Construction means growth, and a healthy economy signals a healthy construction industry and vice versa. With Nevada expanding in size and diversity on a daily basis, it makes sense that the construction industry should be expanding as well. But as costs begin to rise again and expansion brings competition for contractors, are profit margins as healthy as the industry on a whole? And as healthy as the economy is, due in part to very low unemployment, how hard is it for the rapidly growing construction industry to find skilled employees to perform the rapidly expanding work?
Are the workers available?
Wen it comes to finding good quality employees who plan to stay for the long term, many employers are in a bind these days. With unemployment numbers at historic lows, employees have plenty of jobs to choose from, and many are electing not to work in the construction industry. Opinions, however, are mixed as to whether or not a problem actually exists.
Frank Martin, president and CEO of Martin-Harris Construction, feels the squeeze mostly in middle management. Field personnel, he says, the carpenters and laborers on the sites, are available, largely, because there are no major projects going up along the Las Vegas Strip, though during construction of the Venetian and Belagio employees were hard to find.”We’re not experiencing any problems,” says Tim Krump, president of Krump Construction, Inc. Particularly in Northern Nevada. Right now there are no mega-projects under construction and the industry has settled into a steady work pace.” Where they are seeing more of a shortfall, he says, is in professional staff positions — project managers and estimators, for example. “It’s getting tougher to fmd good quality people, so we’re going outside the area more often than not to look for experienced individuals to satisfy our corporate culture.” And part of this, Krump believes, is due to more glamorous, potentially lucrative careers such as those available in the high-tech and computer science industries luring people away who, in the past, might have considered civil or traditional engineering.
For Q&D Construction, staffing is definitely stretched thin. “It affects us when we start to gear up later in spring and into summer, when the heaviest work load begins,” says Norman Dianda, president and owner of Q&D. “We’re starting to go through more candidates to acquire quality employees with the skill levels we demand of our work at Q&D.”
For Dick Rizzo, chairman of Fermi Building Co., the employee shortage is less evident. The place where Fermi is feeling the pressure is not necessarily in the field where qualified union help is still available, but on the salaried staff side. It’s more difficult to find experienced project managers, supervisors, engineers and their support staff, says Rizzo. For Perini, the situation is somewhat exacerbated because of the size and nature of the projects the company typically undertakes. Large contracts are harder to staff with people who’ve had previous experience on such projects because they simply aren’t as common.
What doesn’t seem open to debate is the fact that the median age of the average construction worker is rising. Despite generous pay scales, high school graduates are not flooding into construction jobs. Infact, says Martin, a well-deserved negative reputation precedes employment in the construction trade — a stigma bequeathed by past generations — that this is the last place of choice to look for work. In today’s market, Nevada’s construction industry should be at the top of the desirable jobs list, he says.
One segment of the population still seeking the field is the Mexicaji-Arnerican population, and without them, says Martin, the field would be seeing a tremendous amount of gray hair. Dianda finds there aren’t many young people looking to enter the industry at all, and those who do, are often not just out of high school but instead entering apprenticeship programs at ages ranging from 25 to 40.
“From what I can see, fewer and fewer young people are entering the industry,” says Martin. “The school districts, public schools, they’ve done avery good job convincing teenagers that they need to attend college, but the unfortunate side of that is less than 40 percent of graduating seniors actually go on to college. What happens to the other 60 percent?”
What Martin would like to see happen is technical training outside of the vocational schools. He’d like to see public schools offering carpentry classes and training in the major trades like electrical, plumbing, sheet metal and masonry.
Q&D prefers its employees to have at least a high school education, although the firm can work with and train good employees who don’t. In fact, a number of Q&D’s employees end up returning for their high school degrees. “One of the things I look at is the fact that our industry pays good wages, and people can make a living for themselves and their families and have a comfortable lifestyle. What I see lacking is that I don’t think educators tare teaching} that you can make a good living in the construction industry or construction-related profession,” says Dianda. Q&D works with Partners in Education, visiting area middle schools and high schools, and inviting students to tour their facilities and current in-work projects. The field trips reveal to students the wide open career fields available within the construction and construction-support markets. “We show them the industry, everything from laying pipe and building roads to finish carpentry and fine cabinet making,” says Dianda.
Dianda likes to emphasize to youngsters that job satisfaction is rarely found in a large paycheck. “We have the ability at our place to show students that if they want to do something real creative they can learn cabinetmaking and be responsible for crafting very high-end products,” says Dianda. “A skilled cabinetmaker is like an artist in his or her own field, yet it~ one of the biggest job niches we’re having trouble filling. The generation that’s best at it is rapidly approaching retirement age. Nevertheless, although it’s difficult to get people interested, it’s a very rewarding line of work.”
