Now more than ever, education and legislation play a big part in shaping the future of subcontracting. While material costs have remained somewhat steady in recent years, subcontracting, like many Nevada industries, is facing a labor crisis. Recently, executives representing Nevada subcontractors met at the Las Vegas office of City National Bank to discuss their industry and its future.
Connie Brennan, publisher and CEO of Nevada Business Magazine served as moderator for the event. The magazine’s monthly roundtables bring together industry leaders to discuss relevant issues and solutions.
Is it Challenging to Find and Retain Labor?
Blaine DeBrouwer: When the recession hit, there were no jobs so everybody went elsewhere. Then we started to gradually grow out of [the downturn]. All of a sudden, here’s another boom, which is great. But, at the same time, the labor is gone, so there is no automatically getting [labor] right back. The growth is at a certain pace and the relocation or the development of manpower is not equal to that. You could try to hire away good talent but that’s a bidding war. I’m a roofing contractor. What chance do I have to get somebody inexperienced at 15 bucks an hour working on top of a roof in the summertime when they can go inside, pull wire with no experience and make that same money?
Victor Fuchs: It takes time, it’s hard work and you have to be exposed. You work outside. Three or four months a year you work in 100 plus degrees. It’s hard work because you have to produce and it’s measured. You measure it on a daily basis.
Jeff Vilkin: About a year ago, at least to my observation, there was a sudden and dramatic cost increase to the price of labor. To use an analogy, for awhile there, the tail was wagging the dog. Labor was determining, “This is when I’ll come to work, this is what I’ll do, this is how much you’ll pay me and if not, the guy down the street’s paying more. I’ll go.” That lasted for a little while and the industry’s been successful in capping it. [There is a] 25 to 30 percent increase in terms of what we pay field labor now compared to a year ago.
DeBrouwer: To even get somebody who’s trained that can come in and lead a crew or something like that, that’s a unicorn. You’re just hoping to get people through the door that will stay there long enough that you can recoup the cost to train him.
David Dieleman: Getting people to come back to Vegas is a challenge too. If [the boom] doesn’t stay long enough, you’re not gonna get the people to come back. We’re bringing operators back and they’ve all told me, “We’re not buying a house. I’m gonna live in my travel trailer because I’m not going through that again.” So if there’s no long term goals or work, they’re not coming back.
DeBrouwer: How do you protect those things that cause people in other states to come here? One of them is affordability of the housing. Is the new legislature gonna go out and start convincing the public that businesses can afford to pay more right now? There needs to be this big push of, “Don’t California my Nevada,” that is protecting those things.
Does Education Play a Role in the Industry’s Future?
DeBrouwer: The generation of the farmer’s mentality is gone. How is the construction industry replacing itself? I’m a second-generation [subcontractor]. My dad started the company 50 something years ago. I don’t have anybody to pass it on to. To find younger talent that’s gonna come in and decide that, “this is a pathway for me to actually be able to provide for my family and have a good income,” they’re just not there.
Jeff Stafford: I probably had 20 high school kids over the past two summers and not a single one has been retained.
Kelly Gaines: When I graduated high school, there were vocational schools. That was an option. A lot of my friends went into those types of trades. My dad was in construction so that is a generational thing. One of the biggest challenges is that young people don’t have the option in schools as much and the exposure to be able to get into trades. The other thing is, unfortunately, culturally in America, how young people can make money. I was just in a legislative meeting today. [We talked about] this one kid [who] graduated from a University in California. He sells marijuana. He can make $200,000 to $300,000 doing that. He doesn’t want to make $60,000 coming out of college. There’s just so many more options for them to make money and not do as much work.
Vilkin: I would agree with Kelly. It really comes down to opportunity. I have two grown sons that are 29 and 37. They both have selected other career paths and are doing remarkably well. It’s such a different environment now. I have exposure to startup businesses that are producing unbelievable numbers as our culture and the technology that it operates on is growing. There’s such tremendous opportunities today. The sexiness [of construction] is gone and who really wants to do it? For those who would select it, they have a great career path in front of them. If you show up, you have a good head on your shoulders, represent your company well and you meet some of the basic parameters, you’re never gonna be out of work unless the economy really dumps.
DeBrouwer: I don’t think that the college students—that next generation—have actually had the facts and the numbers put in front of them that they can see. If you want to go to college, that’s great. By the time you’re 22, you’re net worth is “this” and you’re in debt to “this.” Now, if you chose a vocational school and you started working out in the construction industry, by the time you’re 22, your net worth would be “this,” your debt is very little and you have a down payment on your first house. I don’t think that the numbers and the actual reality are being posed towards those high school students. I think they figure they’re just stuck.
Gaines: One of the things that our board would like to have, which I think is what will help impact in the schools, is a legislative agenda item. I think there’s no other way that you can have it back in the schools without it being a legislative agenda item. That’s just one of the solutions with the labor, exposure in high schools. I don’t think that can change through anything but [legislation].
Fuchs: We as a community are not stressing the construction industry and promoting it to young people. As a community, we have done a terrible job. Our student counselors are not describing [the] construction industry as a career. It’s almost like a dirty thing. You’re gonna be out in the trenches, you’re gonna be in the concrete, you’re gonna be a roofer with all this mud. The fact is, after four years [of] apprenticeship, you develop skills and have a career for the rest of your life.
How do Project Labor Agreements with Unions Affect the Industry?
