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Industry Outlook: Construction

Construction industry leaders say the past year has been tremendous for the industry, and they’re hopeful that trend will continue—particularly with a new presidential administration. However, continuing labor shortages threaten to put a damper on Utah’s construction industry.

PARTICIPANTS:

David Adkins – EVCO

Mike Alter – Kilgore Companies

Tim Brown – Reynolds Excavation

Paul Campbell – Wheeler Machinery

Scott DeGraffenried – Hollant & Hart, LLP

Gary Ellis – Jacobsen Construction

Jim Gramoll – Gramoll Construction

Troy Gregory – Hunt Electric

Jim Laub – Cache Valley Electric

Rob Moore – Big-D Construction

Matt Morgan – Morgan Asphalt

Bob Rowberry – Jack B. Parsons

Nathan Schellenberg – Geneva Rock

Jim Slade – Komatsu Equipment

Brandon Squire – Ralph Wadsworth Construction

Troy Thompson – Okland Construction

John Tripi – Ames Construction

Garrett Walker – Holland & Hart, LLP Bryan Webb – Layton Construction Eric Wells – Granite Construction

Guy Wollam – Wollam Construction

A special thank you to Rich Thorn, president and CEO of Associated General Contractors of Utah, for moderating the discussion.

 

What’s the state of our industry right now? Let’s start with the commercial builders and move through the subcontractors and trades.

THOMPSON: There’s a lot of fantastic projects coming out. There’s a lot of bigger, mega projects—some that have been awarded, some that are on the horizon. Bryan and I happen to be working together with Rob on the new prison, which is going to take a lot of people. It’s close to 40 individual buildings. We’ve got people working on the downtown convention center hotel, which if that gets going, it’s going to be an amazing project. Higher ed projects keep coming along. Public projects keep coming along. There’s been a lot of activity with developers building a lot of retail and office and those kinds of things. So the outlook looks really, really good for the next couple of years at least.

WEBB: The economy is good. We are seeing a lot of opportunities. We are very busy. There’s a lot of opportunities for us right now and the market is robust. There’s a lot going on. So, from that vantage point, it’s been good.

MOORE: There’s a lot of opportunity. I think we all have pretty darn good backlogs. If you get a nine-month backlog, that’s a best-of-class backlog. And most of us are seeing those kinds of backlogs or more, right?

In Utah we have about $5.2 billion worth of commercial building projects right now. And historically, boy, if we see $2, $2.5 billion in available work, that’s a pretty robust economy. This is just adding projects up that we are all working on and it does include the airport and the prison. So the good side is we are seeing some pretty darn nice work.

We are seeing some markets that really are starting to change. Who thought two or three years ago that hospitality would be a booming market again? And we are seeing an enormous amount of hotel opportunities. Everyone thinks the apartment and multi-family is going to die. When? I don’t see that. We are still seeing a robust market there and I think there’s a lot of opportunities.

ELLIS: We are all very lucky people to be working where we work, because this is not only a great time right now for us, but I think everyone foresees the future of the Wasatch Front is terrific. And we are taking steps right now with a major boom in construction. And I’ll tell you that the quality of the projects is terrific. The quality of the owners that we are working for is terrific. We are not seeing a lot of high-risk stuff out there. Rates are still good. Owners are spending money again.

GREGORY: We are coming to the end of a very good year. I think 2017, 2018 is going to be pretty consistent. Most of the markets are booming so there’s a lot of opportunity out there. The one area in Utah that hasn’t really come back yet is the mining industry. I think over the next couple years some of the mining stuff will pick up.

LAUB: The one thing I wanted to throw out there that concerns me is the fact that Facebook left the state. That impacted a lot of people in this room. It concerns me what kind of message we may be sending to other industries wanting to come into the state. I don’t know all the inner politics that went into the decision that was made. But just from my perspective, that’s an area of concern for me.

ALTER: For us, year-over-year revenues are up, backlog is up, and it’s good organic growth. Had some additional growth through some acquisitions that we have done. Overall the feeling is very optimistic. Our margins are down as well. That’s a concern we have. Even though it seems like there’s a lot going on out there, it is very competitive. That being said, you have to be effective and efficient in how we manage that work.

SCHELLENBERG: We have a point of view from a supplier, a subcontractor and a self-performing general contractor. And all of those areas are growing and flourishing, and it’s wonderful to be able to support all the general contractors and suppliers of contractors. It is a challenge in a lot of ways with increasing expectations, but it’s a fun challenge. It’s fun to be able to try and be attracting people instead of sending them away. It’s just a good time to be in business for us.

