Top worries for construction firms include political regulations and skilled worker shortages

Contractors across the country expect 2018 to be an even better year in the construction industry than 2017, with optimism stemming from strong overall economic growth, federal attempts to reduce regulatory burdens and expectations that pending federal tax cuts will further boost demand.

While optimism hangs on the assumption that tax cuts will lead to stronger demand and that the Trump administration will deliver on its longstanding promise to boost investments in infrastructure, big worries for 2018 include skilled labor shortages along with proposed state government policies and regulations — and the fact that promised federal support might not come to fruition. PAMPLIN MEDIA GROUP: FILE PHOTO - TriMet ironworkers fix a rail on a MAX transportation infrastructure project in downtown Portland.

The Association of General Contractors (AGC) conducted a survey of 1,046 firms of all sizes around the U.S. that serves as the basis for its newly released 2018 Construction Hiring and Business Forecast. The AGC also held a panel on the topic, which included Stephen Sandherr, CEO of AGC; Kenneth Simonson, chief economist of the AGC; Jon Witty, vice president and general manager of Washington, D.C.-based Sage Construction and Real Estate; Chuck Graves, president of construction and concrete with Boise-based McAlvain Companies; and Bob Schafer, president of West Palm Beach, Florida-based Ranger Construction.

"Construction firms appear to be very optimistic about 2018 and expect all types of services to continue to expand," said Sandherr, CEO of AGC.

A net positive 44 percent of respondents expect a very positive growth in the construction market in 2018 — more so than 2017. Broken down by market, they're the most optimistic about private offices, transportation, retail, warehouse, lodging, water, sewer, manufacturing, K-12 education, hospital and highway projects.

Markets that respondents are less optimistic about are multifamily residential, public buildings, power, higher education and federal construction.

Contractors are also positive about growing public sector demand, based on many states enacting their own infrastructure funding measures, improving local budget conditions.

"In addition, many contractors likely remain confident that the Trump administration will be able to secure new infrastructure funding, as it has long promised," the study said.

In the West, contractors are most sanguine about the highway construction segment (27 percent net), followed by public building construction (26 percent net) and water and sewer construction (23 percent net).

Contractors in all four regions were all relatively optimistic regarding their plans to hire — ranging from 67 percent in the Northeast to 79 percent in the West. However, construction worker shortages appear to be a significant concern for contractors throughout the country. Seventy-three percent of contractors in the Northeast report having a hard time finding workers compared to 75 percent in the South, 80 percent in the Midwest and 81 percent in the West.Sandherr

"Despite overall optimism, construction firms face a number of significant challenges this year, the top among them being that the growing workforce shortage made it difficult for the vast majority of firms to find and hire qualified workers, and as a result many firms recruit employees with less experience than they'd prefer," Sandherr said. "Firms continue to worry about how decisions in Washington and state capitals impact their operations. Despite strong demand, this poses challenges to firms' bottom lines."

Worker shortages, inexperienced

skills and safety

According to the study, 75 percent of construction firms report they plan to hire a little in 2018, up from 73 percent in 2017. Half of firms report their will increase their firm's employees by 10 percent or less, and 5 percent of

firms plan to increase by more than 25 percent. Three percent of respondents expect to

reduce headcount in 2018, down from 6 percent in 2017.

Even so, 82 percent of firms expect it will become harder or remain difficult to recruit and hire qualified workers in 2018 — up from 76 percent last year. Additionally, 78 percent of firms already report they're currently having a hard time finding qualified workers to hire — up from 73 percent last year.

Because of this, 60 percent of firms increased pay rates (up from 52 percent last year), 36 percent increased incentives and bonuses (up from 35 percent last year), 24 percent increased contributions and benefits (down from 28 percent in 2017).

The forecast shows 41 percent of construction firms are worried about the skilled workforce shortage. The next top concerns include increased competition, the impact of federal government on the construction industry, federal regulations, and a lack of new infrastructure investments — along with proliferation in state and local regulations, with 23 percent of firms listing the issue as one of their biggest concerns for the upcoming year.

The study shows 20 percent of construction firms are worried about workplace safety more than usual, specifically because of the worker shortages that lead to hiring people with fewer skills and less experience: 56 percent of firms reported that workforce shortages and a labor pool with little experience were major challenges for improving workplace safety.

Bob Schafer, president of Ranger Construction, said he hasn't seen an increase in accidents — yet.

"It's preventative measures," Bob said. "It's kind of common sense looking ahead seeing these folks who haven't been in the industry for years, like the rest of our workforce."

Firms cope with workforce shortage in two ways: opting for more in-house training to prepare workers with less experience they have to hire, and making investments in new technology and new efficient operations, to accomplish more with fewer people.

To combat the problem, 56 percent of firms plan to increase investments in training and development in 2018, up from 52 percent last year.

Politics and policy

The study said another 23 percent reported that a lack of cooperation from federal safety officials in helping them improve safety was a major challenge, and 19 percent of firms reported they see poor subcontractor safety and health performance as a major challenge.

Construction firms are also worried about proposed federal policy — and also about proposed local policy.Simonson

"My perception is that states are going in a variety of directions: certainly, a number of states raised the minimum wage, put in family leave or other requirements that are pushing up the cost to employers — particularly for small employers — reducing their flexibility on scheduling workers, for instance," said Kenneth Simonson, chief economic at the AGC. "On the other hand, the federal government — one of the notable achievements in 2017 was the vast turnaround in promulgating new regulations, rolling back some or freezing others, and it's likely that trend will continue through 2018 if not beyond with the appointment of new regulatory judges with quite a different attitude."

Sandherr said about 26 states over the last eight years increased fees and taxes to pay for transportation infrastructure.

"In many cases the argument can be made in supporting these efforts, and no longer relying on the federal government as the primary source for funding the road and transit corridors," Sandherr said. "It's been more difficult every cycle to get funding for the highway program, so I think that's one example where states are doing a little more to help pay for their infrastructure, as opposed to waiting for the federal government to bail them out."

During the 2016 election cycle, several counties across the country also set up sales tax initiatives specifically dedicated to certain infrastructure projects. In Idaho, the state took over primacy of its storm water from the EPA, an act which is expected to benefit the construction industry in local jurisdiction dealings.

Ultimately, the new federal policy is expected to promote economic growth — if it can get off the ground.

"If the tax cuts don't deliver as promised, then it is likely that private-sector demand for new construction will not grow as fast as many firms expect, and if the administration fails to deliver new infrastructure investments, contractors who perform public-sector work will not experience the kind of growing demand for their services they currently expect," the forecast said. "Failure to enact new federal infrastructure investments will prove particularly punishing for contractors in states that have yet to enact new funding increases for infrastructure as well."

In conclusion, the study recommends Washington officials make sure federal tax cuts deliver by rolling back regulations and invest in infrastructure.

To address the workforce shortage, the study recommends D.C. officials enact a new Perkins Act to boost career and technical education funding, and give local officials more flexibility to create programs based on local market conditions instead of federal priorities.

By Jules Rogers
Reporter, The Business Tribune
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