D

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HOW TO S U C

SHORTAGE
Despite the Labor

BY JAMES C. SCHUG

Economic improvements and

positive trends of increased
construction spending are
welcomed sights.
As a result, revenues are growing
and many companies are enjoying
improved bottom lines.
However, despite this upswing
many leaders are struggling
to find, develop, and retain
talent for the future.

As of this writing, the unemployment rate is below 6%,

which is good news for the general economy. Most contractors recognize direct project costs will be increasing, potentially squeezing margins. Several factors have combined to
form a perfect storm of sorts:
1) General demographics (i.e., the Baby Boomer
generation retires with a much smaller replacement
rate from Generation Y).

Keep Generation Y

in

Mind

Attracting Generation Y employees is a challenge, but it

shouldnt be. Characteristics most in favor with Generation Y
employees include:
Dynamic and challenging workplaces
Fast-paced and merit-based environments
Making a difference in their community

2) Employee engagement levels are at an all-time low.

Being a part of something bigger than themselves

3) Society has created a mandate of sorts for all high

school graduates to attend college, rather than learn
a trade.

Fortunately, our industry has an abundance of these qualities; unfortunately, they are not well known. Old-school
construction industry images have overpowered the truth
about our industry that needs to get out. For example, one
contractor in a large city has always paid its employees well,
empowers them to help guide the direction of the company,
and follows a work-life balance approach. Based on these
measures and more, it treats employees exceptionally well.
The companys general superintendent feels it is why they
always get the top talent from the union, which makes a
significant difference in how the company performs.

4) The oil and gas boom is pulling many of these employees

from our industry at much higher pay rates.
Many in the industry are targeting nontraditional sources for
talent (e.g., police, fire, teachers). Others are hiring based on
raw talent and have significant investment in development
programs. Hire for integrity and work ethic and well train
and grow them into a skill set.
In order to succeed in the future, companies must change
quickly. Otherwise, they may face challenges with increasing
labor costs, static company demographics, and challenges
executing their strategies.
This article identifies some deliberate steps contractors are
taking to combat these challenges. The first step is to focus
on the company culture, which impacts the ability to attract
and retain employees. The second step identifies mechanisms and organizational development to re-engineer the
company, streamlining the need for talent. A renewed focus
on these areas will yield results and allow great companies to
attract and retain the right people.

Focus on Company Culture

The first suggestion is proactive and may not be considered
a best practice: Build a company culture that attracts
workers rather than a company that just employs workers.
The referral network from a mid-sized construction company can extend past friends and family to many
others in the community. Your employees should
be proud to bring a friend to work with your
company. Great companies have a contagious
sense about bringing other great people on
board. Every company in your market is competing for talent much like they are competing
for customers.

Developing a clear core purpose and vision for your company is critical to its success in this complex and uncertain
industry. Generation Y identifies more with your companys
mission statement than its incentive program. They are
motivated by purpose. (In the past, Baby Boomers often
searched for the best incentive programs as a motivator.)
Retain Employees
Not only do great cultures and companies attract great
employees, but they also retain employees. Many companies are investing more in training and development for
their newer workers. After investing at this increased level,
developing a culture that retains employees is also a priority.
Much as the best soldiers fight in battle for their platoon, great
leaders build upon the ageless concept of teambased morale. Building a unique bond among
superintendents and perhaps another among
project team members reinforces a companys
identity. This culture within a culture is much like
a braided rope and acts as a mechanism to retain
employees.

Streamline the Need for Talent

The second step is more reactive, yet just as important:
Streamline your company to do more with less. The way
in which business was conducted in the past (i.e., with an
abundance of available talent) will not work in the future.

