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2018 Construction Outlook: Positive But Workforce Challenges Persist

Overall, construction firm owners are optimistic about 2018 and expect growth for all types of construction services in both the private and public sectors.

In fact, 53 percent of respondents to a comprehensive survey of construction firms conducted by AGC of America and Sage Construction and Real Estate expect the dollar volume of projects for which they compete for in 2018 to be greater than the dollar volume available in 2017.

“Only 9 percent of respondents expect the dollar volume to be less than 2017, which gives us a net positive of 44 percent,” explains Ken Simonson, AGC’s chief economist. Construction owners are most positive about private office, transportation, retail, warehouse, lodging, water, sewer and manufacturing, with each of these sectors reporting a net positive of 20 percent or more, he adds.

Categories for which construction owners are less optimistic include multifamily, higher education, power and public building. Schools (K-12) and hospitals fall in the middle, with an 18 and a 17 percent net positive respectively.

The level of activity and optimism in each region or state can differ. In Florida, Michael C. Brown, executive vice president and general manager for Skanska in Florida, foresees strong growth in the healthcare and higher education sectors in his state for several reasons. “As the economy stabilizes and grows, both the healthcare and higher education sectors have funds available to address the pentup demand for new or expanded facilities,” he says. “In Florida, the University of South Florida, the University of Central Florida and Miami University all have robust building plans in place for the next two years.”

Along with growth in construction projects comes a need to expand the workforce – which is the greatest challenge identified by construction company owners. Seventy six percent of survey respondents indicated that they are planning to increase their headcount in 2018: 50 percent plan to increase headcount between 1 and 10 percent; 21 percent plan an increase of 11 to 25 percent; and 5 percent plan a workforce increase of more than 25 percent.

“Last year, 73 percent planned to add to their workforce in 2017, so this is an increase,” says Simonson. “Only 3 percent plan to decrease the number of employees.”

When asked what positions are difficult to fill, 50 percent of construction company representatives surveyed said that they have a hard time filling both salaried and craft worker positions, and 21 percent said that they could fill salaried positions but not craft worker positions. Survey respondents don’t anticipate the shortage in qualified employees to change much, with 53 percent indicating that they believe it will continue to be hard to find and hire qualified professionals in the next year.

Strengthening the labor pipeline will require some grassroots efforts such as those taken by McAlvain Companies in Idaho, an Idaho Branch member. “We have a workforce of 150 to 175 craftsmen, and it is difficult to find carpenters and laborers,” says Chuck Graves, president of construction and concrete for McAlvain. His company starts building its pipeline in the junior high schools by talking with students, teachers and parents about construction careers to build awareness of the industry and to create interest in construction job opportunities. “We will hire someone with no experience and train them,” he adds.

“Last year, we also increased wages and benefits to attract and keep good employees,” says Graves. His company was not alone with wage increases: 60 percent of construction firm owners increased based pay, 36 percent provided incentives and bonuses; and 24 percent increased contributions and/or benefits – according to the AGC survey.

Although higher wages might attract employees, they also pose a challenge for contractors who are also having to train employees with less experience, says Bob Shafer, president of Ranger Construction Industries in Florida, a Florida East Coast Chapter-AGC member. “We have to take a close look at how we bid projects and take production loss into account when looking at the owner’s timetable,” he says. “Less experienced workers cannot work as fast, and we have to provide more training to ensure their safety. This must be considered upfront in the bidding process.”

The use of technology in construction is one way that contractors plan to improve productivity, planning and scheduling. Forty-three percent of contractors plan to increase their firm’s investment in information technology in 2018. Not only do 20 percent of respondents plan to increase investment in Building Information Management (BIM) software, but investment in the following types of software are planned:

  • Document management software – 27 percent
  • Estimating software – 27 percent
  • Project management software – 27 percent
  • Fleet tracking/management software – 22 percent

In addition to worker shortages, contractors identified five other key challenges in their responses:

  • Increased competition for projects – 39 percent
  • Growth in federal regulations – 28 percent
  • Lack of infrastructure investments – 24 percent
  • Growth in state and local regulations – 23 percent
  • Safety – 20 percent

One trend that Brown expects an increased interest in is private-public partnerships (P3s). This delivery method can address the infrastructure investment challenge cited by contractors. “There are many benefits to a public entity with a P3,” he says. “A state or local government can get a project built without burdening taxpayers or delaying the project.” Although Florida is a leader in adoption of P3s, Brown sees the trends growing nationally for large public, infrastructure projects.

While the P3 approach doesn’t solve the workforce problem completely, it can help contractors better handle the need for additional employees, says Brown. “Rather than the traditional design, bid and build process, in a P3 project, all members of the team are involved earlier in the process, which gives contractors an opportunity to plan ahead for how many employees and what type of skills will be needed at different points,” he explains.

Although contractors expressed concern about federal regulations and lack of infrastructure investment, the contractors who perform public-sector work were optimistic about 2018, says Stephen Sandherr, chief executive officer of AGC. “The association has been working aggressively to push for new investments,” he says.

Another legislative priority for AGC is related to the workforce shortage, Sandherr says. “Congress can also help address the workforce shortage by enacting a new Perkins Act that boosts funding for career and technical education,” he explains. “The act would give state and local officials flexibility to put programs in place to address local market conditions, instead of federal priorities. AGC will continue to lead the effort to encourage federal, state and local support to rebuild the pipeline to prepare the next generation of construction professionals.”