Just about any business venture can be a gamble, but the construction industry is rife with risk across the spectrum. From rising tariffs to rising temps, here are some of AGC’s top concerns.
BY A.D. THOMPSON
Though no era is without its challenges – and certainly not without its risks – if ever there were a time when contractors, whether trade or specialty or general, could choose their work rather than beg for it, says Brian Turmail, it’s now.
But owners, too, says Turmail, vice president of public affairs and workforce development at AGC of America, have leverage.
“They’re more enlightened,” he explains. “They want the ‘A’ teams working on their projects, not the ‘B’ and ‘C’ teams.
“Well, to do that, you need to qualify people. You need to treat people fairly. And the best project outcomes are the ones that take a more holistic approach, that allocate risk more collaboratively.”
In the realm of risk management, zerosum is out. Win-win is in. And an increasing number of people, on both sides of the coin, are seeing the benefits of operating this way.
Identifying the places where circumstances could negatively impact a project has never been an exact science, but increasingly, the development of proactive plans help all the stakeholders stay secure across the board.
Business ventures are always a gamble to some extent. Risk management makes them less so. So, what’s on the minds of the industry’s “card counters” these days?
We asked a few to weigh in.
Labor: Can You Find It?
Historically, says Turmail, it’s easy to list the top three concerns of contractors.
“Labor, labor and labor,” he quipped. “You can look at old binders from construction conferences in the 1970s and the talk was similar.”
Historically, contractors have spent a lot of years worrying about availability at the trade partner level, says Tyler Henson, senior vice president and senior director Construction, a member of multiple AGC chapters.
“That was overlaid with a general sense that fewer people were going into construction…. But in the past four or five years, including reasons stemming from the pandemic, that has shifted to all levels and all roles in all firms related to construction.”
Two-tier labor assessments have always been the norm at J.E. Dunn, says Henson, and it’s a practice that’s more necessary than ever before any job goes into the pipeline.
“First, we look at ourselves and say, ‘If we win this, do we have enough personnel to deploy?’ If you’re fortunate enough to have a lot of work, your teams may be very busy and if you need to add staff, it’s a very competitive market out there.”
More typical than internal overextension, he notes, has been the concern about trade partners. And it’s this concern that ranks among the highest for Maria DiTommaso, whose day-to-day at the Boston-based Bond Brothers, a member of multiple AGC chapters, is all risk, all the time.
“I think this jumps out the most because general contractors are nothing without their subcontractors,” said DiTommaso, senior risk and contract manager.
“We rely on our partners, our subcontractors, to help us build projects for owners and clients. It’s essential to our success.”
As such, notes Henson, people in estimating and preconstruction are having to dig even deeper to ensure their trade partners can staff the job. “That’s where the rubber meets the road, and if they’re spread too thin … we’re looking at shortages that can lead to subcontractor default, a place none of us wants to be.”
DiTommaso says that contractors, even with long-time, reliable partners, can’t get complacent. Along with looking at the subs’ financial and safety health, so, too, must they gauge their workloads.
Post-COVID, she notes, has been an interesting time.
“At first it was a weird space,” said DiTommaso, “a feast or famine-type response where subcontractors weren’t sure if the jobs they were working on would be shut down.”
The result, she explains, was a fearprompted response, where some put a lot in their backlogs, just in case.
“They worried about keeping their teams working,” she said, “but didn’t think about the inverse: What if none of the jobs gets pushed, canceled, or delayed? You have them stacked up, you end up in a space where you don’t have enough people. What if you get behind in billing? Or what if you’re not paid by owners in a timely fashion?”
It’s catastrophic. And Bond Brothers doesn’t want to pile on.
“We require subcontractors to submit a work-in-progress schedule so we can see what they’re doing currently and what they have ahead,” she explained. “We want to make sure that if we award the business, we’re not going to overload them.”
COVID, she says, opened their eyes to the challenges many subcontractors face.
“We took it very seriously, because we wanted to make sure that we were appropriately allocating that risk.”
Talking to the subs’ financial teams, their officers, she says, helps.
“It’s not always a ‘no,’” she noted. “We just need to proceed with a risk mitigation plan, or an alternative payment schedule.”
Sub prequalification, she says, is such a hot topic, it’s one she’s spoken about at conferences, where webinars and sessions on the trend are common.
Vice President Alex Munoz of Messer Construction, a member of multiple AGC chapters, has hope for the future. “We’re seeing more interest in trade schools from younger students,” he said, “but that’s more of a long-term solution.”
“[The labor shortage] has been a challenge that will continue to impact us,” he said, “but I think it was masked, somewhat, by illegal workers out there on jobsites.
“Now that ICE has [borne] down, it’s really going to rear its head,” risking the domino effect of insufficient labor, and thusly, “all kinds of ugly challenges, consequential damages, on contracts.”
His words echo Turmail’s in that the solution is honest conversation.
