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Contractors face talent shortage; Sandy expected to aggravate the problem

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Contractors face talent shortage; Sandy expected to aggravate the problem

Layoffs during the recession have resulted in a shortage of qualified workers in specialized areas of construction in certain geographic areas, and the problem will likely worsen as construction picks up during the recovery.

Analysts expect a boost in demand for construction work in the wake of superstorm Sandy, which could also exacerbate the shortage of qualified workers.

Smaller contractors may be tempted to stretch their hiring standards to fill out a project roster, increasing the likelihood of onsite injuries and defect claims, among other risks. This scenario worries construction insurers.

“I think there's a limited problem (of worker shortages) right now but one that could grow very rapidly,” said Ken Simonson, chief economist at Associated General Contractors of America in Washington, D.C. For the last two years, there has been a sharp drop in the unemployment rate for former construction workers but not a corresponding increase in construction industry growth. That means those workers who have been unemployed likely will find other types of employment, become fulltime students or have given up looking in the construction industry, Mr. Simonson said.

“We hear scattered reports of shortages of welders and pipefitters and for crews to do aspects of single-family construction on tract homes. In Texas, where the economy has done better than most states, there has been a growing demand for home construction and a lot of competing industries looking for workers,” he said.

In Maine, there are not enough workers to do specialized shutdown work at facilities, such as electrical and wiring, said Michael Bosse, chairman of law firm Bernstein Shur's construction industry practice group in Portland.

“We hear from our client base that there is a shortage of good quality (construction workers). They were always in demand and there were probably not enough of them, and since 2007, many have left the industry,” said Rick Ciullo, chief operating officer at Chubb Surety in Warren, N.J.

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Each construction company works in a specific environment and culture, so a worker from one company may not have the required experience going to another company, he said. “As an underwriter, we want to see people proven in their own culture and operating environment,” Mr. Ciullo said.

Joe Mair, managing director at Smart Devine in Philadelphia, a consultant to surety underwriters, said that for smaller and midsize contractors, tight profit margins and financial problems can result in contractors cutting corners in the way they build, he said. “There's a lot more risk for sureties when a contractor has a 4% profit margin than a 10% margin; you have less of a cushion when things go wrong, and things go wrong all the time,” he said.

Particularly, “in the smaller and midsize market, when sureties feel uncomfortable with the principals they're bonding, they ask for bigger indemnity agreements. Recently, sureties have been less willing to negotiate away personal indemnity (agreements),” and they have increasingly required collateral from a contractor, Mr. Mair said. “We do a lot of funds control work for sureties. Ten years ago, we might have had five funds-control accounts. Now we have anywhere between 50 and 100.”

While U.S. construction companies have made progress in the area of safety, “when you get inexperienced people, safety may be one of the things to go,” Mr. Ciullo said.

Moreover, “because we're coming out of a recession, OSHA is taking a larger role than in the past couple of years, being much more aggressive and vigilant at job sites to make sure that worker safety is being observed,” Mr. Bosse said.

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Michael Anderson, U.S. construction practice leader at Marsh Inc. in Philadelphia, said he's working with construction company CEOs committed to a cultural change focusing on a mindset of safety. Contractors recognize the greater financial stress among subcontractors in this economy, jeopardizing safety programs, he said. As a result, “we have seen an increased focus on contractors prequalifying their subcontractors for safety,” he said.

“Another risk is when you have an inexperienced workforce, you wind up producing a poorer quality product,” Mr. Ciullo said.

“I worry about possible injury to the inhabitants long-term” caused by defects in manufactured houses, Mr. Bosse said. “I had a couple of cases in the past couple of years where there were fires involving manufactured homes,” where the work consisted of laborers “going to the site and putting boxes together” in a short period of time.

“Construction is an experiential business that requires decades of doing the same thing,” Mr. Ciullo said, which means it takes time to train qualified workers.

For many projects, “You can't just pluck someone off the street,” Mr. Bosse said.