January/February 2015 CFMA Building Profits 25

This means tearing down the silos, burying bureaucracy,

and re-evaluating workflows. Company leaders must ensure
employee engagement and remove wasteful efforts. Here are
some ways contractors are accomplishing that.
Alignment
Alignment enables focus and discipline on important issues,
relating operational performance to the direction of the company. Most companies have many initiatives, but operational
initiatives should not exist in isolation. Great companies focus
on those tasks that tie in to the company strategy rather than
wasting time on lower return items.
As an example, a recent client focused only on hard bid work,
yet went through great efforts to conduct customer service
training. Customer service training is important, but given limited time, many other skills and initiatives should have been of
higher importance for that company. Tying operational initiatives to company strategy also allows for a natural motivation
or rallying cry to achieve results. By doing this, the leaders
can focus on what is essential while the company continues
building projects and remains disciplined to follow through on
the initiatives it starts.
Outsourcing
During a presentation at CONEXPO-CON/AGG in March
2014, I asked attendees if they outsourced their maintenance
services; almost everyone raised their hands, and several even
suggested that they outsourced completely. The number one
reason cited was to offset the challenge of labor, along with
financial improvements and better control.
For example, one heavy/civil construction company often
operates as a prime contractor on major infrastructure jobs.
The company pays more (in the short run) to have extended
warranties and (in some cases) leased equipment. At set intervals, the fleet is rotated and new equipment is brought in to
maximize salvage value and minimize extensive repair costs.
If a breakdown occurs, then time spent ordering parts, diagnosing, and tracking mechanic hours is limited or nonexistent.
The experts (outsourced vendors) handle those tasks, leaving
the company to focus on its expertise finding customers and
building projects. According to the companys CEO and owner,
we arent a maintenance company, we are a construction
company. Im not threatened at all by getting out of that line
of workI love equipment, but I love building projects more.
26 CFMA Building Profits January/February 2015

Lean Culture
The Lean Enterprise Institute (www.lean.org) defines the
Lean standard as maximizing customer value while minimizing waste (i.e., creating more value for customers with fewer
resources). By this definition, a lean company understands
how to create value for its customers and directs its processes to continuously increase that value. Lean contractors
can be recognized through their use of measurement, continuous improvement, identification and reduction of waste,
field crew support, and continuous learning and adaptability.
While many companies have learned about Lean projects,
few have created Lean cultures. A great place to start is with
an attitude of overall support toward the field. Lack of support or improper timing from estimating, tools, equipment,
materials, payroll, and more could affect field production
and cause needed resources (or information) to be delayed.
These root causes often add up to more than 30% of waste
on a typical construction project and are never deliberately
intended. Effective leadership and management works hard
to remove the obstacles in front of the crew so that they can
maximize their time putting work in place.
One of the greatest challenges in providing the constant
and variable support that a crew needs is that it demands
integrated communication across several key functions and
positions within the company. The general superintendent is
often involved with manpower assignment and has input into
equipment moves, which is often refined by the shop manager and foremen in the field. PMs and estimators start with
information, which is frequently updated from the field and
through the customer by actions occurring on the ground.
Effective equipment management, material management,
and manpower alignment is critical; the systems should be
built as two-way streets of communication.
Implementing the Lean standard requires strong leaders.
Knowing the fine line between creating systems as previously mentioned and ensuring they are simple is very difficult.
Getting buy-in from employees requires mature leaders to
help companies overcome the natural resistance to change.
Sharing positive results from developed systems becomes
paramount to getting support to continue the initiative.
Seldom (if ever) does brute force across the company yield
the culture in which Lean flourishes.
Software & Technology
Technology is no longer solely the role of IT departments,
as companies are becoming increasingly operational about

HOW TO S U C C E E D
Despite the Labor Shortage
technology. For example, when time sheets are automated, it
typically frees the efforts of those people who used to manually process the time sheets, not to mention the field management time spent collecting, reviewing, and dropping off
the time sheets. Integrated with accounting systems, these
automated systems arent new, but they are rapidly increasing in use improving reporting accuracy and increasing
efficiency throughout a company.
Project collaboration with the field, typically enabled through
tablets and smartphones, radically changes the impact of
foremen and superintendents. Most companies experiencing this transition are initially met with resistance, but after
implementation would not be able take back the iPads from
field management if they tried!
Some clients hold regular internal meetings to share apps
being widely used that improve time and execution. Other
companies have called vendors requesting apps and some
have designed apps on their own. Accurate communication
and access to the right information is a pillar of great operations. For example, one company internally developed an app
that allows the field to quickly view what equipment is set to
dispatch from the shop on any given day, with a status-based
color code (ready to depart, departed, en route, arrived).

initiatives. Clear vision and strategy will help guide and filter
the most important initiatives and improve the companys
ability to implement change without getting pulled into the
day-to-day whirlwind.

Conclusion
Great companies continue to adapt to their customers and
the evolving context around them. A driving force all contractors face includes the demand for labor. Supply and demand
suggests that the average rates for construction workers will
dramatically increase, resulting in attracting new talent from
otherwise saturated fields. Often these forces take time to
work through. In order to succeed in the future, companies
must act now to prepare.
Developing robust recruiting efforts, new roles for HR, and
getting field leadership involved is helpful. It is more impactful
to create a winning culture that attracts talent. In addition,
developing systems and processes to be performed with fewer
resources will help manage the limited talent companies have
today. These two forces complement each other well to help
smart contractors adapt successfully and win in the future. n
Copyright 2015 by FMI. All rights reserved. This article first
appeared in CFMA Building Profits. Printed with permission.

