of the challenges,  solutions are being explored that may help the entire nation solve long-term work force capacity issues. At job sites across the region, project managers and superintendents are of two minds: "They are grinning about the work, but frowning about the ability to find help," says Loren C. Scott, a Baton Rouge, La., economist who prepares an annual state economic outlook. He says the market’s typical supply and demand issues are magnified by fast-paced schedules, a huge amount of work and the worker crisis.

Before the 2005 hurricanes, Louisiana already had a very “hot” industry with a labor shortage, Scott says. “Katrina and Rita just exacerbated the problem.” Rising labor costs are one result. “Construction wages in the region were already up 22 to 30% in February, and that does not include sign-on bonuses, hazard pay and living accommodations,” he adds. A dire housing shortage has forced some contractors to solve that problem for employees. “If you get a contract to build a high-rise in New Orleans, where are your workers going to live? You can’t build until you have housing,” Scott says.

At a July 26 pre-bid meeting for an estimated $225-million project to expand the deck of the Huey P. Long Bridge, near New Orleans, John Proskovec, project manager for Kiewit Southern Co. expressed concerns about meeting an 80% Louisiana-resident hiring rule.

Half of the city’s pre-Katrina population, or “pre-K” in local speak, is still scattered. “We’ve just completed a job in New Orleans...and we had a problem getting 5 to 10% of residents to come to work,” according to a transcript of Proskovec’s comments. He said meeting the 80% residency rule was “really unrealistic...especially with the skilled crafts needed to build this type of structure.”

Angelle Bergeron/ENR Archer Western houses its workers for bridge job to stabilize work force.

Faced with a similar challenge in building a $266.8-million replacement for the storm-wrecked U.S. 90 bridge over Bay St. Louis in Mississippi, a joint venture of Granite Construction Co., Watsonville, Calif., and Archer Western Contractors, a unit of The Walsh Group, Chicago, resorted to creating a work village to house “hundreds of men,” says Archer Western President Matthew Walsh. The project attracted workers from Texas, Florida and Virginia, but “we continue to have a shortage,” he says. Walsh denies, however, that Granite’s slip in third-quarter earnings is linked to its work force struggles.

The industry, across sectors, has always played tug-o-war in the labor pool. But Gulf Coast firms say a confluence of events is now draining it altogether.

“A lot of things happened in this region that never happened before at the same time,” says Andrew Avril, manager of tank operations for Pala Interstate, LLC, a Baton Rouge tank fabricator in the petrochemical and oil and gas sector. “This probably all started 10 years ago when wages got knocked down because there were so many contractors. All the better craftsmen left the Gulf Coast for higher wages,” he says. That was followed by a big slump in refinery work.

"Now we are going through a peak period where the refineries are all doing something at the same time�expansions, low sulfur grade changes�and that peak happens to coincide with craftsmen already being gone," Avril says, "…and then the Katrina thing."

The fabrication firm executive says the petrochemical cycle peak is set to last another two or three years. But the depleted labor pool, infrastructure damage and extensive debris removal have pushed  up tank welder-pipefitter wages 25%. “Add to that the retention bonuses and let’s put it this way, the market is crazy,” Avril says.

Beware

Unscrupulous contractors are flocking. The residential market, historically more splintered and less regulated than the industrial, commercial or public sectors, offers evidence that much is being compromised by work force deficiencies, although a slackening of the national housing market may ease some of the pressure.

Angelle Bergeron/ENR Study found that 25% of reconstruction workers are illegal, although already in the U.S.

In the year since Katrina, the Louisiana State Licensing Board for Contractors received 5,225 applications for contractor licenses in commercial and residential building, home improvement and mold remediation, up from 2,181 the previous year.

But those numbers represent only a fraction of contractors believed to be working illegally, says Chuck Marceau, board executive director. “You’re looking at 217,000 homes to be rebuilt, not taking into account renovations,” he says. “It’s a gold rush.” Board officials say they have been catching eight to 10 unlicensed contractors a day and conducting twice as many administrative hearings as before the hurricanes. In October, the board launched a campaign to warn both consumers and offenders.

Some commercial contractors are cutting insurance corners. Licensing officials contend that a number of firms moving into Louisiana are not carrying workers’ compensation coverage, taking advantage of a loophole that does not require them to submit proof of the insurance when applying for commercial contracting licenses.

Recruitment and training campaign in Mississippi andLouisiana seeks to draw new people to construction.

Robert Retz, a New Orleans residential and electrical contractor, says not only is he being undercut by unlicensed firms with inadequate or missing insurance, but his insurance and wage costs have risen 40% since Katrina. “It’s difficult to get things done, so you’ve got to hire inexperienced people and train them,” he says. “And if you are lucky enough to find a top-level guy, you’ve got to [hire and] pay his friends top rate to keep him. A good employee before the storm was getting $18 to $20 an hour. Now, you better come up with at least $25, and you better have overtime...”

In the months after the storms, with population scattered but business interruption insurance starting to pay off, employers desperate to recoup losses skimped on employee screening, says Bryce G. Murray, a labor and employment attorney with Taggart Morton LLC, New Orleans. “I have a few clients who are some of the best employers when it comes to background checks and routine drug tests,” he says. But after the storm, some of that care “went out the window,” Murray says.  

