Business in the East: Things Could Be Better
Workforce Problems, Thinning Backlogs and Rising Prices Plague Contractors in the East
Don Procter / August 2018
Tight margins, rising material prices, fierce competition and an aging workforce are reasons contractors on the East Coast lose sleep. But for many, 2018 has an upside: It is busy or trending that way through this summer. Here is a peak at how seven AWCI member contractors see the rest of the year shaping up.
JD Traditional Industries
In Greater New York, JD Traditional Industries’ backlog is under the usual $20 million to $30 million. Increasing competition in the private sector from open shop contractors that have captured about 60 percent of the New York market could be one factor, says Christine Donaldson Boccia, executive manager.
Margins in the industry, meanwhile, are dropping partly because contractors needing to bolster backlogs are submitting low bids. But such practices can lull contractors into a false sense of security, she says. “When the market trends upward, owners have a hard time wanting to pay higher, healthy rates,” she says.
Boccia says her unionized firm’s margins are “getting crushed” on several projects bid on more than half a year ago because materials prices—steel studs, in particular—have seen “extreme increases” since then. “In an already competitive and low-margin bidding climate, that could mean you are working for next to no profit,” she says. “You pay out your suppliers and subs and wait for the final retention of 5 to 10 percent to be paid to you from the GC or owner.”
She says for small contractors and new startups, not knowing what materials will cost when the job starts can be a deathblow.
As for labor shortages at JD, the smaller contracting firm took almost two years to find a “well-rounded estimator” who can do take-offs, price a job, answer a GC’s questions and help Boccia sell the job. While she has hired graduates from a local estimating school, it takes time to develop them to meet the demands of the job. “The same goes for project managers,” Boccia says, noting that a college course on project management and some government subsidized programs only go so far. “A seasoned PM who can handle both public and private projects is hard to come by,” she adds.
JD Traditional has used On-Screen Takeoff and Quick Bid for seven years, and its foremen on large projects use iPhones and/or iPads to speed work flow. But while JD has evaluated software that integrates the field with the office for payroll, accounting and job-costing information-sharing, the contractor has not found software that is “worth the time and cost” compared to its internal management system.
Heartwood Building Group, Inc.
The year looks promising in metropolitan Philadelphia, but contractors like the Heartwood Building Group, Inc., which specialize in hospitals, face increasing competition. “It is a tough market. People take work for very low margins,” says Kim Galie, co-owner of Heartwood, a unionized contractor. “I would say on average we are bidding against maybe four or five contractors like us … on bigger jobs even more.”
Galie believes the growing competition is because unionized work in the light commercial sector has dried up, forcing many contractors to shift gears and move to compete with the likes of Heartwood for hospital jobs that a decade ago they would have never bid on.
She says Heartwood’s backlog is down from 2017—a banner year—but this year’s backlog compares to an average year such as 2016. Like many other contractors in the Philadelphia area, Heartwood has submitted “a stack of bids” this spring. The jury was out at press time on just how many jobs the contractor would win. “We call this a feast-or-famine year.”
Galie says technology has lent a hand to improve efficiencies—particularly in the office—and laser and GPS technology are used in the field. “But we call ourselves the age-old paper contractor because we still need to print drawings … to do take-offs,” she says. Superintendents and others use iPads to review drawings and details, but not all software the contractor has looked at effectively manages drawings.
A lot of Heartwood’s older foremen and others are retiring, leaving an experience gap in the field. “The young people in our profession don’t have it yet” and Galie is concerned that the old-school work ethic has gone missing in the new generation. Production levels have dropped also because of increased safety rules and regulations in hospitals. Infectious Control Risk Assessment has added layers to a schedule.
Heartwood currently has a field crew of about 40, but last year it peaked in the high 80s—not an easy number to manage because of scarcities in the field. Along with traditional hiring halls, the Interior Systems Contractors Association and the Carpenters’ hiring hall are its chief source of labor. On occasion, it gets workers from other contractors.
Metro Walls Incorporated
Possibly the largest open shop drywall contractor in New England, Metro Walls Incorporated sees a bright future in the next couple of years. “It’s a good time to be a contractor again,” says Michael Dion, president of the Manchester, N.H., company.
While its backlog is down from 2017—largely because of project timing—Dion says 2019 backlogs “already look very strong. We’ve never been able to project that far out. I have never seen so much work. There are a lot of very, very large projects, especially in the Boston area.”
But an “extremely competitive” market has kept margins trending ever so slowly up over the past five years. Rising materials prices play a role. While suppliers have given Metro Walls guaranteed prices in the past, future price increases, based on supplier projects, are “big”—up to 15 percent a month on steel, for example, Dion points out.
The good news is that there is no labor crunch at Metro Walls, he says. Still, there is a demand for “A-plus drywall foremen” who can communicate with the customer and lead crews of up to 50 or 60.
Training is done on the job. “I am most concerned about finding people with the right attitude and a good work ethic. We put them side by side with a qualified person.”
Dion calls prefabrication “the future of construction.” It allows employers to train unskilled workers to be “very productive in a short amount of time.” Set up three years ago, its prefabrication facility—Atlantic Prefab, Inc.—makes metal stud walls and roof trusses for clients throughout the northeast. It is projected to do about $10 million business this year and employs about 30 people.
The Andersen Companies
2018 is looking good for The Andersen Companies, a commercial drywall contractor based in Fairfield, N.J., that services New Jersey/New York and the Northeast. “I will have a hard time finding time to go on vacation this summer,” says Leif Andersen, project manager.
But while backlogs are strong, escalating steel prices (as much as 25 percent since late 2017) and projected further increases is taxing its estimating department. Nonetheless, the company is willing to take the risk of bidding on jobs on the horizon, he says.
