Hosted by the Salt Lake City Law Firm of Babcock, Scott & Babcock
PARTICIPANTS:
Doug Welling, CEO, Jacobsen Construction
Cory Moore, National President, Big-D Construction
Mark Greenwood, Environmental Manager, Granite Construction
David Zimmerman, Vice President and General Counsel, Brahman Group Inc.
Taylor Scalley, Director of Business Development, Cache Valley Electric
Eric Stratford, Director of Business Development, R&O Construction
Danny Maruji, Credit Manager, Wheeler Machinery
Patty Fullmer, Division Credit Director, BMC West
Carl Tippets, President, Pentalon Construction
Ron Dunn, Chairman/Principal, Dunn Associates Inc.
Tom Hurley, Fabrication Manager, Nucor/Harris Rebar
Chad Sorenson, President, SCI
Bob Babcock: What are you all seeing in the industry? What are the positive trends? What are your challenges?
Doug Welling: Well, I guess I could weigh in on a couple of things. I was just looking at some economic forecasting from the Department of Commerce and it shows that nationally construction has declined moderately in terms of spending. But I think here in Utah we’re not seeing that. At least for the foreseeable future. The next two or three years, for sure. We live in such a well-run state, it’s really driving the prosperity of our community. We see people being attracted to Utah and businesses growing and developing within Utah. And that’s really exciting. So, from our perspective, we’re seeing that the construction industry will continue to be strong. The construction spending in the Intermountain West will continue to rise, not decline, over the next two or three years. It’s a great place to be. That’s what we’re seeing. I would be interested to see if that’s the way everyone else is seeing things.
Tom Hurley: I’ll talk a little bit more from Nucor’s perspective from our mill in northern Utah. I would say the demand is very high at our mill. As Doug said, I think that’s a function of a robust economy and how things are really moving. It’s in all sectors. We’re especially seeing it in mid-rise, multi-family housing. It’s pretty robust from the mill’s perspective throughout the economy. From a mill perspective, we’re seeing the top of the cycle or close to the top of the cycle right now. From our fabrication-shop perspective it’s pretty robust all over the Southwest, so we’re seeing strong demand for our fabricated rebar across all our sectors. It’s really strong. I would agree with Doug. It’s a wellrun state, and I think that helps. It’s a great place to live. People are figuring that out. So, I think a lot of this is demand-driven. There’s just a balance right now with the domestic producers of steel, based on the demand. We also don’t see tariffs slowing anything down much. It’s just demand-driven and seems to be strong everywhere right now and tariffs aren’t necessarily affecting things. Pricing is stable.
Cory Moore: Overall material prices have gone up 20 percent to 22 percent since 2010, not focusing on steel alone but material prices in general — 6.6 percent over perhaps the past year. And I don’t see that decreasing. I see 2 percent to 4 percent continuing over the next year or two because of the things that Doug talked about in that our construction GPD in Utah is robust. We’re building more right now than we did in 2006 and 2007. I don’t see a slowdown at leaving our pipeline and backlog. The other thing that’s been increasing is just labor prices because we all know that that’s the crutch of our industry right now. We can’t find enough labor for the available work.
Mr. Hurley: I would agree with that, Cory. Harris Rebar has a turnkey fabricated and end-place product, and we’ve also seen actually a higher percentage of the increase on the install side.
Mark Greenwood: From Granite’s perspective, probably our biggest challenge is keeping our aggregate bids competitive based on location. There’s a lot of pressures from cities, counties and towns on limiting that presence. It’s difficult for an industry to be able in that position because it drives our competitiveness and getting projects and jobs. There was work on that in the Legislature this year with House Bill 288. Things like that help.
Mr. Babcock: What are you seeing as far as workforce or labor-related challenges?
Mr. Moore: I was reading that the average construction worker makes $400 more a week today than they did in 2010. That’s pretty awesome. That’s a significant increase. And I think that’s going to continue for a little while. Certainly, none of us really want costs to go up because we want to help property owners make successful projects. But in some ways, it’s good for our industry because we have to attract more young people and more talent to our industry, whether that be high school or colleges, and that increase in pay should help us attract the talent. That’s going to be absolutely key to our ability to take care of our clients and grow our industry.
