Contractors in the North Talk Business
Construction Is Healthy in the Northern Portion of the United States
Don Procter / May 2018
It is busy and it is going to stay that way for many contractors in northern states throughout 2018. Here’s a look at how several AWCI member contractors—from Ohio to North Dakota—are faring now, the challenges they face and the measures they plan to take to meet those challenges.
Construction starts in Columbus, Ohio, are up “significantly” over 2017—one report says by more than 40 percent in 12 months. But with the busier times—led by the commercial sector—comes side effects, such as higher materials costs (above the national average, according to one report) and rising labor rates.
Fritz Reitter, owner of Reitter Stucco in Columbus, says there are pros and cons to the company’s $3 million backlog—including a $2 million carryover from 2017. He is able to pick and choose what jobs to bid on, but recent materials and labor cost hikes squeeze margins on jobs awarded six months to a year ago. “It’s a double-edged sword.”
With a staff of 45, the contractor does stucco, EIFS, cultured stone and some cement siding, but the fourth generation owner says controlling costs is becoming increasingly difficult. “It is like driving a car going 90 mph with one hand on the steering wheel and trying to pay attention to everything else.”
Most of the cost loss, other than materials, is through miscommunication and rework. Steel, lumber, cement and acrylic-based material prices are up above the national average in the region, he says.
The labor crisis—the worst he has seen in 45 years—complicates things, he says, noting it results in “stringing out” projects. “It messes up every contractor’s schedule if he is in a critical path.” Staff shortages range from journeyman fasteners to laborers.
Like other contractors in the north, the stucco company has re-evaluated recruitment methods. He advertises through social media now—Facebook, for example—and Reitter pays for pop-up cell phone ads. “If someone is anywhere near something that has anything to do with construction, our ad pops up on their phone. It is pretty pricey but it seems to have helped.”
But are recruitment drives in high schools, hiring and referral bonuses, 20 percent hikes in starting wages over a year ago plus attractive benefits packages (medical coverage for a single person is free) enough? Like other contractors in the region, Reitter says all the incentives in the world might not to fill the gap left by retiring journeypersons. “There’s big gap between them and the new kids coming in,” he says.
Adopting new technologies, materials and methods that help boost production output levels is paramount, says Reitter, pointing to mobile stucco and EIFS pumping systems and continuous mixers for pre-blended materials as examples. Electronic management does everything from time-keeping to job costing, and Reitter uses drones for job inspections. “They save you from dragging around a 40-foot extension ladder.” Panelization is also important, especially on large jobs. “Any kind of prefabrication is coming into play with all the trades trying to utilize a smaller labor force and still get things done quicker.”
Detroit’s large-scale rebuilding program catalyzed by the likes of real estate mogul Dan Gilbert and the city’s Illitch family kept one of Michigan’s largest wall and ceiling contractors “neck deep in major projects” last year. The $900 million Little Caesars Arena, where crews from Pontiac Ceiling and Partition, LLC peaked at 120, is an example. “It brought profitability up, brought backlog up, and we ate it up just as quick,” says company president Phil Ruffin.
While Ruffin projects “a lull in the action” in 2018, it won’t be long before it heats up because there is a spate of work on the boards in southeastern Michigan. A 57-story residential tower and mixed-use complex in Detroit by Gilbert is a case in point.
Ruffin says profitability is not measured by margins “at bid time” because they stay “pretty much the same” year in, year out. “Where they grow is from how we train our field personnel—and the safety measures we have in place.”
The contractor combats the region’s labor shortages in part by “moving field staff around” from slower to busier branches. It has offices in Michigan, Indiana and Florida. It also hires tradespeople from competitors “when they are down. When they want them back we send them back.” Key personnel, such as foremen, are trained in-house, and a “shadowing” program prepares workers to move up. “We are running 15 to 20 people now ready to take over (as foremen),” he says.
Not all contractors in Michigan are in the same boat. “Last year I received more phone calls than ever from contractors asking to supplement their labor force,” Ruffin says. “They were getting into trouble biting off more than they could chew.” When manpower is short, cash flow suffers and without it, “everything suffers.”
Ruffin says it is important to give your staff reasons to remain loyal. Paying them on time, including benefits such as health care, seems like the obvious. “But not everybody (in the industry) is doing that,” he says.
The big Michigan wall and ceiling contractor sees merits in new technologies to improve production output. For about two years it has used robotic total station systems to ensure “accurate and swift layouts.” Motorized baker-style scaffolding systems are also paying off as well by eliminating crew “up and down time” and speeding up work schedules.
E&K Specialty Contractors uses a number of new technologies and equipment that reduce labor requirements at its six branches, including its Chicago office. Total layout stations and PanelMax, a pre-fab system to create shapes and assemblies from drywall, are examples. The latter can make “90 degree corners and radiuses so you can eliminate some framing and finishing,” says Jim Sanford, COO of E&K.