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Vague Background

With the local justice system in “disarray,” employers skipped background checks, says Murray. “If you had an applicant with six terminations, you might not hire him pre-K, but you might post-K,” he says. Even criminal records: A lot of employers who wouldn't hire someone with a record before the storm, do so now, Murray says.

Murray now conducts seminars on legal and tax consequences of getting lax with hiring rules, particularly related to misclassifying employees as subcontractors or “contingency” workers. For some, this is a tempting way to cut costs, but employers who get caught face repayment of both an employee’s and their own share of taxes, plus penalties. “Contingent workers have become a popular topic nationwide,” he says. “They expose employers in a lot of areas.”

Murray also calls the influx of illegal immigrant labor "the elephant in the room," although he also calls it a necessary evil to get a lot of work done fast and effectively. "Illegals helped to rebuild portions of this city that had to be rebuilt quickly," Murray says. "There wasn't anyone to do it."

Immediately after the storms last year, there were calls to loosen restrictions on immigrant labor from Mexico, Latin America, Europe and the Far East, Scott says. “All the construction companies and people who want things built are plugging for this because they are getting desperate,” he says. Immigration reform debate is expected to resume in January in the new Democratic-controlled Congress.

“I am not saying it’s the golden solution, but it is movement we haven’t seen in years,” Murray says. Despite rhetoric that illegals take jobs from U.S. citizens, not all agree. “The President burns me up when he says they are doing jobs Americans won’t do,” says contractor Retz. “That’s half a statement. It should be finished with ‘at this price.’ ”

Contingency Worker Or Employee? A Test

Does this person have to follow your instructions?

Are services rendered personally?

Is the job, substantially, full time?

Do you set the sequence of work?

Are workers paid by time rather than by project?

Do they furnish their own tools and materials?

Do they have more than one employer?

If you answered yes to any of the first five, or no to thelast two, this person may be an employee. For a list of the IRS 20-Factors,consult your auditor or contact the IRS. Source: Internal Revenue Service

Follow the Money

A recent study by the Inter-American Development Fund offers one indirect indicator of the size of the immigrant work force. The study, which tracked payments sent from the U.S. to Latin American countries, reports that in 2006, remittances are expected to total $45 billion, 51% higher than two years ago. From Louisiana alone, they are set to top $200 million, 240% more than in 2004.

More than half of the reconstruction work force in New Orleans is Latino, according to another study produced by  Tulane University and the University of California, Berkeley. It found that 25% of the work force is undocumented, and such workers consistently were working for lower wages than documented counterparts. They also had no benefits, faced  unsafe conditions and worked in settings not meeting minimum legal standards.

Worker abuse has occurred in large, reputable firms as well as in fly-by-nights, says Phuong N. Pham, a Tulane assistant professor. “We can’t have it both ways,” she says. “Either we enforce immigration laws effectively and prevent illegal immigrants from working, or we allow them to work and provide them with the same labor, safety and health protections afforded documented workers.”

The volume of work creates an opening for human traffickers, say law officers. In September, Louisiana was awarded a $450,000 U.S. Dept. of Justice grant for a task force to stop exploitation and abuse of immigrant workers. “We knew the situation below the I-10 corridor would prompt an influx of workers from all over the U.S. and Mexico and present opportunity for human traffickers to bring in coerced workers,” says Robert Mehrtens, policy planning administrator for the state Commission on Law Enforcement. “We felt the extensive, catastrophic damage would be a prime target for human trafficking.” 

Louisiana is taking measures to hold contractors accountable for hiring illegals, but the effect is unclear. The state has enacted a law to fine employers who knowingly hire illegals up to $10,000 and revoke their business licenses. A late addition to the bill, however, exempts employers with 10 or fewer employees. “‘Knowingly’ is the magic word,” says Murray. “It’s a dangerous standard. When does a mistake become ‘knowingly’?”

Efforts to address the work force issues are focused on attracting new people into the labor pool and providing training. After the storms, Congress passed legislation to finance construction training, releasing fresh funds for existing programs and creation of new ones.

One program is the Gulf Coast Workforce Development Initiative, a partnership of government agencies, businesses, and community and trade groups (ENR 9/4 p. 27). Its goal is to recruit and train up to 20,000 new construction craft workers for the region by 2010.

While political issues swirl related to union versus non-union labor in the region, the Business Roundtable pledged $5 million last July to launch “Gulf Rebuild: Education, Advancement and Training” (GREAT), a much promoted  advertising and recruitment campaign in Baton Rouge and Jackson, Miss.  “Our call center has received over 1,500 calls,” says Tim Horst, GREAT program manager. The campaign has since expanded and is considering moving into southeast Texas.

In another effort, the Louisiana Craft Workforce Development Board is coordinating recruiting, training and retention programs. Its efforts are set to link with a $38-million Community Development Block Grant awarded Louisiana for training programs in six industries. According to Pete Darling, employer liaison with the Louisiana Workforce Commission, industry efforts to work with the development board could help construction employers win a share of funding. “We need to get our arms around it and get a strategic plan in place,” he says.