Reducing the Impact of Labor Shortages in the Construction Industry

October 31, 2017

Over the last year, labor availability has become an increasing problem on construction projects in certain markets. While the construction industry has incurred labor availability challenges in the past, few firms proactively plan how they will address these issues in order to mitigate their impact. Although some firms have emphasized the importance of understanding the implications of shortages in the workforce on construction projects, they have done very little to reduce the impact.

Many contractors and owners wonder what they can do to reduce the impacts of labor availability on construction projects. It’s important that contractors and owners address the following elements to partially alleviate the repercussions of labor shortage conditions.

Contract Language

Contractors should modify their contract language to include escalation, force majeure clauses and well-drafted labor related contract provisions. For example, a contractor could claim that a labor shortage is qualified as a force majeure if the contractor demonstrates that the lack of labor availability made work performance impossible. However, this demonstration could require an analysis of the following:

  1. The contract and bid documents
  2. The foreseeability of the labor shortage condition
  3. The extent and severity of the labor shortage condition
  4. The extent and severity of the hardship caused by the labor shortage condition
  5. Whether an appropriate labor supply was a mutual assumption in the contract
  6. Whether a notice of the labor shortage condition was sent promptly to the owner

Labor and Materials Cost Adjustments

Contractors should include reasonable assumptions for labor and material costs during the bid period.

Workforce Training

Companies should develop workers’ cross-training programs to create a diversified workforce. Establishing an apprenticeship program for occupations that do not require a college degree is a potential training method through on-site or classroom training. In some cases, employers are not required to pay for the training as courses can be partially or fully funded by federal programs such as the Workforce Investment Act (WIA), state training programs or educational institutions.

Workforce Stability

Impacted companies should create programs to develop and maintain workforce stability and improve working conditions. These programs could include tenure recognition programs, training programs to deal with occupation related stress, and worker involvement in company operations. Companies can also use bonuses, overtime opportunities, loyalty rewards and promotions as incentives to retain their workforce.

Higher Wages and Benefits

Based on the supply and demand curve analysis described in the previous sections, increasing wages can improve labor availability. However, in extreme cases, if the supply of workers is inelastic for a certain period (i.e. not responsive to wage changes), increased wages would not lead to changes in the number of qualified workers. Improving employees’ fringe benefits might attract more employees. In some cases, employers are able to reduce their vacancy rates by improving their fringe benefits instead of increasing wages.

Regional Labor Sourcing

Supply and demand for labor varies across each state. Contractors experiencing reduced labor availability in a specific market should source subcontractors and workers in areas where labor shortages are not a problem. Contractors can either pre-fabricate portions of the project in areas that are not experiencing labor shortages or compensate workers to relocate to the project site.

Re-engage at the Student Level

The construction industry must re-engage at the student level. By re-establishing and educating students about vocational-technical schools and construction industry trade education, the industry may be able to attract high school students that are still deciding what they want to do after school.

Change Perceptions of the Construction Worker and the Construction Industry

The respect that construction workers once held must be regained. Owners, employers and contractors must celebrate the work that skilled laborers provide, and recognize how they help to keep the economy moving forward.

Regardless of the trade, labor availability does not have to negatively impact your firm. With careful planning and effort, firms can take precautionary steps to mitigate any potential impacts on their daily operations.

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