Sanford says prefabrication or modularization of walls off-site also minimizes manpower requirements on traditional stick-built projects.
While E&K’s Denver branch is the company’s busiest, Chicago is holding its own. “It looks like backlogs are similar, workloads are similar, and I don’t think our margins will be much different this year over last. I think things are going to be pretty steady,” Sanford predicts.
Margins in Chicago, however, are lower than other branches largely because the Windy City market “is more competitive,” Sanford says. E&K is also in Denver, Phoenix, Omaha, Kansas City and Central Missouri.
Labor shortages are notable in Chicago, but “not as drastic as Denver,” and the big contractor hasn’t had to outsource work. Multiple in-house field and office training programs are paramount, and while Sanford says some other contractors emphasize training, “there are plenty who don’t,” he says. “That is to their detriment. Our training helps us retain people and helps attract people to us.”
He projects a good year ahead for all of E&K’s branches. “They are all busy in different ways,” he says. “The markets are different, the pay scales are different so the amount of revenue is partly dependent on what their pay scale is and the structure through their local unions.”
In North Dakota, a state that faces fewer economic swings than many states, 2018 looks “steady,” according to Gerald Roach, president of Grand Forks–based contractor Forks Lath & Plaster, Inc. Describing the state’s economy as “always behind” most states, he says when the rest of the United States was in recession, North Dakota “was going strong,” relying on its oil and farm industries.
Government work is a stabilizing factor these days. The contractor’s margins remain “good” largely because of its public contracts and health care jobs—both of which “tend to pay higher” than other sectors. At the Grand Forks Air Force Base “there always seems to be some remodelling going on,” says Roach, whose company does stucco, EIFS, interior/exterior metal studs, taping and insulating primarily in the commercial sector in North Dakota, northwestern Minnesota and occasionally in South Dakota.
Forks Lath and Plaster will carry a backlog well into the spring and while Roach is looking for summer projects now, the contractor is booked for next fall and winter already. He operates with a permanent staff of about 15, but that could rise to as many as 50 during peaks.
Meeting skilled labor requirements in busy times is a worry in the state, however. “It is getting tougher every year” as the aging workforce retires and young people turn their backs on careers in the field, says Roach, noting that economic strides in neighboring states could exacerbate the labor problem in North Dakota. “We need skilled people to come up to our state.”
While Roach doesn’t dismiss new technology as an aid to the firm, it hasn’t made the work “significantly easier” or quicker for most workers at Forks Lath & Plaster. “Your good guys can still only throw up 30 to 40 sheets a day; your framers can still only do so many hundred feet a day. One day there will be the technology for robotics to do part of that work, but it is just not here yet.”
Roach, 55, will be handing the company’s reins over soon to his son Jared, who he expects will instill fresh business ideas and employ new means of recruiting labor. “It seems like younger guys can attract younger people,” Roach says.
In Moorhead, just west of Fargo, Minn., Sig Olson & Sons Plastering, Inc. is busy “and I don’t expect to have that change,” says the company’s president, Roger Olson. “I tend to be a glass half-full kind of guy.” Still, while its first quarter this year is “much better” than 2017’s, the company’s backlog is only two to three months. “It was significantly larger last year.”
A sign of a slowdown to come in the region? Not anytime soon, says the contractor. “Overall, we are in a pretty busy area of the world; however, we are getting our share of low-ballers. That will happen in an area that is growing at a historical pace.”
Sig Olson & Sons Plastering, which maintains eight to 10 construction personnel, specializes in stucco, EIFS and spray-applied fireproofing for clients within a 150-mile radius of Fargo. “We are a union shop in a sea of non-union shops,” Olson says, “but have been here for 65-plus years so we have a good track record. A good share of our work is with regular customers.”
Olson, who expects ample work in the summer and fall, says meeting labor demands can be challenging. “I draw on the nationwide market to find extra help when I need to,” he says. “I would probably hire a full-time safety director if I could afford it. We are moving forward at a fairly good clip in the completely safe job-site environment.”
He says his margins are better than last year, but “not as good as 2016, which was a remarkable year.” It is good reason to “plan better. We are using more modern equipment that speeds things up a bit but plastering and EIFS is still done the old-fashioned way here,” he says.
There are not as many large projects being tendered this year as last in and around Sioux Falls, S.D., according to Darryl Grotewold of Gerald Johnson Plastering & Drywall. And, like other plastering and drywall contractors in the area, skilled labor is lacking and young people are not jumping into the trades.
“It limits the amount of work one bids,” says Grotewold, adding it is “a tight bidding market.”
So, while some areas of job scheduling could use an assist (labor, weather), it is safe to say that the recession is definitely over in the northern section of the United States. Will the other regions fare as well? We will soon find out in the months that follow. Stay tuned.
Don Procter is a freelance writer in Ontario, Canada.