Acute labor shortages across the construction industry are hitting everything from quality control to worker safety, keeping busy risk engineers and others involved with construction risk management.
The labor crunch can lead to work being done by less qualified or inadequately trained workers, causing mistakes that require expensive rework, often at the expense of the contractor.
In other cases, there is concern that the strain put on the labor force is leading to safety issues that can manifest in higher workers compensation costs.
The top risk facing the industry, according to the 2022 Associated General Contractors of America Risk Survey and Report, is the limited supply of skilled and craft workers, cited by 86% of respondents, 69% of whom are general contractors. The report was based on data collected in December 2021.
Activity in almost every sector of construction, save for class A office space, is showing an upward trajectory, according to Danette Beck, head of industry verticals and national construction practice leader for broker USI Insurance Services LLC in Valhalla, New York. “Every other sector is increasing in size from a growth standpoint, but we don’t have enough people to actually do the work,” she said.
Construction spending reached $1.811 trillion in September, rising from $1.807 trillion, in August, according to the U.S Census Bureau. The bulk of that, some $1.4 trillion, was private, the remainder public, mostly infrastructure, according to Tobias Cushing, head of construction casualty underwriting in Schaumburg, Illinois, for Zurich North America.
Mr. Cushing added that unemployment in the construction sector is low, most recently calculated at about 4.6%. “When you’re below 5%, that’s a very low rate, and it puts a lot of pressure on employers to find workers that are qualified,” he said.
Contractors have had to increase hiring to keep pace with work, while some will only bid for work for which they have crews, according to Ms. Beck.
“The labor crunch is causing some of the better contractors to be more selective about the jobs they take. I think it’s a good thing if the construction industry self-regulates growth and doesn’t supply labor that isn’t qualified,” Mr. Cushing said.
The battle for hiring and employee retention has led to an increase in wages, benefits and incentives for many construction employees, said Dallas-based Cheri Hanes, who heads the subcontractor default insurance risk engineering team at Axa XL, a unit of Axa SA. In some cases, there is evidence that older workers are delaying retirement or even coming back to work to capitalize on the rising wages.
While they are highly skilled and thus quite valuable amid the labor crunch, there is evidence that older workers heal more slowly when injured, which can escalate workers compensation costs, Ms. Hanes said. In a wider sense, as well, the rising wages and other costs associated with attracting and retaining employees have also added to contractors’ expenses, increasing overall construction bids and costs.
Ms. Hanes said the construction industry lost some 600,000 workers during and after the global financial crisis of 2008-2009 and now faces the retirement of the baby boomer generation as well, further thinning its ranks.
“Anytime you have churn in your workforce or even worse a shortage of workers, like we do right now, the risks increase, and when you couple that with historically large backlogs of work that we’re seeing across firms right now, it’s likely that it will drive some frequency of workers comp claims,” Ms. Hanes said. She added quality concerns are also an issue due to the labor crunch, especially in projects that are highly repetitive, such as multifamily construction.
“If a worker without enough experience or training misunderstands what needs to be done, an error can be repeated many, many times before it is caught and that leads to rework,” Ms. Hanes said, including the rip and tear and reprocuring of materials, which may be substantially harder than in the first instance.
Many times there is not insurance from a builders risk, first-party property coverage or general liability standpoint for such rework, Mr. Cushing said. “So, from a builder’s perspective, they then have to bear the cost of that rework,” he said, in addition to the rescheduling challenges.
The Infrastructure Investment and Jobs Act, signed into law by President Joe Biden a year ago, will provide roughly $550 billion in federal spending over five years, adding to the existing $400 billion in public spending. That, Mr. Cushing said, will “further exacerbate the crunch on labor.”
This article was first published in Business Insurance.