Fuchs: You get excluded out of performing work, public work where it requires public money and everybody should have a fair shot. Non-union contractors get excluded for all kinds of reasons. Today, especially with legislation, we have going in Carson City, it’s an even bigger challenge. We have certain Nevada Revised Statutes that were implemented to prevent a lot of project labor agreements (PLAs). They’re all being challenged.
DeBrouwer: The taxpayer is not exposed to firms like ours that can provide for them at a lower cost, so they’re paying more.
Vilkin: The bottom line is that taxpayers are getting shafted. They’re paying more because the system is dictating only union contractors and the cost difference is dramatic [between] an open shop job and a union-only job. It’s the taxpayer who is funding it. Any kind of project being built under a project labor agreement [means] you’re getting less bang for your buck.
DeBrouwer: What’s getting taken out of the job in order for me to budget because of those high costs? You get a project but it’s not how it was originally marked out to be. The taxpayers and the residents get less of a project as a result.
Fuchs: In California, they forced multifamily projects to go under project labor agreements. Any project downtown is subject to a PLA. Once a PLA is signed, it’s too late. I think some of the smaller residential contractors are very short-sighted because this will come here. San Diego used to be a very conservative town and today, any mid-rise, high-rise building, residential building built in downtown is subject to a PLA. If you don’t sign a PLA, you’re not gonna build a project.
How Important is Workplace Safety in this Industry?
Fuchs: I think we have a moral responsibility to our people because we put them in [an] environment of risk. We’re responsible for them to come home in the same condition they left. It starts from there and our company is zero tolerance. So everybody’s at least OSHA (Occupational Safety and Health Administration) 10 [hour certified]. Most of our supervisors are OSHA 30 [hour certified]. All management take OSHA classes as an example [to everyone else]. The fact that that card comes in [is] nice but we make sure that they’re all real. We do a safety test that, if somebody just bought a card, there’s no way they would have passed. It’s just simple things you do to prevent [accidents] because the card is just a formality. [If a] guy doesn’t have the skills and gets out on site, he doesn’t just hurt himself, he will hurt a lot of other people who [are] trying to be safe.
Vilkin: For a professional subcontractor, safety is an internal culture. We train all of our people, we make sure they’re being safe, we have a whole culture.
Gaines: [There is] an OSHA bill which got passed, we supported and sponsored it. It is a registry that’s available to all employers that is public for OSHA card holders. You guys have a card, that has a trainer’s name, the name of the person and a number. You would be able to put that into the registry and validate the trainer is a valid trainer. You can verify the copy of the OSHA card [is] valid. That’s where it’s at right now. It takes a long time to build on that. Ultimately we would like it to provide some sort of report or tracking of where that person has worked.
Is Construction Defect Still a Concern Today?
Gaines: Construction defect is number one for the Nevada Subcontractors Association. It’s why we were formed 20 years ago. It came into play last month. Right now it’s in the hands of our lobbyists as well as trial attorneys on that supporting side working out an amendment that we can all agree to. I was just in a meeting trying to get an update on that and it’s looking good. There are little concessions but we’re working. The biggest thing is making sure that construction defect—the definition doesn’t change because that wording to any attorney, [or] anyone, really impacts the legal aspect of it. We’re working on that amendment.
Stafford: Lately, there’s a big constraint on growth for our company. That and legislation specifically dealing with construction defect litigation [are challenges].
Gaines: We’re a small association so our resources are limited. Our legislative agenda is a little bit smaller and more focused on those kind of things. Construction defect is always something that is being sought after and so it takes up a lot of our resources.
What is the Cost of Materials Like in Today’s Market?
Fuchs: I think it’s pretty much stable. It’s not a breaking point even though you would think [so] with all the demand. They’re trying to keep the economy going.
Vilkin: There was a big run up in steel products a year ago. They had gone up January to March. Steel products had gone up 21 percent before President Trump announced the tariffs on imported steel, which drove it up to about a 50 to 60 percent increase last year. It’s pretty steady now. There’s some fluctuation in the marketplace but it seems fairly stable.
DeBrouwer: It goes back to the relationships you have with your manufacturers as well. They’re gonna raise prices. Typically if they value your business and your relationship [they] are gonna give you as much lead time as possible. Then you can just negotiate price protection through the projects you have under contract and pass those increased costs on to future estimates. I’m not hearing from my manufacturers that there’s any kind of price increase on the horizon.
How Does the Future look for Subcontracting?
Fuchs: I would think through 2020 things will not change. It depends what happens in November of 2020.
DeBrouwer: Confidence won’t be at the level that it is now. Investing in your business won’t be as high. Right now, investing in my business is something that is easier to do than it was 10 years ago because I feel like the political landscape is beneficial for me to invest and be able to recoup that cost within the next two to five years.
Vilkin: A couple things that cratered the market in 2008 were just an unlimited amount of building that didn’t make sense and there’s some real constraints in the marketplace now with the availability of land. You have to have more than a pulse now to get a lender to fund a project that’s poorly designed in a bad location. There’s a lot of interest now in future projects coming on the strip and we’ve gotten here without that drive because of all the diversification in the economy. It’s changed, I think for the better. To me, the curve just looks like a nice, steady ramp. Barring some major economic event on the world stage, it looks pretty good here in my crystal ball. Anybody who can develop now, it’s if they want to because now is the time. That’s what we’re all benefiting from. Pretty much everybody in this room. We’re part of that chain that services the demand and if the demand stops, we stop.