AGC of America

Bid Prices Increase in October from Wages, Delivery Delays, Diesel Costs

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

October 2022 national data reflects a sharp rise in bid prices as contractors continue navigating ongoing supply chain challenges, labor costs and more.

The Associated General Contractors of America Chief Economist Ken Simonson says rising construction costs continue threatening to undermine demand for projects. He urges administration officials to remove remaining tariffs on construction materials and to boost investments in construction-focused education and training.

“Although some material costs have moderated, other costs are still climbing regularly while contractors are incurring added expenses from delays caused by supply chain disruptions, shortages of skilled labor and rising interest rates,” Simonson said. “Some owners may delay or cancel projects as the price to complete them continues to increase, threatening to undermine overall demand.”

A 3 percent jump in the producer price index for new commercial construction – the measure of what a fixed group of contractors estimate they’d charge to build a specific set of nonresidential projects – occurred from September 2022 through October 2022. Over the past 12 months, the PPI increased 11.2 percent and 20.2 percent over the 24-month span from October 2020 through October 2022.

Simonson added that the input price, however, does not capture contractors’ added costs from materials that are not delivered on schedule. It also doesn’t include rising wage rates and overtime pay, nor does it factor in the financial costs associated with delays.

Several material categories posted double-digit spikes in October as compared with 12 months earlier. The PPI for diesel fuel soared 9.8 percent for the month and 61.5 percent year over year. The index for cement, Simonson says, rose by 2.5 percent last month, bringing the year-over-year increase to 13.4 percent. And the index for architectural coatings – such as paint – surged 1.1 percent for the month and a whopping 27.5 percent over 12 months.

“Tariffs and regulations are making construction more expensive,” said AGC of America CEO Stephen Sandherr. “If left unchecked, they will undermine private-sector demand for projects and limit the impacts of new infrastructure investments.”

Digital Skills Gap Amplified by Pandemic, AGC Survey Says

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

As construction industry workforce shortages have grown since the pandemic, so has the measurable gap in digital skills, according to a recent Associated General Contractors of America member survey.

The survey, conducted in July and August, polled 1,266 individuals associated with construction companies of all sizes from across the U.S. Survey findings revealed that 47 percent of firms are boosting internal spending on training and 25 percent are increasing their budget dedicated to online skills training. Companies are seeking to replace long-time workers who retired over the past two years as well as add positions to keep pace with increased project loads.

“More than one-half of all construction companies surveyed said they’re engaging with career-building programs offered by universities, training centers and other educators,” said Allison Scott, director of construction thought leadership and customer marketing at Autodesk, developer of design and make technology for architecture, engineering and construction firms. “A total of 16 percent reported that they’re using augmented reality and virtual reality to help train their workers.”

The industry’s increased demand for those experienced in using construction technology is putting the squeeze on already tight workforce supply. “Digital nomads,” defined by Scott as those who have not yet adopted construction technology, are recruiting hard to attract digital natives, those who’ve been using construction technology since its inception.

In addition to AR and VR, examples of sought-after construction technology skills include fluency in estimating software, building information modeling, mobile apps, construction management software and drone operation.

“Trying to stay ahead of the curve is extremely challenging for construction companies that haven’t consistently adopted industry technology as it has been introduced,” said Scott. “Future growth of their companies depends upon it.”

AGC of America Chief Economist Ken Simonson agrees.

“It will take time to see companies’ training initiative bear fruit,” he said. “Right now, too few people are prepared to work in this industry.”

Industry Still Struggling to Find People, AGC Survey Says

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The Associated General Contractors of America’s latest workforce survey reveals that 77 percent of construction industry job candidates either lack the necessary skills or cannot pass a drug test.

A total of 1,266 individuals coast to coast representing all sizes of companies and all sectors weighed in on the survey during July and August.

According to AGC Chief Economist Ken Simonson, 93 percent of construction firms surveyed reported they have open positions they’re seeking to fill. Among those firms, 91 percent are having trouble filling at least some of those positions.

“Construction workforce shortages are severe and having a significant impact on construction firms of all types, all sizes and all labor arrangements,” Simonson said. “These workforce shortages are compounding the challenges firms are having with supply chain disruptions that are inflating the cost of construction materials and making delivery schedules and product availability uncertain.”

More than half (55 percent) of Missouri respondents indicated that their construction firm’s headcount has increased over the past year. Estimating personnel are the most needed salaried positions, according to Missouri firms, followed by project managers/supervisors and engineers.

