Climate Change (in construction)
Thomas C Schleifer, Ph.D.
Contractors are dealing with a perennial shortage of skilled construction labor in the same way we are dealing with climate change – “What can I do about climate change? Nothing that I can think of. That’s Mother Nature’s business. What can I do about all the baby boomers retiring and young people skipping the trades for easier and safer college degree white collar employment? Nothing I can do. I have to learn to live with this.”
Generic Risk
Some time ago I identified two of what I like to refer to as generic risk factors. They are causes of contractor profit erosion that seem to be built into the structure of the construction service transactions – (1) low bid procurement and (2) commodity pricing of construction services. Both have kept our selling prices too low and depressed reasonable profit margins in our industry.
More recently, the negative effects of this long-term skilled labor shortage have been seeping into the construction industry, rotting away schedules and swelling costs in a competitive wage war. When contractors miss either completion schedules or budgeted costs, profits evaporate. The shortage of skilled labor has been evolving over an extended period and because there is no solution on the horizon, I am adding the “shortage of skilled labor” to the list of generic construction profit killers:
Generic Profit Killers:
- Low-bid competition for new business.
- Commodity pricing of construction services.
- Perennial shortage of skilled labor.
Structural
I call these three killers of contractor profits, structural, because they are risk factors that have become part of the construction industry landscape. Like climate change, contractors have come to think that they are environmental and that there is nothing an individual can do about them. As the contractor above said, “I have to learn to live with this.” Like most people’s reaction to climate change, there is not a lot an individual contractor can do about it. The shortage of skilled labor has joined competitive low-bidding and commodity pricing as part of the landscape of construction contracting.
The Buck Won’t Pass
A recent discussion about labor shortages with a highly successful general contractor helped clarify for me why contractors don’t see this shortage of skilled labor as their problem to solve.
Successful GC – “I don’t have to worry about a shortage of trades people. My subs handle that. It’s their problem,” he said.
My response – “But just because the subs sign a performance contract with you, doesn’t mean that they can perform if they don’t have the workers to deliver the service. If they can’t get the necessary skilled crafts people to fulfill the contract it becomes your problem, doesn’t it?”
Successful GC – “Well, yes. I guess that’s true. I never really looked at it like that. I don’t directly employ the skilled labor force, so I tend to pass the buck down to my subs. It’s a way of addressing a problem that I don’t have a ready solution for.” However, going into denial isn’t going to work for anybody. Passing the buck to our partners just snaps back at us in the end.
Learning to Live With
“Learning to live with” a generic risk factor does not mean ignoring it. It should mean rather, (1.) recognizing the risk, (2.) analyzing its impact on profits, and (3.) taking steps to mitigate the impact. (If you think about it, that is exactly what humanity should do about climate change.) As an ancient proverb says, “A journey of a thousand miles begins with a single step”.
- The first step in dealing with this nagging skilled labor shortage is to recognize that it is likely here to stay and is definitely having an impact on your profitability.
- The second step is to analyze the magnitude of that impact.
- The third step is to figure out what to do to mitigate the impact on your profits.
Next week we will begin to discuss how to take the three steps above. Stay with us.
For more on risks refer to a recent ENR Viewpoint on supply chain risks at: https://simplarfoundation.org/enr-supply-chain-snarls-arent-going-away-do-something-about-them/
For a deeper look into the Labor Shortage, read more here: LABOR SHORTAGE
For a broader view into Profitability, read more here: PROFITABILITY
To receive the free, weekly Construction Messages, ask questions, or make comments, contact me at research@simplarfoundation.org
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