Fabrication & Modularization

During a meeting held in the booming U.S. Gulf region this
past summer to evaluate the fabrication efforts across several mechanical contractors, the average labor outsourced
to the fabrication shop was 25%. Projecting out five years,
companies felt that they would each have more than 50% of
their field labor performed in the fabrication shop. In fact,
one company has changed its internal vocabulary from calling it prefabrication to manufacturing.
While the industry will not entirely move out of the field,
the trend is real and the benefits are significant. Bottom line
results are improved and these companies are better able to
most effectively utilize their field labor.
Every company has areas to streamline operationally. These
may include specialized training, leadership, lean operations,
automation, technology, or many more. When coupled with
great leadership to gain buy-in for change, these ideas improve
the efficiency of the company and better allocate the existing
talent to accomplish the task at hand. Many will remark that
their company is running as hard as ever while juggling many

JAMES C. SCHUG is a Principal and Engagement

Manager with FMI in its Tampa, FL location. Jim helps
develop customized strategy and best-in-class operations,
and applies practical experience with an in-depth understanding of leading lasting behavioral change in dynamic
environments.
With more than 10 years of experience as an Army
Officer, Jim led operations in complex and challenging
environments. He refined these skills working for a national
builder, repeatedly leading his teams to successfully integrate operations, sales, and customer service.
Jim is a graduate of the U.S. Military Academy at West
Point, holds an MS in Engineering Management from
the University of Missouri, has completed post-graduate
work with Cornell University in Achieving Competitive
Advantage, and is certified in Lean/Six Sigma. He has
served in leadership positions on various local and national nonprofit industry associations and frequently presents at
industry events.
Phone: 254-681-7867
E-Mail: jschug@fminet.com
Website: www.fminet.com
January/February 2015 CFMA Building Profits 27

compatible

Formerly...

BY PATRICIA KAGERER & GRACE HERRERA

CULTURAL & WORKFORCE CHALLENGES

Facing Construction Today

Where Has All the Labor Gone?

According to the AGC of Americas 2014
report Preparing the Next Generation
of Skilled Construction Workers: A
Workforce Development Plan for the
21st Century,2 the shortage of labor
in construction is driven by a series
of policy, education, demographic, and
economic factors that have decimated
the once robust education pipeline for
training of new construction workers.
The booming energy sector has also created a demand for more skilled workers
(e.g., pipe fitters and heavy equipment
operators). Some workers may lack the
skills to qualify for those jobs.
According to results from CFMAs 2014
Construction Industry Annual Financial
Survey Online Questionnaire, 43% of
companies are losing skilled trade workers. (Turn to page 56 for more about
these survey results.)

After surviving the Great Recession, the industry is finally on

the rebound. All construction sectors are reporting growth, and
for the first time in history the U.S. is now the worlds leading
producer of oil thanks to the refinement of hydraulic fracturing
technology.1
This unprecedented event has created a plethora of oil and gas infrastructure and construction jobs as well, generating competition for
construction labor among all sectors. But as the competition increases,
there are limited resources for labor, talent, and training.

The overall labor shortage could undermine the recovery of all construction
industry sectors and have a negative
impact on the broader economic growth
by creating construction delays, high
costs for projects, and potential contractor defaults.
And, as the construction industry has
evolved with new materials and processes, contractors have not ensured
that the existing labor force and leaders know everything needed for proper
installations.
Technology and delivery systems continue to change (including a heavy emphasis

January/February 2015 CFMA Building Profits 29

on BIM, LEED, and Lean), and the contractual exposures to

contractors have skyrocketed. These factors create a perfect
storm that could lead to catastrophic risk exposures related to
safety, quality, and schedule.

How Did We Get Here?

How can an industry that lost millions of jobs in a few short
years be faced with such a significant labor shortage? Where
did the workforce go and why arent they coming back?
During the downturn, many laid-off workers found positions
in other industries, retired, or went back to their country of
origin. Furthermore, the makeup of our supervisory and
project management teams has drastically changed over
the years. Lifelong industry professionals who grew up in
construction and apprenticed under their families are now a
rare breed, replaced by college graduates who have studied
construction science and theory in books.

