The construction market has been growing steadily. These gains have eased the competition that was so brutal during the recession, allowing many construction firms to pick and choose which projects they will take. It also has meant skilled labor is at a premium, putting pressure on wages.
That is fine for construction firms that are seeing rising profit margins. It also is fine for construction workers, who are seeing wages rise again after years of lean times. But what about owners? They are the ones that are paying for these increased costs, and they are not happy.
“Proctor & Gamble probably spends between $3 billion to $4 billion a year on construction. We fear that, for every $4 billion we spend, we are getting about $3 billion in value. That has got to stop,” says Mike Staun, associate director, capital management and engineering systems, for P&G.
One of the biggest concerns is the growing shortage of people in the trades and the pressure it puts on wages. Also, owners are concerned about not just the increased cost of construction labor but also the impact these shortages have on projects’ quality and productivity.
Workforce shortages are affecting not only the number of craft workers available for projects but the quality of workers, as well. “The challenge right now is not whether there are enough bodies for the job but whether there are enough skills on the project to do the job well,” says Daniel Groves, director of operations for the Construction Users Roundtable (CURT), Cincinnati, and head of Lexington, Ky.-based Construction Industry Resources (CIR) LLC, which operates Construction Labor Market Analyzer LLC. The firm provides workforce and market data to help owners and contractors predict labor availability for upcoming projects.
Many owners worry there is a growing skills shortage on projects. “Labor availability and productivity are not new issues, but they are becoming more critical now,” says Chris Affuso, director of project execution for Praxair Inc.
Affuso notes that labor shortages are a particular concern on the Gulf coast. “This means contractors are beginning to bring in travelers from outside the region, and there is no good way to judge whether they have the skills to do the work required,” he says.
The scope of the workforce problem is broad. In the next five years, an estimated 18% of all contractor supervisory personnel will be gone from the industry, and about 16% of all skilled trades will leave the industry, as well, according to the CIR data.
“Owners need to be more engaged in the industry,” Groves says. He says it is not enough for owners to tell contractors that workforce availability is their problem. “In 1997, CURT encouraged large owners to do business only with those contractors that actively maintained workforce development programs,” he says. But, sadly, the problem of a declining workforce in the trades and among industry professionals only has gotten worse, he says.
The question of how to get people into the industry and trained up will not get answered until, on a widespread basis, owners begin to require contractors to have a workforce development program in place before they are allowed to bid, Groves says. “It was the owners that forced contractors to pay attention to jobsite safety, and now it is time for owners to force contractors to engage in workforce development.”
Affuso also worries that many of the workers being brought in on projects lack experience in working safely. “Safety is of paramount importance to owners like us. We make it our mission to ensure the workers on our projects enjoy a decent quality of life and return to their families at the end of the day,” Affuso says. Safe practices may suffer when inexperienced workers are brought in, he notes.
Owners are supporting many programs to attract people to the industry. Affuso cites the “Go Build America” program as an effective means of getting out the message that a career in the trades is a great alternative for young people who don’t want to go to college. “We are seeing its impact in parts of Louisiana,” he says.
Groves agrees that the “Go Build” program is having some impact but says it is only “a media-based campaign.” He applauds the more grassroots-oriented “Build Your Future” program, sponsored by the National Center for Construction Education and Research, Alachua, Fla.
Groves reluctantly concedes, however, that owners may be forced to bite the bullet and accept higher wages in the trades. “More than half the states now are offering more money to the unemployed through social programs than the average entry-level job pays,” he says. This is forcing companies, including construction firms, to pay more to recruit employees.
Construction productivity has been one of the biggest and most long-standing complaints among owners. A CIR analysis of numerous studies concludes that non-farm business labor productivity has been increasing by a compound annual growth rate (CAGR) of 1.9% from 1964 through 2014, a total productivity gain of 153%. During the same period, construction labor productivity shows a CAGR of -0.4%. So, construction productivity has actually fallen 19% since 1964.
Many owners say that, on the manufacturing side, use of lean project delivery has spurred significant productivity gains. “Without the use of lean processes, our earnings would not be near where they are now,” says Staun.
Staun questions why lean processes are not more widely used in construction. “A colleague at BMW told me the worst thing you can see on a jobsite is a large laydown yard,” he says. Staun says such a large staging area is a red flag that contractors anticipate poor planning and scheduling and that fabrication and assembly of building units will take place on site, rather than taking advantage of prefabrication and efficient installation.
The ability to deliver in an efficient manner and the use of lean construction principles are benefitting the contractors that use them. “There is a growing trend among owners to downsize their operations,” says Greg Sizemore, CURT’s executive vice president.
Sizemore says there is huge waste in the construction process and that corporate owners will be looking only to those large contractors that employ lean processes. “Contractors can sit back and wait until they feel the pinch before taking action. But, by then, it may be too late,” he says.
P&G is experimenting with more efficient project delivery. Staun says P&G has traditionally used design-bid-build for its project delivery but is now beginning to experiment with other delivery systems. It currently uses Irving, Texas-based Fluor and Albany, N.Y.-based M+W as preferred bidders and large projects. “Both are receptive to using alternative project delivery,” Staun says.
Staun says P&G has been working with its CURT colleagues to explore the value of integrated project delivery (IPD) as a delivery system. So, it now is running a pilot program on a $10-million raw-materials warehouse expansion in Browns Summit, near Greensboro, N.C.
P&G brought in Englewood, Colo.-based CH2M as program manager to assist Dayton, Ohio-based contractor Miller Valentine Group in setting up the IPD contract. The major subcontractors were brought in early to sign the contract.
The contract calls for a 50-50 split of all savings between P&G and the construction team. “Within the first couple of hours during the first design session, the HVAC contractor suggested a change in boiler systems in the preliminary design that will save us $400,000 from the initial design estimates,” Staun says. “It took just two hours for P&G to save $200,000, with the team splitting the rest.”
Staun cautions that any risk-reward contract has to be carefully crafted to ensure team members continue to cooperate. For example, if a project’s design phase replaces with drywall the initial design’s call for masonry, the scope of work for the drywall contractor gets expanded but the masonry contractor’s is cut. “There is bound to be pushback from the masonry contractor,” Staun notes.
Staun says any IPD contract must take into account scope-of-work changes and not punish the sub that sees its work cut because of design changes. “The masonry contractor in this case should not have its share of the reward for the design changes diminished,” he says. Otherwise, the cooperation sought by an IPD contract could be lost.