Regarding the direst needs for craft workers, 91 percent of Missouri construction respondents identified concrete workers and carpenters as the most sought-after tradespeople, followed closely by cement masons and laborers.

Missouri’s surveyed response to the problem of filling available construction industry positions of all types tracked closely with the national statistic. Seventy-six percent of Show-Me State respondents identified job candidates’ lack of transferable job skills and inability to pass a drug test as the greatest barriers to hiring.

A total of 89 percent of those responding from Missouri companies of all sizes said their firm has increased base pay rates and/or benefits in the past 12 months. Eighty-two percent of those surveyed who work in Missouri reported schedule delays due to longer lead times, material shortages or both. More than half (54 percent) said upcoming projects have been canceled, postponed or scaled back due to increasing costs.

For more detail on the AGC’s latest construction industry workforce survey results, see https://www.agc.org/news/2022/08/31/construction-workforce-shortages-risk-undermining-infrastructure-projects-most-contractors-struggle.

Some Material Prices Down, Construction Costs, Diesel Still Climbing

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Although the price of copper and brass has decreased slightly, the cost of gypsum, concrete and diesel fuel are still headed upward, according to the Associated General Contractors of America.

AGC Chief Economist Ken Simonson says numbers reported on July 14 show that nonresidential construction costs – material and services – rose 1.1 percent for the month of June.

“Some materials prices have fallen recently, but others appear headed for further increases,” he said. “In addition, the supply chain remains fragile and persistent difficulties filling job openings mean construction costs are likely to remain elevated despite declines in some prices.”

The producer price index for inputs to nonresidential construction – the prices charged by goods producers and service providers, such as distributors and transportation firms – jumped 1.1 percent from May to June 2022 and increased a total of 16.8 percent since June 2021. Meanwhile, the index for new nonresidential building construction – a measure of what contractors calculate they would charge to erect five types of commercial/industrial buildings – climbed by 0.5 percent from May to June this year and a cumulative 19.8 percent over the past 12 months.

Add to that the soaring cost of diesel fuel, which jumped 14.1 percent in June and has more than doubled over the past 12 months, and you have a recipe for continued price pressure on the cost of future construction projects, according to the AGC.

“The more materials prices increase, the harder it will be for public officials to build new schools, roads and other infrastructure,” said AGC CEO Stephen Sandherr, whose organization is urging the Biden administration to remove remaining tariffs on a range of construction materials. The AGC is also asking public leaders at all levels to do what they can to help unclog backed-up supply chains. “Taking steps to address rising materials prices will help construction employers and taxpayers alike.”

Funding, Risk Allocation Driving P3 Delivery of Mega-Projects

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Public-private partnerships, P3s, continue to emerge as the preferred delivery mechanism for multi-year, multi-billion transportation and infrastructure ventures.

Associated General Contractors of America Vice President of Public Affairs & Strategic Initiatives Brian Turmail says ongoing mega-projects such as the $3 billion Fargo-Moorhead Red River Diversion and the $5 billion LaGuardia Airport Terminal B are relying upon P3 project delivery to bring these large-scale, big-dollar ventures to completion.

“Funding is often a big driver for P3s because they allow owners to move forward with a project without having to secure full financing on their own,” said Turmail. “However, P3 projects can be risky because they are often run by internationally based financiers who do not know or understand construction. These financiers produce contracts that are typically very long – hundreds of pages – non-standard and pass all the risks of the project to the construction teams.”

An international slate of project partners is heading both the Fargo-Moorhead Red River Diversion Project and LaGuardia’s new terminal. The former project is represented by the P3 of ACCIONA (the parent company of Spain’s Acciona Energy), Shikun & Binui USA (the domestic subsidiary of the Israeli-based infrastructure and real estate firm) and North American Construction Group, a Canadian heavy construction and mining contractor. LaGuardia’s P3 includes Parisian global investor and asset manager Meridiam, Swedish Skanska Infrastructure Development and Vancouver-based Vantage Airport Group.

P3 projects are also often complex, says Turmail, carrying more risk than smaller-scale efforts. “The quantities involved for these massive projects have very expensive ramifications when the assumptions are off, even by a little,” he said. “They fail sometimes due to overly optimistic revenue projection from parties bidding out the work.”