Eric Stratford: At R&O, we see our labor force aging. The median age of our carpenters is probably somewhere in the high 40s or early 50s. So, I agree that’s something that we’re concerned about moving into the future. We need to bring that younger labor force to maintain years to come. We’re making efforts. We’re in high schools, we’re in the colleges, trying to recruit and keep some of that talent in our industry because we see that as a big pinch point in the future.
Patty Fullmer: From the supplier point of view, we have the same issues trying to keep a young workforce, but also coming up with ways to use technology to improve our industry. For example, we’ve started ready-frame, which is a pre-cut product for residential and multi-family, so the framing time is reduced and there’s less waste, it’s “greener.” So, we as a supplier are trying to be more conscientious and utilize technology, which I think will help attract that younger workforce.
Carl Tippets: I really believe the technology is one big way we’re going to have to solve the labor problem. We’re not going to be able to offset the deficit in the labor force. Technology is eventually going to start getting creative. I think technology will need to catch up and offset that labor shortage. We’re not going to keep up with it.
Ms. Fullmer: And I think that the younger generation wants to be more tech-involved. That is the way the future is going and as a supplier we’re working really hard to come up with ways to use technology to enhance the opportunities for our younger folks and it helps with production time, too.
Mr. Greenwood: What we’re seeing is trying to keep our employees and labor force from not going off somewhere else. At Granite, we are pushing to increase the number of women in the workforce, particularly on our craft side and giving them development opportunities, not just a job, but a place to grow in their careers as well. I think that’s key. There’s half of the workforce that the industry has historically somewhat not focused on at all.
Ms. Fullmer: I was actually going to bring up that if you look around this roundtable, you have one female representing the industry. And traditionally, construction hasn’t been a female career path, but I do think we’re in the process of finding good workforce, and I think we need to target females in our colleges, in our high schools, to come in and step up and learn the industry.
Mr. Tippets: I agree. I see the National Association of Women in Construction is doing good things with that. They’re establishing a fairly deep local presence here in Utah, which is a good recruiting tool for us as an industry.
Mr. Welling: I think there’s a good trend there. I think we’re seeing an increase in female participation in the craft and in management and some senior management. I know on our executive committees we have two females on our executive committee. Five years ago, that would not have even been contemplated.
Ms. Fullmer: I think we have to change the environment of the construction industry so that it is more welcoming to the female employee. I think to some extent, in the past the environment, it was the “good old boy” network that goes on in the construction industry. I think we have, and need to continue, cleaning that up a little bit and really push for more of a professional environment, whether it’s craft or in the office side of it.
Mr. Greenwood: There needs to be a culture shift.
Mr. Hurley: I think it’s changing. It’s getting traction. We have more women in leadership positions in Harris Rebar. I think we’ve got to get back to that high school level and get people interested in the technical part of the job. I’ve got a degree in engineering and I think there were two women in my entire class. Now, that was a while ago, but we need to change that and get the pipeline started sooner.
Mr. Stratford: I think it’s started. We’ve spent time in the tech colleges recently and I think we’re seeing a lot more women in those classrooms than we ever did before. At R&O, our female employees are very talented, very astute and very detail-oriented and that’s the type of individuals that we need.
Mr. Greenwood: I think diversity in the workforce will give you a better product.
Mr. Babcock: What are you all seeing in terms of the market’s response to the housing needs? There has been an increase in multi-family housing. Are you seeing that as a continuing trend?
Mr. Tippets: One of the things we’re seeing is transit-oriented development in the multi-family arena. The density is increasing and locating next to transit, simply because of the infrastructure needs and addressing commutes and trying to get all of that in place, so the density is getter much denser. It’s starting to get location-driven as far as transit.
Ms. Fullmer: I also think it’s driven by our demographics. The younger folks don’t want big yards. They want the amenities. They want movie theaters close by. They want shopping close by. They don’t need that big yard that maybe we grew up with. I think we’re catering more to that direction as well. And price is a concern.
Mr. Tippets: If you look at the increase of multi-family, a lot of that is focused specifically upon a younger generation. It used to be that high-density housing was a transition to home ownership. But some people have changed what was the “American Dream.” They’ve been through foreclosures or short sales and they don’t want to be there anymore. So, they make the lifestyle choice that they want to — they want to go golf and water-ski as opposed to mowing the lawn.
Mr. Welling: The transit-oriented developments have been very, very successful and very strong, SOHO station, Sandy East Village, Farmington Station, among others, have been very successful.