BROWN: UDOT has got some really nice projects coming up at the beginning of 2017 and getting released throughout the year. So the civil market looks really strong. We have had an opportunity to participate in some of those and look forward to the upcoming projects that we are going to release, with commercial being strong and some of the industrial stuff, as well.

SQUIRE: What we like is that the program looks to be much more consistent in the future, so we are able to staff accordingly and we don’t have the highs and lows. In the past, as UDOT’s program has been on the high, the commercial side has kind of been falling off, and so we have been able to pull resources. With all these different divisions and areas that are flourishing, it’s going to be tough to staff and it’s going to be a challenge that we have never had in the past. But it’s a fun challenge because we are growing, we are building, we are excited for it, rather than staffing for one project and not knowing what else is out there.

MORGAN: One thing that plays into my world in a very heavy way is the theory of the trickle-down effect. As long as we have a lot of big projects going on, the $5 billion that Rob mentioned, as long as those things are going and you guys stay busy on those things, it frees up room for me and the guys my size.

TRIPI: Business has been good this year. There’s some great opportunity to move forward with UDOT the next year. With the infrastructure the new president is promising, the development of highway work around here, I think we need it. Certainly, we all experience the traffic problems that we have in certain intersections and parts of the freeway system. We welcome that growth and we look forward to that.

WELLS: We are seeing the gas tax money hit, which is a good thing for some of the cities. Petrochemical is off a little bit right now for obvious reasons—fuel prices are still floating at lows. Mining could pick up a little more. But as far as the transportation infrastructure, we have got more backlog than we have had the past four or five years.

CAMPBELL: If you look around the state, growth is pretty concentrated where there’s heavy population. Because of mining, because of oil and gas, you get out into eastern Utah and it’s a different story out there. Mining and energy are flat on their backs and they will be probably until 2018 until we see commodity prices come back. And there’s the good and the bad of strong commodity prices. But from a construction standpoint, everybody has backlog. Things are great. We have had people tell us that they would purchase equipment if they could find operators.

SLADE: We have struggled very, very much on the mining side, and I think it will be worse in ’17. And ’18 it should start heading up toward the end. Gas in eastern Utah, even down into central eastern Utah, seems to be really struggling, and that’s concerning for us. But construction is wonderful.

We have some new options for equipment that’s smart now, where we don’t have to have the skilled people behind the seat anymore. That might help. We are hoping we can push that a little bit more, and that will help with a lot of proficiencies in the industry.

WOLLAM: We are in the industrial mining sector. Last year at this time I was more pessimistic. We are not a large volume company, but right now we are seeing good opportunities in the mining industry and in the energy sector. But not big jobs. We will see jobs in northern Nevada, in Wyoming, here and in Arizona. They are not huge jobs but they are good jobs for companies like us.

ADKINS: I echo some of the comments on eastern and southern Utah. We have closed our branch in Vernal. It was primarily oil and gas, and we have recently closed our branch in Price. They are saying in Price, “The last person out, please turn out the lights.” That’s been a real sad story up in Price. But we don’t know when or if it’s going to turn around. With what we are seeing on the political front these days, things may change or turn around and we may be back in those areas.

Kennecott has been slower this year than it has been in the past. Their new underground project is beginning to take off and there will be some new opportunities there. Construction is going great. We are doing significant business in that area right now. But oil and gas, mining, those have been difficult topics for us.

How is the national political situation going to affect us in the next year when we have all of these new changes taking place?

WEBB: Anyone who thinks they know what Trump is going to do is kidding themselves. It wouldn’t surprise me, honestly, if Trump and the Republican House fought more than the current administration. I’m not saying that will happen, but he says the right things and I think it’s going to be a business-friendly administration. But who knows? It’s kind of a wait-and-see approach.

CAMPBELL: I was in Washington two weeks ago, and that place is on pins and needles. Everybody is really nervous about what’s happening. Specifically if you look at the regulatory environment, he has not only upset the apple cart, he has taken a sledgehammer to it. As his cabinet comes in, we are going to see some real change with regard to the regulatory environment. The biggest increases in our cost in our industry over the last several years have been regulatory and compliance. There’s good and bad to that.