“A lot of them are happening.”
The ICE issue, says Turmail, has affected even those who may be legally permitted to work.
“People are still afraid to leave the house,” he said. “It’s not great.”
There’s a persistent hope, however, that new immigration policies can help. Contractors, says Munoz, are largely onboard.
“The Hispanic workforce makes up 30% of construction today,” he said. “We need them. We’ve been struggling to man jobs for years now. There are good workers out there and we have the work. But we can’t find the people. [Immigration] is a needed approach to solving this.”
Materials: Can You Source Them?
The supply chain issues that stemmed from COVID, says Henson, have largely been worked through at this point. And the good news on the flipside is that the industry has learned something.
“Should we encounter something like this again, both owners and contractors will have plans within their contract documents to deal with it.”
But gone, largely, are the days when items and equipment, ordered or needing replacement, could be found with relative ease.
Munoz calls them unknowns, noting that Messer takes time to discuss these issues ahead of time with clients.
“Sometimes, it could be a year before we get a generator, but [the supplier] still can’t guarantee it,” Munoz hypothesized. “How do we protect ourselves? Do we want to build money into the contingency? Do we want to buy it upfront before the subs get involved and we take on that risk? Do we take the risk, but for a fee?”
These aren’t really disruptions, says Henson.
“They just carry with them a natural time impact on projects that has become the new reality.”
In part, though, he notes, and more recently, it’s related to tariffs.
When the Levy Breaks….
Tariffs have certainly gotten people’s attention, Henson observes.
“The big challenge is that it’s been such an on-again, off-again, back onagain approach, the [instability] of where the tariffs will be, of whether they’ll be absorbed by the manufacturing company outside of the U.S., or by their governments, or by the buyer here is unsettled.”
The ever-shifting nature of the plan, he says, has forced the industry similar to the pandemic, to think about how to structure contracts to deal with something that’s still amid rapid evolution.
Munoz, too, stresses the volatility of the situation, the wild swings as stakeholders wonder whether they’ll take effect or not.
“It’s slowing up jobs. Some owners who were ready to invest in a new project are maybe holding off a little bit.”
Deniz Mustafa, senior director, infrastructure finance, AGC of America, is less diplomatic.
“They’ve wreaked havoc,” he said.
“The amount of concern on a risk-management level that tariffs have brought … has caused chaos upon chaos.”
And on a level that is antithetical to a stable business environment.
“The threat of tariffs has done several things that may not ever bounce back,” he opined. “They’ve dramatically raised prices, even for things that are not subject to tariffs. They’ve had inflationary impacts on domestic products simply because the market has changed.”
And in doing so, prompted ‘shortages’ of sorts.
“People are trying to stock up and get things done before tariffs take effect, so it has really thrown a monkey wrench into things.”
Less so for the AGC’s ConsensusDocs program, he notes, which has taken a leadership role in this area, with its Tariff Resource Center.
“The best answer to the uncertainty of tariffs is having a price escalation clause,” he noted, “a win-win for owners and contractors because if prices go up, they do so based on an objective index and on the materials [that were of the most concern].”
Working Together, in Spite of the Weather
If ConsensusDocs is another piece of the collaborative solution to risk mitigation, at least where tariffs are concerned, there’s one area in the realm that’s almost as unpredictable: weather.
And it’s creating its own kind of havoc in the insurance market, where carriers, fraught with losses, are readjusting rates and models.
“And the biggest thing that has impacted people on the builders’ risk front are these increasing climate events, crises and natural disasters,” said Henson. “[This includes] the impact of hurricane season, the threat of earthquakes and this new item that contractors have become familiar with: severe convective storms.”
Essentially, he explains, “tornadoes and hail.”
All have real impacts, cause real damage and can be very costly for insurance carriers, so the risk is shifting.
“It’s been quick and quite severe,” said Henson, “and has put a lot of burden on contractors for things we can’t control.”
Deductibles, he says, are so high, “that sometimes we can’t, with a straight face, suggest passing them on to owner clients.”
Frustrating perhaps (“it’s the owner that chooses the location of the project,” he noted), but serious business. Deductibles on mega-projects can get close to eight figures.
“It’s a real friction point,” he said. “The industry has been bubbling about it for two or three years now.”
Nearing crescendo, he says, there’s still no real clarity on the market’s future, what carriers will be able to offer, what contractors or owners can continue to bear.
One thing everyone can remain positive about, says DiTommaso, is AGC of America’s track record of communication, a strength she sees across the membership, and across the country.
AGC does a great job of bridging the knowledge gap, of trendspotting and seeking advice from members with experience.
“The association circulates specific topics for everyone’s review, input and conversation,” she said, noting its usefulness around risk management.
“Something may not be happening in New England,” she noted, “but it could just be that it hasn’t hit us yet. Trends take time … and in such a volatile time, whether around tariffs or weather or other situations, you just never know.”