Key Areas for Reform

The AGC report highlights comprehensive reform
focused on nine key areas:3

Reform and reinvigorate the Carl D. Perkins

Practical experience (the sheer know-how of watching,

doing, and learning) has vanished from the industry. A
desperately needed transfer of knowledge never took place.
In addition, several factors have contributed to the lack of new
talent gravitating toward the construction industry. Spurred
by the recent emphasis on attending college, federal funding has shifted from public construction vocational training
programs to college preparatory programs.
Decreased union participation has resulted in decreased
access to union apprenticeship training programs. Federal
and state rules make it difficult for open-shop contractors to
form similar apprenticeship programs. As a result, many contractors hesitate to invest in training for fear that competitors
will hire their newly trained staff and underbid them on their
projects.

Makeup

of

U.S. Construction Workforce

The construction industry has heavily relied on a foreignborn workforce in the past and will continue to do so well
into the future. According to a 2012 report from the U.S.
Bureau of Labor Statistics, nearly 25% of construction workers are Latino.4 Over the past 15 years, the U.S. has spent
billions of dollars on border enforcement, yet the number of
undocumented residents has increased from approximately
seven million to 11 million.5

Career and Technical Education Act of 2006,

Encourage veteran training and hiring,

Construction labor grew by 16,000 jobs in September of

2014, and it is estimated that more than 230,000 jobs will be
added in 2014 alone.6 One would think this could be a win/
win situation: Hispanic workers coming to the U.S. need jobs;
the construction industry needs workers.

Create partnerships with community colleges

Immigration Challenges

Encourage private funding for craft training

programs,

Improve the Workforce Investment Act,

for apprenticeship programs,

Expand federal resources for apprenticeship

program,

Offer high school programs for free,

Establish public school vocational and technical
programs, and

Enact immigration reform.

While these items are critical to the future vitality of
the construction industry, they all take time, money,
and resources to implement. However, profit margins
are still down and schedules are tighter than ever,
leaving little room in the budget for training and education and even less room for any failure related to
safety or quality.

30 CFMA Building Profits January/February 2015

Unfortunately, the current immigration system does not

provide the appropriate mechanisms for legal work entry
into this country. Permanent U.S. work visas for unskilled
workers are limited to only 5,000 per year for all industries.7
According to a report from the Workers Defense Project,8
the challenges of entering the U.S. legally creates many
problems for both workers and contractors. Without proper
immigration reform the government may be inadvertently
creating a demand for undocumented workers.
President Obamas recent immigration reform provides a
hopeful step toward repairing a broken system and would
potentially allow for more than four million who are in the
U.S. illegally to ultimately fully integrate into American society. It remains to be seen how effectively the current reform
will impact the construction labor force.

cultural & Workforce

Cha lleng es Fa cing Constr uction
Supporters of the reform indicate that current foreign-born
workers will now be able to obtain work permits and ultimately legitimate employment. Some critics say that while
the reform is a necessary step, it did not go far enough and
will ultimately require additional steps to fix the broken system (e.g., verification, border protection, streamlining the
legal immigration process and fixing the visa system to allow
businesses to address the need for new hires).9
Undocumented workers are exposed to poor and unsafe
working conditions, less pay, and wage theft and have a
higher propensity to be killed on the job than U.S.-born
workers. In 2013, 66% of fatal injuries involving Hispanic
or Latino workers were foreign-born.10 Also in 2013, almost
half (42%) of foreign-born workers killed from fatal injuries
were Mexican.11 These workers are inherently willing to take
more risks and less likely to speak up when it comes to safety
issues because they feel lucky that they made it to America
and actually secured work.
Contractors hiring undocumented workers fare no better.
They put their companies at risk for fines and criminal
charges. Yet contractors in certain geographical areas (e.g.,

the southwest) that chose not to hire undocumented workers face unfair competition, labor shortages, and an inability
to meet production requirements.
The fact is that the construction industry will continue to rely
heavily on a culturally diverse, predominately Hispanic workforce. The construction industry needs to accept that cultural
recognition and awareness is necessary to end the unacceptable trend of Hispanic death and injury rates.

The Current Climate

Latin American immigrants often come to the U.S. for a
chance at a better life, searching for the American Dream.
Yet, there is a much more basic motivation survival. Latin
American countries such as El Salvador, Honduras, and
Guatemala are considered some of the most dangerous places
in the hemisphere. People are no longer coming to the U.S. for
economic opportunity; many are fleeing for their lives.
In fact, it is estimated that more than 90,000 unaccompanied minors have illegally crossed the U.S.-Mexico border
in the past fiscal year. A survey by the United Nations High
Commissioner on Refugees of 404 children who arrived in

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January/February 2015 CFMA Building Profits 31

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