Making Labor Costs More Predictable

The labor shortage in the construction industry is real — and so is its impact on construction budgets.

Seventy percent of contractors responding to the 2017 Associated General Contractors’ Workforce Survey said they had difficulty filling some hourly craft positions. These shortages are reflected in construction hourly wages, which rose 3.7 percent in 2017, according to Engineering News-Record, which tracks average wages across 20 U.S. cities.

But on any given construction project, these national numbers can mean little. 

“You have to look closer at the availability, productivity and cost of skilled trade workers where the project is located,” explains Nels Anderson, manager of oil, gas and chemical estimating at Burns & McDonnell. “Vetting the right information before putting together a cost estimate can greatly improve both bid accuracy and labor cost predictability.” 

On some projects, that means estimators consult published data or contact union halls or, in nonunion areas, local subcontractors to inquire about labor rates and availability. On design-build or other high-risk projects when a firm is proposing a fixed-price contract, it might go a step further and retain a third party to conduct a formal labor study.

These studies typically focus on three major areas, Anderson says.

Local labor pool — Researchers quantify and assess the availability of local subcontractors representing the trades needed for the project. Because mechanical subcontractors perform about half the work on a typical construction project, their availability is key.

Current wages — As the labor market becomes saturated, base wages and per diem costs rise.

Competing projects — Projects in the same geographic region or industry compete for the same skilled workforce. Estimators and schedulers sometimes can use information about competing projects — both current and future — to identify potential bottlenecks, prevent delays that affect labor and cost, and build smarter schedules. 

An Estimator’s Advice: Follow the Mechanical Contractor

Make no mistake: Every trade is important on a construction project, but when budget accuracy is critical, an estimator’s first focus is typically on mechanical worker availability and wages. 

That’s because the mechanical trades that install pipe, equipment and steel — including boilermakers, pipefitters and ironworkers — account for half or more of the labor on a typical industrial construction project, according to Nels Anderson, manager of oil, gas and chemical estimating at Burns & McDonnell.

“The mechanical trades also tend to have the biggest labor shortages,” he explains. “Pipefitters can be among the most difficult jobs to fill because their work is limited primarily to the power, oil and gas, and chemical industries. Electricians, carpenters and most other trades, on the other hand, can be pulled in from a wide variety of industries.” These trades also account for a smaller portion of a project’s overall budget.

Typical Subcontractor Breakdown on Industrial Projects

Mechanical - 50%

Civil & Structural - 20%

Electrical & Instrumentation - 20%

Miscellaneous - 10%

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