But as regulation rolls back, it is incumbent upon us as business, and not just construction but all business, that we have to step up and be able to govern ourselves. We are going to get an opportunity to govern ourselves for once and if we do a good job I think that will continue. If we do a poor job, the regulations will roll back in because we are not adult enough to govern ourselves. There’s going to be some new opportunities for business. There will be some real challenges, but we have to step up and do the right thing, too.

THOMPSON: I like what Trump has been saying specifically about tax cuts, regulations, a more business-friendly environment. If you think about this idea of companies going from 35 percent to 15 percent, imagine how much money will be thrown out into the economy when people aren’t paying those higher taxes, and that money that is going to be repatriated back into the country. If we get GDP up to 3, 4, 5 percent, unlike what we have been going through for eight or 10 years, this economy is going to be singing. So I’m incredibly optimistic about what’s going on.

WEBB: I like what he says, too. I just hope it happens.

MOORE: Any time you’ve got a cabinet member named Mad Dog, right, you have a positive thing going. I think this guy is shaking it up, and he is shaking it up on the business side in a very positive way. I think the politicians ought to be scared as hell, and I’m happy about that. I think it’s ready. It’s time.

LAUD: Business in a lot of ways is on trial right now because there are so many business people in the cabinet. And bringing so many business people into government and getting politicians out—if Trump succeeds and everything goes well, business rises. But if everybody falls on their face, the politicians, the career bureaucrats, will say, “I told you so. Politicians have to run the country, not business people.” So it’s a key time for all of us.

GRAMOLL: One of the concerns I have is the perceived policies on immigration and what may happen there. That could have a significant impact on construction. How are we going to handle immigration? The construction industry needs a good immigration policy, or we are in trouble.

DEGRAFFENRIED: Trump is somewhat of an enigma but hopefully he pulls through on some of the things he says. I’m a political hack, and on a personal level it concerns me that he may not be a constitutional scholar but hopefully he doesn’t get tripped up in all that. But I remain optimistic. My sense is generally people feel that optimism, that change that is coming along. Granted, we don’t know what that will consist of, but it instills some degree of optimism and hope.

SQUIRE: It is a double-edged sword, though. If these policies spur growth in energy and mining and these other areas, along with commercial and heavy highway and everything else growing as well, there is going to be a significant labor shortage. And with immigration changes, we are going to be forced to use more and more technology. We are going to have to put less skilled labor in a machine and rely more on technology to help out with that.

THOMPSON: One of the things we are going to have to square up is the fact that you’ve got a set of subcontractors who for many years have been giving certain benefits to their workers. And now you’ve got certain subcontractors that are primarily hiring a lot of the Hispanic workforce, and they don’t give those people those kinds of things. So their ability to win a job is much higher, which is putting some of these older folks out of business. That’s going to be a difficult thing to balance out so it doesn’t tear apart some of these very good companies. I had a carpet layer tell me the other day he just can no longer survive. He is going to have to get out of the business.

We all know that we’re facing a labor shortage. How can we, as an industry, begin to address that shortage?

MORGAN: Our state’s reputation as Silicon Slopes attracts people in the tech industry. And in the tech industry you can get hired on out of college at 60 grand, with one month of paid vacation right off the bat. And full benefits. And that just doesn’t work in our industry. In their offices they have a full-time chef on staff, basketball court, Ping-Pong tables, pool tables, X-boxes, bean bags if you want to hang out. Those are the kind of people that industry is attracting. It’s not bringing in guys that want to work 70 hours a week in the sun with a shovel, and don’t want to work in a pipe with a stick welder for 70 hours a week, six days a week. So as great as that tech industry is, we can’t rely on that to build our workforce. Those aren’t the people that want to come work for us.

THORN: Anybody want to guess what the average age is for an apprentice in the Department of Labor programs in this region? These are apprentices. Thirty-eight. What’s the average age of a worker in our industry in Utah and nationwide? It’s nearly 50. This is a scary thing.

GREGORY: Going through the recession, you had a lot of people take jobs because they needed a job, and it wasn’t necessarily where they wanted to work or begin their career. So that’s a whole other issue: You’ve got workforce out there but they are in the wrong position and how do we train them and get them the education they need to swap and go into a new career? And how can we speed that up?

MOORE: One thing I’m concerned about with the labor market is what is it going to do to our prices? We know to attract folks we have to start increasing our prices for labor. It is happening to all of us, I’m sure. We have pressures on all sides. Our wonderful competition in here will say, “Gee whiz, a couple bucks an hour more and why don’t you work for us?” We are going to see that, and we have been seeing that.