Margins are holding up and haven’t changed much in recent years. “It is a good thing for us in that we do larger jobs now than we did in the past (prior to 2008),” he says.
Andersen’s labor needs are largely met through the union hall, and the contractor has maintained a corps of skilled people long term by “treating them well.” But in the last six months or so, the contractor has seen a raft of retirements of its top foremen, estimators and project managers. Filling that gap isn’t easy. Training takes time and experience on the job. Finding estimators with up-to-date take-off software skills are the most in demand.
In the field, new drywall grabber tools and a cutting tool that eliminates corner beads have proven “big time savers,” says Andersen.
“Things look strong” in Greater Boston this year for Central Ceilings Inc., which mainly works in hospital, biotech and corporate institutional sectors for seven core clients, says Chris McPherson, Central’s president. “Across the board there is plenty of residential and institutional corporate working going on.”
Central’s backlog is substantial this year—“as strong as it has ever been,” he says. Current contracts include a casino in western Massachusetts—“a bit of an aberration for us”—and complex institutional jobs for Harvard University, MIT and the Wentworth Institute of Technology. While margins “vary greatly, depending on opportunities and timing,” overall McPherson believes they are “inching up.”
The contractor has about 180 carpenters and drywall mechanics. “We are on the small size of a large contractor,” McPherson says. But the labor shortages in many regions are not at a crisis stage in Boston—at least not for Central because the union contractor meets most of its needs through the hiring hall at the Regional Council of Carpenters. Still, Central has increased in-house training in the past two years, and it does quarterly evaluations of apprentices aiming to develop well-rounded skillsets to ensure long-term employment through industry peaks and valleys.
McPherson, who at 35 took over the company’s reigns from his father Bill this year, heads a company—like many—with an aging workforce. Many foremen, for example, are nearing retirement. “They understand that they have to help us build the next generation,” he says.
Finding or developing “top-shelf people” who can grow with the company is never easy. “We’re starting earlier to identify future foreman and giving them experiences that will help prepare them for that role,” he says. Teaching soft skills including client interaction that lead to repeat business is a priority. “It doesn’t do you any good to be the most productive site possible,” he says, “if the client never wants to work with you again.”
Central’s virtual design and construction group (operating for about three years) is an increasingly important division. It uses such software as Revit and Bluebeam to organize and clarify work for field crews. File-sharing in real time between field, office and clients is seminal, explains McPherson.
Prefabrication is a growing wave that will be “the core of what we do in the next two to three years,” he adds. “Right now we prefabricate a lot of soffits, we break materials down to the right size in the field, and we make sure that the materials they need first, they get first. It is an extension of good practices.”
“The outlook for the year is very promising as we are bidding and looking at a tremendous amount of work in all locations,” says Darrin Kleinstein, senior project manager, Avon Contractors based in Farmingdale, N.J., about halfway between Philadelphia and New York City.
Backlogs at Avon, a family-owned business for more than 30 years, are similar to last year when “we did not slow down at all. This past winter was one of our busiest times,” says Kleinstein.
The unionized contractor’s margins, meanwhile, are an improvement over 2017 and 2016. “They are still tight as non-union and open shop (competition) does hurt us as they are pulling more and more jobs, but quality (work) is where we stand out,” he says.
Kleinstein says while Avon has a large labor force, during peak construction periods finding enough skilled carpenters can be trying. “If we could hire one person most likely it would be a solid lead carpenter looking to make the next step to becoming a foreman and lead work for us,” he says.
As for technological changes that have enhanced business, Kleinstein says: “We currently have our foremen linked into our email system with tablets, which allows us to get documents to them right away.”
Evergreene Architectural Arts
Billed as the largest speciality contractor of its kind in the United States, Evergreene Architectural Arts saw its backlog drop this year but by the end of 2018 “it is projected to be huge” as billings ramp up in the second half of the year, says Matthew Martin, director of field operations for the Brooklyn-headquartered speciality contractor. The company’s contracts “are a mix” of decorative paint and plaster restoration on courthouses, churches and theaters and several state capitols.
He says margins will expand as jobs increase this year: “By this summer, when we are at capacity (of orders), we will only be selling work at a premium.”
But many of its workers—its crew peaks at 200-250—have specialized skills that can’t be found anywhere. “Our foremen and superintendents keep (new workers) on limited work, but as they recognize talent, they give them new work to do,” he explains. For highly skilled work such as scagliola, a plaster technique that resembles marble, Evergreene does workshops for staff.
The pressure is on Evergreene, however, to train people quickly because of its aging workforce. Workers who can lay out and install ornamental plaster are the biggest need.
The company has also turned to Eastern Europe (where Old World skills are prevalent) for workers. For a job in Dallas requiring a crew of 15, the company sent seven experienced workers from Brooklyn and placed an ad on Craigslist in Dallas for the rest of the crew. The best applicants were given a tryout. “We actually turn and burn a lot of people at the start of a project,” Martin says.
As Old World as much of Evergreene’s work is, new technology is proving to make that work easier and improve efficiencies. Laser scanning for dimensions transferable to Revit software on projects such as theaters and churches are a case in point. Martin says, “360 degree cameras give us a really good sense of the space.” On occasion, drones have been used to take high resolution images of murals on domed ceilings.
At press time, the contractor was bidding on an unusual project—a replacement statue for the top of the Vermont state capitol in Montpellier. The contract would involve sculpting the statue in clay, laser scanning it and “blowing it up and CNC cutting it in wood,” explains Martin. “Those are technologies we have never used before.” A wood carver will add the fine details to the statue.
He says Evergreene moved recently from Manhattan to Brooklyn, doubling its facility size to about 30,000 square feet for offices, a plaster fabrication shop, conservation lab as well as design, mural and sculpting studios.
Don Procter is a freelance writer in Ontario, Canada.