The past few years have seen a resurgence in demand for construction services. A booming economy has supported expansion in commercial and residential construction. The promise of substantial investment in infrastructure suggests a bright outlook for 2018. Yet, a chronic labor shortage casts a dark shadow in this otherwise rosy picture.
The Recession's Lasting Effects on the Construction Workforce
The recession has not been kind to construction workers. According to the U.S. Bureau of Labor Statistics, 837,800 construction jobs were lost between 2004 and 2014. Many skilled workers found gainful employment in other industries and failed to return when business picked up. Owners deem the pipeline for younger craft workers to be fair-to-poor due to a considerable drop in enthusiasm for construction work among high school and college graduates.
This circumstance gives little hope for near-term relief and raises concerns regarding the impact of their graying workforce. Among workers who remain committed to the industry, breaks in service (or early retirement) often accompany chronic health conditions, injuries, workplace accidents and illness.
The labor shortage will impact industry growth for the foreseeable future. The National Association of Home Builders (NAHB) saw 200,000 unfilled construction jobs earlier this year, an 81% increase over the past two years. Not surprisingly, a recent AGC of America survey reports that 70 percent of respondents have trouble filling craft positions and 48 percent have trouble staffing project manager and supervisor positions.
The labor shortage has major implications on how construction owners manage their businesses and staff their projects. In order to attract and retain good workers, most have sweetened compensation packages either through elevated hourly wage rates, bonuses, incentive pay or improved benefits. They’ve also had to leverage overtime to keep pace with their contractual commitments and maintain a steady influx of cash upon completion of defined milestones.
Regardless of these efforts, a high percentage of NAHB members experience project delays due to labor shortfalls. Increased labor costs combined with assessed penalties for failure to meet deadlines can have a dramatic impact on project profitability, which may also affect banking covenants and the ability to secure financing.
How to Manage a Skilled Labor Shortage
With increased pressure on the bottom line, construction owners need to be especially diligent about improving the efficiency and effectiveness of their crews. This means turning greater attention to communication between the client, the design firm, their subcontractors and their employees. By maintaining strong lines of communication, they can ensure that everyone is clear on the project scope and plan and manage each party’s roles, responsibilities, deliverables and timelines.
The operations staff needs to ensure that all the requisite equipment and materials are available on the job site when needed. Work order changes should be kept to a bare minimum even if contracts allow for appropriate compensation. And, of course, the company needs to maintain a safe and healthy workplace to demonstrate their concern for their workers’ well-being while limiting missed days due to injury or illness.
When securing new business, owners need to be realistic about what they can reasonably accomplish given their financial reserves and their prospects for securing competent subcontractors and employees. While it may be painful to pass on an attractive opportunity, the very real possibility of a resource shortfall could diminish profits, strain cash flow, endanger client relations and tarnish the firm’s reputation. When electing to tender a bid, they must anticipate future compensation structures and include clauses to cover unanticipated labor cost escalation.
Most firms have stepped up their recruiting efforts by engaging directly with vocational schools, attending job fairs, leveraging their industry connections and supporting on-the-job training programs. Some hope to stimulate interest in the industry by partnering with local schools to offer internships tied to coursework. Today’s interns could become tomorrow’s workers.
Finally, construction firm owners need to build strong relationships with high quality, reliable subcontractors. The prevailing conditions no longer support a combative relationship between the parties. These owners must treat their subcontractors with the same respect they would accord their close associates and customers. Any delays caused by strained relations could disrupt a tightly-knit project plan and have a ripple effect on the project’s financial viability.
Meet the Author
Director, Architecture and Engineering Services
Diana Strassmaier, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Diana joined the firm in 2018 with almost two decades of experience serving members of various industries including construction, engineering and architecture, manufacturing and distribution, and government contracting. An expert on conducting overhead audits, Diana works closely with government contracting industry clients to offer clarity on how overhead rates work and help them maximize compensation.…
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