With total construction spending down 25 percent in 2009 and estimates of nearly 20 percent of construction workers currently unemployed, it's no overstatement to suggest that construction is among the top two worst hit industries in the recession.
Even with signs of the economy slowly rebounding nationally and forecasts that show total U.S. construction spending will grow 11 percent in 2010 over the previous year, it's still critical for construction management to approach business differently to prosper and even survive.
As a result, many contractors are focusing on their workforce expenditures and hiring philosophy. They are incorporating a well thought-out staffing strategy as a means to control costs and augment profit margins.
Part of that strategy is partnering with a specialized staffing service (instead of general temporary agencies or day-labor businesses that place anyone from accountants to warehouse stockers). Contractors are relying on national or regional staffing firms that concentrate strictly on the construction trades. These firms have stringent hiring practices in place. They make certain each craftworker goes through multiple interviews, is reference - and background- checked and skill-tested when possible. Some even require OSHA safety training as a hiring condition. Many national staffing services hire their employees on a permanent basis and essentially contract them out at a bill-out rate that is based on the skill level their employee brings to the table (i.e., apprentice vs. journeyman). Some companies go so far as to offer a "no-pay" labor guarantee on their craftsmen to ensure client satisfaction.
However, with a surplus of exceptional skilled craftworkers available in today's struggling marketplace, contractors are tapping into staffing firms for much more than quality workers. "There has been a monumental shift in how our service is being used," said Steve Bowker, senior vice president of operations for Tradesmen International. "Prior to 2009, there was severe shortage of skilled craftworkers in virtually all trades, and a good percentage of our clients used us primarily as a resource for the high-caliber talent they couldn't find on the streets. That's obviously changed, and these same clients are now partnering with Tradesmen because they understand outsourcing makes financial sense, helping to keep overhead costs to a minimum. Cost containment is critical for survival in today's economy."
Maintaining peak levels of workforce productivity is even more critical for contractors today as the economy sluggishly rebounds. "Most construction businesses we've consulted with in the past year have downsized 25, 40, even 60 percent," said Bowker. "They're typically down to their core employees, and instead of hiring on additional full-time workers as sales increase, they're partnering with us to supplement their core workers with our employees-and this is key-only as their work volume can keep our craftsmen productively working."
"When work slows, they simply send our guys back, which enables them to keep their own employees at higher productivity levels," said Bowker. "
This does two things:
- It optimizes every dollar expended on full-time employees.
- It eliminates hold-over costs related to keeping unneeded, non-productive workers for a day, week or longer until the next bid closes or work increases.
Through seventeen years of in-depth consulting, we've found hold-over or overstaffing to be, hands down, the biggest drain on profitability for contractors nationally."
Optimizing workforce productivity and controlling payroll costs are not the only benefits of incorporating a staffing service into a contractor's hiring strategy. In fact, there are other equally compelling reasons why contractors should explore variable labor as a viable workforce option.
Keeps Workers' Compensation Exposure Down
In today's economic climate, one catastrophic incident can put a contractor out of business. So, many construction businesses take advantage of the fact that many staffing firms cover their employees on their workers' compensation insurance. By minimizing the number of full-time employees on payroll, contractors are also minimizing their workers' compensation risk.
Minimizes Unemployment Taxes
Businesses of all kinds are being forced to share in the burden of replenishing state unemployment coffers emptied because of the volume of individuals on unemployment and the extension of benefits afforded to the unemployed. Using contract labor for short-term projects can save contractors tens of thousands of dollars over the years. Contractors should consult with their accountants for State Unemployment Tax Act (SUTA) guidelines and calculations.
Reduces HR and Administrative Costs
Even with the surplus of quality craftsmen in the marketplace, the cost to advertise, references checks, interview, skills tests and so on, can be substantial. And the more people on a contractor's payroll, the more payroll administrative costs a business will incur. Partnering with a reputable staffing service that has a construction trade concentration enables contractors to efficiently access the talent they require while not increasing associated human resource costs.
Minimizes Benefit-Oriented Costs
Health care costs have seen annual double digit increases for the last decade, and employers are being asked to bear more and more of these costs for their employees. There is even new health care legislation underway that will require contractors to offer specific types and levels of benefits, which could impact construction businesses of all sizes. By using contract labor, thereby maintaining a reduced number of permanent employees, a contractor will be less impacted by such costs and regulatory mandates.
"The recession, while riddled with challenges and heartache for all involved in our industry, has put construction business owners in the unique position to take total control over their labor and labor-related costs," said Bowker. "Tradesmen's business is actually on the upswing working with more and more contractors who clearly understand that their smaller workforces are more 'right-sized' than 'down-sized,' and that supplementing their core workers with high-caliber contract labor can realistically put them in a position to achieve unprecedented profit growth as the economy rebounds."
Sources:
1. McGraw-Hill Construction Outlook 2010
2. Associated General Contractors of America
Construction Business Owner, March 2010
