A Labor Shortage for Arizona Infrastructure Projects?

(Source: AZBex): Rebekah Morris – We’ve all read the Arizona headlines about what the construction labor shortage is doing to the industry. From blanket statements of doom and gloom to more moderate projections and cautionary visions of price increases and schedule delays, it’s hard to tell what the real impact is to local projects. Some of the largest public owners and general contractors were kind enough to provide their thoughts on the matter.

Market Sector Activity Levels are Steady, Will Rise with Funding

From ADOT to City of Phoenix and MCDOT, from contractors of various sizes, the infrastructure sector is busy and activity levels will only increase as funding for infrastructure projects increases

Kini Knudson, City Engineer with the City of Phoenix states: “The City of Phoenix’s 5-Year CIP is in a great place. Although it has not recovered to the pre-recession levels ($7.0B – FY2007-2012), it has increased nearly $1.4B over the past two years (budget cycles). It remained steady last year, but the recently approved $4.6B 5-year CIP for FY2017-2022 represents an increase of $1.1B over the previous year.

The increase is primarily attributable to major projects at Phoenix Sky Harbor International Airport, additional infrastructure investment in our water and wastewater facilities, and implementation of the Transportation 2050 program (Proposition 104).”

Similarly, Alfred Erives, Division Manager with MCDOT explains, “The $92M programmed budget for FY17-18 is healthy, although we’re a ‘little slow right now.’ That programmed amount leads to about $40M-$50M in construction activity for the fiscal year.”

AZBEX Capital Improvement Program research points to continued growth in the public sector. Of the 10 largest programs we look into each year, they collectively show a 10.14 percent increase over last year’s totals. Those numbers are likely to tick up as tax revenue continues to exceed projections.

Contractors Absorb Impact of Labor Shortage

Infrastructure general contractors have projects underway in all corners of the state. Mike Abraham of J. Banicki Construction highlighted projects at Sky Harbor and the City of Yuma. As a union contractor, he has the ability to pull workers from the hall, but, as he explains, the quality is down.

Currently, he has 4-5 skilled positions open. He’s struggling to find good, qualified candidates. They’ve now included a labor availability metric to help determine if they’ll even pursue a project. When asked about subcontractor performance, he indicated that they’re performing slower at times, and as the general contractor, they will supplement with in-house crews to supplement, or rework the project schedule to adjust.

Similarly, FNF Construction has projects all over the state – from work on I-40 near Flagstaff to the I-10 Ehrenberg Port of Entry Phase II in Ehrenberg. With the ability to self-perform almost every scope on a project, they haven’t seen a major impact to their projects.

According to Deena Ross, FNF’s business development manager, “We have a prequalification process for our subs that requires data that gives a good idea of their ability to complete work. The industry is relatively small and word travels fast. There is a pretty strong reliance on relationships in this industry. Our ability to self-perform most of the work we do allows us to fill in gaps if the need should arise.”

Mild Concern at the Owner Level

By and large, public owners are insulated from the construction labor shortage by stringent contracts with steep daily liquidated damages for not adhering to the contract schedule. The sentiment from MCDOT, City of Phoenix and ADOT was one of awareness and mild concern. No one is adjusting engineers’ estimates or construction schedules to reflect an overall labor shortage and the expectation of higher prices. Alfred Erives even stated that he’s seeing high numbers of qualified bidders place bids on projects with very competitive numbers.

The most dramatic impact we heard about was on two MCDOT projects – both crack sealing contracts that experienced a major shortage of laborers. MCDOT’s remedy was to replace the contractor with one who had access to manpower and could complete the job.

Erives explained that crack sealing is both temperature dependent and the first step in a multi-step process of pavement preservation. If the crack sealing didn’t get completed as planned, they would have been set back a year on the program. He went on to say the positions the contractor had trouble filling were entry-level, most likely the lowest paid position on the crew.

These two instances happened since January 1, when the state minimum wage was raised to $10/hr. “How can you blame a guy who doesn’t want to go out on pavement that’s 120 degrees-plus for $12/hr., when they can go inside somewhere and get $10/hr.?”

Larger construction projects are not seeing that same lack of entry level manpower. Instead, contractors are struggling to find qualified persons to do the work.

Entry-Level, Highly Skilled Workers Needed

As the public sector continues to grow, the need will continue to grow as well. General and specialty contractors alike are intensely focused on developing skills for employees, providing a career path instead of ‘just a job’. Culturally, the emphasis has been placed on obtaining a college degree instead of pursuing a skilled career path. To answer this, contractors and associations are engaging with the community much earlier than high school, reaching into middle schools and even elementary schools to communicate that there are many paths to a good career in the construction industry, many that will not require years of college and a mountain of student loan debt.