If the school systems don’t take steps to remove the stigma from the construction industry, Dianda believes, down the road it’s going to become tougher and tougher to fill vacant positions. UNLV offers a construction track, but it’s targeted toward turning out nud-level management and attracting civil engineers and architects, Martin says. “Unless young people get interested very early on, once a person hits 20 to 25 years of age, the construction industry is not an attractive career opportunity.”
Yet all of his employees are professionals, Martin says. It’s what they’ve chosen to do. “And the kicker is, you can make a doggone good amount of money on an annual basis, especially in Las Vegas because there’s not the severe weather conditions inherent to the more inclement regions of the nation — it’s a year-round job.”
Perini takes a very proactive stance when it comes to keeping its workforce weli-staffed. It is perhaps due to this philosophy that Rizzo is able to comment:
“The bottom line is, we haven’t really noticed a severe shortage of quality help.”
Fermi works with internship programs, taking on students during their junior and senior years with the understanding they’ll remain on staff for a certain term after graduation. In addition, the firm almost always has openings for qualified college graduates. Perini also seeks out any area newcomers who possess union backgrounds. “Members of construction trade union’s will require very little training, even if they are new and unfamiliar with the locale.
Are the profits attainable?
Another concern for the still rapidly growing Nevada construction industry is the squeezing of profit margins.
Profit margins are being eroded from two different fronts, says Frank Martin. One is due to the shortage in middle managers which means existing executives must be paid more to retain them. The second squeeze, says Martin, conies from something unique to the construction industry.
“It’s always bothered me,” says Martin. “When a client says a project is too expensive, the first thing many builders do is cut their fee. Instead of using professionalism and innovation to make the project niore affordable, the general contractor cuts his fee. It’s a disconcerting, yet all too common practice that has developed over the course of the past seven years. The resulting devaluation of general contracting services negatively impacts the entire industry,” explains Martin.
Another issue confronting contractors and developers is brought about by the positive factor of the industry’s growth. In markets expanding as fast as Nevada’s, there’s plenty of room for newcomers. But contractors are often tradespeople who decided to go into business for themselves, Martin says. lit many cases, although very skilled in their trade, they don’t possess the knowledge or the resources to successfully manage and operate a corporate entity. After five years, as few as 4 percent to 5 percent of those new contractors have managed to stay in business — and many of them fail far more quickly than that. “They lower the market another notch — both in price and workmanship — and nobody cares if they’re gone in a year. The contractors that survive now face a new lower standard set by contractors no longer in business,” says Martin.
“When new contractors set up shop in the area, they buy work by assigning a lower value for the services they render,” says Martin. “As a result of this trend, I believe dwindling profit margins in the construction industry are primarily self-generated.”
For Q&D, employees play a vital role in the profit margin. Lacking good quality workers can eat away at profits, says Dianda. And since the construction industry has historically worked under slim margins, companies have had to become innovative, becoming more effective in the way they work to stay competitive and still have a bottom line where at the end of the year there’s a reason to stay in business.
“We use new and better equipment, and find other ways to increase productivity and turnaround, while maintaining the quality and integrity we demand of our work,” says Dianda. “We are always modernizing our equipment. For instance, all of our grading blades are furnished with laser equipment so the operator can set the laser to cut the grade exactly. This eliminates the potential waste of materials, such as asphalt or concrete, that can result from an inaccurate cut. Those are some of the things that really make a difference.”
Rizzo says Perini hasn’t experienced much in the way of shrinking profit margins. The majority of the firm’s work is done on a negotiation basis, where Perks is invited to work with the architect and owner to develop a guaranteed price on the project and a schedule that makes sense so as to not go over budget on time or money.
Fermi has experienced fluctuations in the price of materials such as wood and steel, but because materials costs are passed on to the customer, the profit margin impact is negligible.
For Krump, as well, the traditional bidding process has evolved. Now, clients elect to go with value-oriented project-delivery methods, creating owner-architect-contractor teams that work together from design phase through building phase. “This segment of the industry is growing dramatically so it’s the opposite of a profit margin squeeze in that regard,” says Krump, “and that’s where the bulk of our business lies.”
Overall, the construction industry in Nevada seems to be in great shape. “Excellent,” says Frank Martin. “My industry has grown phenomenally over the course of the last threee years even last year after the Strip mega-projects were finished and it looks like it wili continue to grow.”
