California Construction Growth Continues
The 2019 forecast for California construction companies is growth. It’s expected that highway, transportation, public building, water/sewer, schools, single and multi-family residential construction will continue to grow this year. Only private office and manufacturing construction projects in California are expected to contract over the next 12 months. While the opportunity for growth is welcome news, the continued labor market troubles make it a mixed blessing for most industry companies. The results of the 2019 Sage Construction Hiring and Business Outlook Survey provide insights into the opportunities and challenges that industry companies will face this year. A central theme in the survey is how companies will change their hiring and operating practices to balance the demand for services against the backdrop of a tightening labor market. Results show that many are modifying recruiting strategies, increasing pay, offering more benefits, expanding training programs, and investing in IT to drive efficiencies. The survey’s findings provide important insights into how companies are reacting to current market conditions.
About the Survey
The California survey results are based on responses from 95 companies with locations across the state. While most participants classified themselves as general contractors and construction managers, others included sub-contractors, suppliers and service providers, architects, engineers, and building designers. The companies represented are both open-shop and union contractors, with 12% of respondents employing under 20 employees and more than 50% employing over 100 employees. Their revenues range from $50M or less to those generating over $500M annually.
Key Survey Findings
- Dollar Volume of Projects – The surveyors wanted to get insights from California companies on the expected dollar volume of projects in 2019. It specifically asked about various project categories ranging from highway, public buildings and hospitals to water/sewer and residential construction. Respondents indicated strong growth in multiple sectors including 62% in highway, 53% in transportation, 34% in public buildings, 24% in power, and 21% in higher education. There is also an expected drop in demand, including an anticipated 2% demand reduction for private offices, 5% reduction for manufacturing, and no increase in the demand for new hospital construction. Unlike other parts of the country, California has one of the highest demands for large infrastructure projects in 2019.
- Ability to Fill Positions – The ability to find qualified labor has been a challenge that construction companies continue to face. To understand if and how the problem will continue, the survey asked about the ability to fill positions. According to the survey, 88% of respondents believe it will continue to be hard to find staff, 7% are having no difficulty filling positions and 5%report having no open positions. It’s clear a large percentage of California companies are expecting it to continue to be challenging to find qualified labor.
- Changes to Pay/Incentives – In order to attract qualified labor, California construction companies needed to review pay and benefits policies for workers. According to the survey, 51% have increased their base pay rates, 22% have provided bonuses and new incentives, 10% have increased their portion of benefit contributions, while 12% indicated they are not considering increases in pay or benefits in 2019.
- Staffing Challenges Impact – To understand the impact that staffing challenges are having on projects, the survey asked participants to describe the impact. According to the survey, 30% indicated costs have been higher than expected, 23% indicated projects have taken longer than expected, 24% have increased the costs presented in their bids and 10% have put a longer project timeline in their bids. It’s clear the tightening labor market has caused many California companies to change prices and timelines to accommodate these variables.
- Biggest Concerns – While labor appears to be the most pressing concern, the survey wanted to find out what additional issues are on the minds of construction management. According to the survey, 28% indicated worker shortage, 14% are concerned about growth pertaining to state and local regulations, 12% are concerned about safety issues, 9% about increased competition for projects and 7% about internal operational inefficiencies.
- Training Investments – In seeking to get more productivity from employees, companies need to offer additional training. According to the survey, 64% of respondents plan to increase investments in training and development while 35% indicated they will stay the same. Only 1% of respondents plan to decrease spending on training and development.
The good news for California construction companies is that growth will continue throughout the year. The challenge is finding ways of dealing with the difficulties associated with a tight labor market. If you have questions about the survey results or need assistance with a construction audit, tax or accounting issue, JLK Rosenberger can help! For additional information, please call us at 949-860-9902 or click here to contact us.