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Sunday, 29 September 2013 22:00

Saying no is hard to do for contractors

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Saying no is hard to do for contractors PHOTO: ELIJAH BRUMBACK

Construction firms and subcontractors in West Michigan are turning down new work.

It’s not because they want to, but current work for existing clients is keeping the companies as busy as ever, executives say.

“In our industry right now, we’re experiencing a real surge of activity,” said Aaron Jonker, vice president at Wolverine Build Group. “Companies are getting stretched to the limit.”

Weighed down by the difficulty in finding skilled tradesmen and not wanting to find themselves overextended as they did in the recession, construction firms are even turning away new work or telling clients to wait until next year.

The message to developers who might require construction services in the next year: You may not be able to get your project done as quickly as you’d hoped.

In Michigan, the industry lost a lot of capacity in the recession as companies closed up shop and as skilled tradesmen left the state to follow the work. From the peak of 214,200 construction workers in April 2000, the industry lost nearly 41 percent of its workforce through August of this year, according to the most recent Association of General Contractors data. The number of people employed in construction stood at 127,200 statewide in August, up 2,700 jobs or 2.2 percent from July — the eighth largest month-to-month increase in construction jobs among all states, according to the AGC and Bureau of Labor Statistics data. However, construction employment in Michigan was only up 1,000 jobs or 0.8 percent from a year ago.

An AGC analysis of U.S. Census data found the nationwide unemployment rate for people looking for work who had last been employed in the construction industry fell to 9.1 percent in August from 11.3 percent a year ago, the lowest August figure since 2008. Overall construction employment was nearly 5.8 million for the month, up 3 percent from a year ago, but “nearly flat” since March of this year.

Construction employment across the six metropolitan statistical areas (MSA) in West Michigan in the second quarter rose 3.8 percent from the previous quarter to 27,150, but declined 0.8 percent compared to a year ago, according to data from the W.E. Upjohn Institute for Employment Research. The sector posted employment gains in the Grand Rapids/Wyoming (460), Muskegon/Norton Shores (300) and Kalamazoo/Portage (240) MSAs.

With the local economy on an upswing, the need for design and build services is also on the rise, but many local companies aren’t exactly rushing to add fixed costs, Jonker said.

“What we’re starting to see is a lot of companies that stayed the course through the recession are happy with the state of their companies today,” he said. “They’re taking a very conservative approach to how they grow now.”

Wolverine is actually turning down work and focusing on existing clients that have projects on the drawing boards. In some cases, Jonker said the company is suggesting that clients hold off on their projects until spring if they can.

“We’re not in the bid market very much right now,” he said. “We’re making sure existing clients are happy and moving forward with their projects. We get a lot of phone calls every day, and we have to say, ‘Thanks, but right now we’re not going to be able to help.’”

With the memory of the recession fresh in the collective minds of executives, it’s particularly hard to turn down work, Jonker said.

“Sometimes, it’s just about being prudent,” he said.

To keep up with the workload, Wolverine — which reported it had 115 employees in an MiBiz survey of the industry in August — hired 12 people in the last 12 months.

“That’s a lot for us,” Jonker said. “We probably won’t do anymore (hiring) the rest of the year.”

A national AGC study showed that 46 percent of firms surveyed had increased the size of their professional staff in the last 12 months, while 55 percent added tradesmen. Twenty-one percent of respondents said they were having trouble hiring in all professional and skilled worker positions, while 28 percent reported difficulty filling tradesmen positions only.

Of the firms having difficulty finding tradesmen, 35 percent struggled to find laborers, 34 percent had a hard time hiring carpenters and 31 percent had difficulty finding equipment operators.

Nearly half of respondents, 48 percent, said they expected it to be harder to find tradesmen in the next year, and another 38 percent expected it to remain just as difficult to fill those positions. Sixty-five percent of respondents said the pipeline for preparing new craft workers was below average or poor.

Those findings are bearing out locally, said Jonker. By doing some digging, general contractors can find project managers and superintendents, but subcontractors are struggling to find people, especially in a few of the skilled trades, he said.

The AGC report noted that 74 percent of survey respondents believe the pool of craft workers is insufficient to meet the needs of construction demand in the next year.

“I know for a fact that in the plumbing and concrete area, subs are having a hard time finding qualified employees,” he said. “Whether (the employees) just aren’t there or companies haven’t figured out that the pay rate needs to be adjusted, we are seeing some inflation in pricing.”

Fifty-six percent of contractors expect to increase wages for skilled labor, according to the AGC.

With fewer crews available, the costs for general contracting firms are ticking up slightly. Jonker said he’s seeing a lot of subcontractors decline to bid on work because they have backlogs that will keep them busy for at least the next nine months.

Inflation is also hitting materials prices. Nationally, materials costs are up 3 percent over the same time last year, according the Engineering News-Record’s 20-city Cost Index. ENR’s overall Construction Cost Index is also up 2.3 percent over the same time last year, according to September’s figures.

Still, Jonker said he isn’t worried about already high construction costs spiking further. In fact, he believes the current market will spawn a cycle of new businesses that want to fill demand in market. The last time this happened was about 10 or 12 years ago, he said.

“The load has increased a lot faster than the capacity to do the work,” he said. “With a lot a good companies declining work, we can probably expect to see some new companies crop up and say, ‘We’ll bid this.’”

— MiBiz Managing Editor Joe Boomgaard contributed to this report.

Read 2009 times Last modified on Saturday, 28 September 2013 14:42