Construction Obstruction

Skilled Labor Shortage and Lax Safety Could Injure Construction Insurance Market

For agents and brokers serving the contractors and subcontractors market that barely scraped by during the recession, the year 2013 brought some improvement and the new year 2014 promises more of the same – provided a shortage of skilled labor and related safety concerns can be overcome.

For the first 11 months of 2013, total construction starts came in at $475.3 billion, up 6 percent from the same period a year ago, according to McGraw Hill Construction.

2014 looks even better.

“We see 2014 as another year of measured expansion for the construction industry,” says Robert Murray, McGraw Hill Construction’s vice president of Economic Affairs. Total U.S. construction starts for 2014 will rise 9 percent to $555.3 billion.

But a rise in construction activity in a post-recession world doesn’t come without its own challenges, some experts say. As the economy grows and construction employment surges, contractors face another hurdle – finding experienced contractor labor to meet the growing demand.

“There’s clearly a concern in the construction industry about skilled labor,” says Michael Anderson, managing director and CEO of the U.S. Construction Practice for Marsh. Throughout the recession both experienced construction labor and younger construction workers left the business, Anderson says.

Almost 75 percent of construction firms surveyed in September 2013 by the Associated General Contractors of America (AGCA) reported trouble finding qualified craft workers to fill key spots and fear that labor shortages will only get worse.

The most frequently reported difficulties are in filling such onsite construction jobs as carpenters, equipment operators and laborers, the survey revealed. Fifty-three percent are having a hard time filling professional positions – especially project supervisors, estimators and engineers.

“Many construction firms are already having a hard time finding qualified workers and expect construction labor shortages will only get worse,” says Stephen E. Sandherr, CEO of AGCA.

In the case of experienced workers, many chose to retire or entered other industries such as oil and gas, which has common elements to construction, Anderson says. Many younger construction workers left to pursue other interests as well, meaning they now lack the experience desired by employers. “They would have had five or six years of experience by now,” he says.

Some skilled workers may return to construction now that times are better; others may not.

“If you talk to any construction company, of any size, there is a concern about the depth of skilled labor in the workforce, and the challenges of finding that labor as more work becomes available in the market,” Anderson says.

Also, some in the industry worry about the impact that trend will have both on the pricing of construction work and the safety in performance.

History dictates that the more experience held on a construction job, the better the chances are for a safe job site. “It’s clearly a challenge,” Anderson adds.

Fatalities Rise

Meanwhile, some see the shortfall of skilled workers triggering the recent increase in industry-related fatalities.

Private construction sector deaths in the U.S. climbed 5 percent to 775 in 2012, the highest number of fatal work injuries in any industry sector, according to the U.S. Bureau of Labor Statistics (BLS). Although the figures are preliminary – and could increase when final data is released in April 2014 – they mark the first annual increase in work-related fatalities in the private construction sector since 2006, according to a Marsh Risk Management Research Briefing titled, “Building Safety and Leadership in the U.S. Construction Industry.”

According to the report, a shortage of experienced construction workers has resulted in unskilled workers being moved into supervisory roles faster than before. This trend has led to problems as new managers and supervisors are unfamiliar with the industry’s views on safety and risk management.

At the same time, contractors today are being forced to pay higher wages and offer additional benefits to attract and retain workers, putting additional strain on their financial resources. This can result in managers and frontline supervisors cutting corners when it comes to safety, according to the Marsh report.

“As the economy grows and the number of new construction projects pick up, now is not the time to be lax on safety,” says John Moore, a construction safety specialist in Marsh Risk Consulting’s Workforce Strategies Practice. “Inadequate safety performance can lead to employee turnover and various legal, financial, and reputational risks. Investing in high-quality leadership will go a long way toward retaining valued workers and maintaining a safe work environment.”

Moore says history has shown that over periods where claims have been down so has construction activity. But when construction business starts to pick up again, claims begin to rise, substantially.

“And that’s the growing concern,” Moore says.” It’s not affecting pricing or placement at this point but it very well could in the future.”

Managing Changes in the Workforce

Moore says there are different values in today’s construction workforce that not only impact safety but affect all aspects of a construction firm’s operations.

“It’s a different landscape today in the construction market,” he says. “For the longest time construction’s been all about compliance and managing to that compliance level but with changing values in the workforce, companies have to relate more to the ‘person’ if you will.”

That means the days of managing construction labor by “command and control” have to change.

“The ‘command and control’ style was prevalent in the leadership of construction and it worked because of the values people held,” Moore says.

“They valued their job and they weren’t going to leave companies as readily as they do today to pursue greener pastures.”

Employee Turnover

According to the Marsh report, concern over employee turnover has rarely been so widespread in construction as it is today and this concern is likely to continue into the future. “High turnover can be extremely harmful to a contractor, affecting budgets, scheduling and productivity, quality, safety and the environment. This is especially true if skilled workers are being replaced by novices,” the report says.

Cost-cutting is another concern when it comes to safety and construction, Moore says, adding that leaders must understand the impact cost-cutting and a lax safety environment can have on the business. Not all companies address these issues with front line supervisors, especially those with less experience in the construction industry.

While Marsh is concerned, not every insurance broker has concerns over a lack of skilled labor in the overall construction market.

Paul Primavera, senior vice president at Lockton who leads the firm’s national claims advisory group, says that while the availability of skilled labor in the construction industry varies considerably, some clients had more trouble finding experienced workers during the construction boom.

“Interestingly enough some contractors actually had a more difficult time five to seven years ago,” Primavera says. “They would tell you, ‘We just couldn’t find good skilled labor because we had so much going on and so did the industry.'”

Whether skilled construction labor is available depends mostly on the location of the project and the type of expertise needed. “There’s certainly a good amount of our construction clients at Lockton that are not having a problem in regards to finding skilled labor,” he says.

Primavera also doesn’t see much claims activity being generated from a lack of skillset in the construction industry today.

“We don’t particularly hear that and we don’t see the adverse effects from a loss standpoint,” he says. “At least from a Lockton perspective, there’s not a lot of outliers in regards to vast trends in higher fatalities or even serious injuries from a bodily injury standpoint.”

Topics USA Contractors Construction