P3 projects are also risky because of their multi-year development and construction timeframes, Turmail says. Construction of the Red River Diversion Project, for example, involves building a 30-miles diversion channel to divert floodwaters around the metro area during severe floods and will take 10 years to complete. The project is estimated to wrap in 2027. The 1.3 million-square-foot Terminal B at LaGuardia Airport began construction in mid-2016 and will complete later this year.

Missouri Adds Construction Jobs, Bloomsdale Excavating Doubling Workforce

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Missouri is the fourth-highest state to add construction jobs over the past two years, according to the Associated General Contractors of America.

AGC Chief Economist Ken Simonson said Missouri added 9,500 jobs between February 2020 and February 2022, a 7.4 percent increase in the state’s construction workforce. Missouri’s construction employment increase trails Florida (14,100 jobs), Utah (13,600 jobs) and Tennessee (11,400 jobs).

Nationwide, seasonally adjusted construction employment in February 2022 topped the February 2020 level in 32 states and lagged in 18 states and the District of Columbia, according to Simonson.

“For the month of February (2022) alone, construction employment increased in 39 states, declined in nine states and D.C. and was unchanged in Alaska and Louisiana,” he said.

In Bloomsdale, Mo., Bloomsdale Excavating Company, Inc. is contributing to construction employment statistics. President Scott Drury said the firm hired nearly 20 individuals in February and March and plans to hire 20 more this season.

“For a company of our size, this is significant,” said Drury. “We’re going to essentially double our workforce within a three-month period.”

Many of the new hires are crafts people, he said. Bloomsdale has been successful in recruiting union-skilled equipment operators and laborers, thanks to the robust apprenticeship programs run by the International Union of Operating Engineers Local 513 and the Missouri and Kansas Laborers District Council.

“We’re landing more projects in 2022,” Drury said. “With the supply chain issues, we’re trying as best we can to stay away from material-heavy projects.”

Materials Price Increases, Choked Supply Hampering Projects

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The price of construction materials spiked nearly 20 percent in 2021 overall despite moderating in December, according to Associated General Contractors of America Chief Economist Ken Simonson.

“Costs may not rise as steeply in 2022 as they did last year but they’re likely to remain volatile, with unpredictable prices and delivery dates for key materials,” he said. “That volatility can be as hard to cope with as steadily rising prices and lead times.”

Large St. Louis-based contractors say that during the pandemic’s infancy in mid-2020 until early 2021, they were able to place bulk orders for materials to be used for several planned projects. But increasing supply chain hurdles and scarcity of materials – such as roof joists and truss plates due to limited steel supply, framing lumber and engineered wood – are causing prolonged delays and wreaking havoc with project delivery amidst a tighter-than-ever pool of available skilled labor.

“Product is not coming online as quickly as projects are,” said industry expert Chris Bailey.

Bailey added that owners who put their construction projects on hold for two years are now signaling a green light to commence, but they’re getting sticker shock at revised project costs.

And as developers try to resurrect stalled deals, many are meeting with hesitation and more stringent requirements from investors and lenders.

AGC officials agree that rising materials prices threaten to undermine what is otherwise a strong outlook for the construction industry in 2022. AGC CEO Stephen Sandherr said the organization is urging the Biden administration to reconsider its plans to double tariffs on Canadian lumber and leave other trade barriers in place that artificially inflate the costs of key construction materials.

“Making lumber and other materials more expensive will not tame inflation, boost supplies of affordable housing or help the economy grow,” he said. “Instead, the administration should be removing tariffs and beating inflation.”

Missouri’s Passage of Gas Tax Increase Allows Fed Infrastructure Match

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Passage of the $1.2 trillion Infrastructure Investment and Jobs Act bill, signed into law Nov. 15 by President Joe Biden, is a win for Missouri, says a regional transportation engineer, thanks to the state’s swiftness in passing a gas tax increase to raise enough dollars for the required federal match demanded by the federal spending bill.

Frank Weatherford, principal at TranSystems, credits Missouri lawmakers for passing a gradual gas tax increase – the first in 29 years – to allow the state to generate more than $500 million annually. Without passage of an increase, Missouri Dept. of Transportation officials predicted that the state would face an estimated $745 million annual funding shortfall for roads and bridges.

“We were very fortunate in Missouri that the legislature passed the gas tax increase (from 17 cents per gallon to 29.5 cents per gallon over five years) in order that we could match these new federal funds,” said Weatherford, “otherwise Missouri would have lost out on a four-to-one match. In a matter of weeks, Missouri pulled this off and made it happen. For states like ours where federal dollars are more than 50 percent of the state spend, it’s critical.”