So we are going to have to look ourselves in the mirror and say, “We are going to have to increase our wages.” And that’s something we need to get out in the marketplace, that wages will be increased. Are our benefit packages up to par with some of the other industries? And then really advertise we are one of the highest-paying market segments of anybody.

Construction. We are not the sexiest place to work. There’s a lot of “do you know” campaigning that we need to do. How do we go out and really let folks know we have great work packages, we have great benefits. This is a great industry and it’s very rewarding. You go in the high schools and how many say, “We are so excited to go into construction and work our tails off.” Right? “We are going to lay some of that asphalt.” It’s not all that sexy. We have to do a good job of promoting the industry. Look at all of us. We are sitting there today and saying, “Damn. Look at the backlog. We have to get at it.”

ADKINS: Wages are going to increase. We are already increasing them. The average age of a conveyor belt installer in my group 10 years ago was 28. Now it’s 37. And a belt installation is a tough job. They don’t last long. They don’t last past 40. It is difficult if not impossible for me to find people that want to get into belt installations. And right now we are paying $70,000 to start as a belt installer. We have so many people that get on the job and quit after the first belt installation.

BROWN: We were next to Chik-fil-A and they were selling us under the table as far as the amount of people lined up to check out Chik-fil-A, and I’m thinking, “What are they going to make? $8, $9 an hour to sell chicken?”

THORN: Chik-fil-A and Micky-D are $11, $12 an hour. Some wages in this industry are not that much different than that.

BROWN: But at the end of the day, we need to understand that there’s a good, viable living that can be made in our industry. And the pricing for our labor services is going to go up dramatically because of the limitations they are going to have in the future. So as we get in front of the kids and help them understand how they can make a great living doing what we do every day, I think that will make an impact. We are being asked by our parent company to participate in an ACE program which is architects, contractors and engineers. It reaches out to all the community schools and helps us get into schools to start getting kids thinking about the opportunities that exist in our industry.

SLADE: Over the last couple years I have had the opportunity to go into a lot of schools and do some career advising and teaching, and I’ve also been part of the Utah Pathway program for diesel technicians. When I go to these high schools and talk to these kids, they all want good jobs. But they don’t know how to get there. And many of them are really good and they have toured our facilities, and we show them what diesel technicians are about. They are not grease monkeys. They are all about tech. We have to have the guys that love the tech side, too, but they want to get their hands dirty and work hard. So we show them and explain different things that they will work on when they enter the industry.

Most of our technicians are probably in their 50s and 60s. So if we don’t grow them, we’re not going to have them. We have to keep that moving forward.

ROWBERRY: High schools direct everybody to colleges. They have “college career days.” They don’t have “career days.” So you talk about the ATCs at the high school level, and it exists. They have diesel mechanics and all these classes trying to get kids to get into different industries. Commercial drivers is what I started for. They were very eager for us to teach a commercial driving class for a kid to come out of high school with a CDL driver’s license. Jordan School District didn’t go great. But when they found out what we were doing, all of the high school districts now are knocking on our door. In another month we are going to do one with Granite School District. The class is full. We are turning kids away from getting a commercial driver’s license.

So the opportunity is there if we can figure out how to get into the ATCs and into the high schools. Because if I can get them into the industry as a driver, most of my drivers end up going to college and becoming a construction engineer or they get into construction. They realize there’s a career path there.

SLADE: Just in the year and a half we’ve had the diesel tech program, the governor kicked in and we had a lot of help. Classes went from 15 to 16, on average, in the Jordan and Canyon School Districts to now there’s a waiting list to get in. We make concurrent enrollment classes so they get college credit their senior year toward SLCC. And now SLCC is building a brand new building for that out there, and they will also have operators out there, too, in that building. So it’s as positive an input as you can have to make sure these guys have a pathway and get into your industry. SLCC only had 14 in each class. They are now at 32 in each class for diesel techs. It’s made a difference in a year and a half that we worked with this.

GREGORY: We are seeing the same success with the high schools. Currently we have more people coming in than we can take on. It’s a delicate thing. You need to take them on and not impact your workforce, and spread them out with the proper mentorship and everything. So we are seeing a lot of gain in it. We have been personally focused on it for about four years, but I want to note that we all need to stay focused on it because we weren’t several years ago in the recession, right? As an industry, we have all got to stay focused as a group to continue that, because it’s not a fast fix. Everything we are doing in the high schools aren’t going to help next year or the year after. It’s going to take a few years for these guys to grow and really build into the workforce we need them to be.