Two subprograms contained in the new federal infrastructure bill, according to Weatherford, did not exist in previous federal transportation bills. They are: 1) A $6.4 billion carbon reduction program to allow for bicycle and pedestrian trails, transit and more, and 2) The PROTECT (Promoting Resilient Operations for Transformative, Efficient and Cost Saving Transportation) program, which channels $7.3 billion formula funding plus $1.4 billion in competitive grand funding to shore up and improve resilience of the transportation network – including highways, public transport, rail, ports and natural barrier infrastructure.

Stephen Sandherr, CEO of the Associated General Contractors of America, said passage of the federal infrastructure bill also provides needed investments to make infrastructure more resilient to extreme weather events.

“Because of the bill’s passage, state and local officials will be able to invest in a more efficient supply chain network and improve roads and bridges to make them safer and more reliable,” Sandherr said.

Missouri AFL-CIO President Jake Hummel agreed, saying the investment will boost the construction, steelmaking and concrete/asphalt production industries.

“This is a shot in the arm to not just the construction industry but also to the manufacturing base in the state of Missouri,” said Hummel.

AGC Survey Reveals Weaknesses in 811 Utility Locating Processes

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

While 99 percent of professional excavators are familiar with their local 811 program requirements, three-fourths of respondents to a recent AGC of America survey identified the lack of accurate utility locating by facility owner/operators as the weakest element in the process.

The survey was completed by heavy water/wastewater, highway/bridge, telecom, gas transmission/distribution and energy infrastructure contractors.

In addition to the lack of accurate utility locating by facility owner/operators (78 percent of those responding), other weakest elements in the process, as identified by survey respondents, include utility owner/operator response time (56 percent) and wait time for facility owner/operator to clear a locate request (52 percent) as issues.

Forty-three percent of respondents indicated that abandoned facilities are seldomly marked by utility owner/operators and treated as live lines. A total of 53 percent who responded found unmarked or mismarked facilities in response to a locate request as the most frequent cause of damages or near-miss events.

According to the AGC, the estimated U.S. economic impact from breakdowns in the 811 process is $30 billion annually through direct costs such as facility repair and through indirect costs such as property damage and medical expenses.

While the AGC of America national survey didn’t indicate specific costs tied to Missouri and Illinois, it did report that over the past two years, breakdowns in the 811 locating process have included a failure to respond to tens of thousands of locate requests as required by law. For example, over the past two years Minnesota reported 78,000 late or no-show responses, 30,000 in Arizona and 20,000 in Michigan.

AGC Opposes PRO Act, Says Legislation Would Overturn 70 Years of Precedent

By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The Associated General Contractors continues to oppose the PRO (Protecting the Right to Organize) Act, H.R. 842, legislation seeking to change dozens of longstanding labor laws regarding collective bargaining.

AGC of America CEO Stephen Sandherr says the legislation, which the U.S. House of Representatives passed 225-206 back in March, remains in the U.S. Senate Committee on Health, Education, Labor and Pensions where it has been for nearly four months. Backed by the AFL-CIO, the bill provides for conditions that would strengthen unions’ leverage in collective bargaining with union construction companies and in efforts to unionize open-shop firms. H.R. 842, if passed in the Senate and signed into law by President Joe Biden, would also require employers to divulge private information about their employees and remove prohibitions on partial strikes, slowdown strikes and intermittent strikes.

“On its face, the PRO Act seems to be a rather limited application,” said Sandherr. “But in reality, the bill goes way beyond that. This is the most aggressive and ambitious menu of changes to federal labor law ever offered by the AFL-CIO. It would overturn over 70 years of precedent.”

Under H.R. 842, secondary boycotts – boycotts allowing unions to picket against any employer regardless of whether they are directly involved in a dispute with that union – would be allowed, according to Sandherr.

“This measure means many workers could be idled for a dispute in which they do not stand to benefit,” he said.

The PRO Act also includes a provision related to employee classification that takes aim at the use of independent contractors. “This would make it extremely difficult for entrepreneurial construction industry workers to establish their own businesses,” Sandherr said.

AGC of Missouri President Leonard Toenjes says unless the Senate’s filibuster rule is altered, the PRO Act will likely remain in committee.