Mr. Moore: With this trend, we’re getting nicer units with better amenities. If you look at the downtown Salt Lake, especially the multi-family, it’s different than we built 10 years ago. When we’re having these bigger companies come to town like Goldman Sachs or Adobe, we’re getting actually pretty high-end professionals who are choosing to live in a multi-family environment. So, I think there’s a changing demographic that’s allowing for more.
Mr. Tippets: The quality continues to go up, the bar continues to go up and construction costs continue to go up. The need for affordable housing is being left the behind. Well, the need is not being left behind, the need is being created, but it’s being forgotten to a large degree because of the market demand for increased product. There needs to be some additional focus on affordable housing. We’re doing a great disservice to a large sector of the economy.
Mr. Stratford: Many of the apartments rates that are happening right now, kids coming out of high school they can’t afford it — and newly married couples.
Chad Sorenson: That’s true. Young people are staying at home longer due to rising health insurance costs and wages not keeping pace, for example. Young adults in their 20s who want to buy a house may need to work multiple jobs just to afford something like a 1,200-square-foot house.
Ms. Fullmer: I think another big concern with housing is infrastructure. You go out to the growing areas in the Salt Lake Valley and you look at how they’re building. I don’t know if the infrastructure is in place to be able to adequately address the housing needs that we have.
Mr. Greenwood: That’s true for entire northern Wasatch Front, even up into Box Elder County. The water and the sewer infrastructure is lacking and it’s not set currently for that to get fixed.
Mr. Sorenson: With the age of our infrastructure in a lot of our current cities and towns it’s time for replacement. We are seeing a lot of water main replacements in subdivisions that are 20 to 30 years old. They’re getting new services, new water mains, new everything because they’re old and rotten and not functioning and there’s a lot of that kind of work going on as well.
Mr. Babcock: Is there any downside to the robustness in the industry that some of you commented on earlier?
Ron Dunn: One downside is that you have to be careful the bar for quality doesn’t drop a little bit. With all of the construction, particularly in the multi-family, wood is looked at as a lesser product from the engineering side and from the construction side. Everybody has dabbled in wood. You don’t really weld or pour concrete in a backyard as a teenager, so everybody thinks that they can do wood, but the skilled-labor depth chart is getting slim, as we’ve talked about. So, we’re seeing the bar pretty low on a lot of the multi-family housing, both in design unfortunately as well as construction. Again, it speaks back to labor pool. We can’t find qualified people to employ. And we’re building a lot of the same kind of product that they’re tearing down in California because it’s not good. So, one downside of the robust economy is that the depth chart gets affected. And we’ve got to be careful of that.
Mr. Moore: I agree with you, Ron. I think there was a time not too many years ago that we didn’t have to think as much about quality control. We had good subcontractors. They had good labor. Now, there’s a much higher level of quality control needed throughout design and certainly through construction because there’s not as much talented labor. So. I think you’re right.
Mr. Tippets: An extension of that also becomes how much more management do you put on a project? You have multiple layers of management on a large project now where you used to have one person who can supervise qualified subcontractors.
Mr. Moore: And I think that’s at a higher level in multi-family than probably anywhere else right now. If it’s a core-and-shell office building, especially if it’s larger, then you’re usually going to find pretty darn good subs and subs that are managing their backlog. But with some of those multi-family jobs, it’s tough.
Mr. Welling: That’s true along the Wasatch Front. It gets even more difficult as you start trying to go on the Wasatch Back. People don’t want to travel anymore. Costs go up. The type of labor and sophistication of subcontractors drops a level, so that’s also a challenge.
Taylor Scalley: I think it’s an opportunity, speaking from the subcontractor standpoint, our reputation is on the line. More than ever, we have to invest in our employees more. And also, be more proactive in understanding what’s coming down the pipeline to give you the assurance that we’ve got the labor pool. Not just the labor pool, but qualified labor pool to do your job. And that’s — that’s an opportunity. And where we see we have to be in that position to forecast out, to be on top of things as opposed to reactive to this market.
Mr. Moore: There’s no doubt it’s hard to travel. It’s hard to be out of town. Nobody — the labor doesn’t want to go. The companies don’t want to go because you don’t have to. And labor is not traveling between states. It used to be when we were building something and we didn’t have enough labor in Utah, then we would pull from Arizona or we would pull from wherever. Now that’s not reality. You’re going to pull labor from another state, because especially in the West, everyone is busy.
Ms. Fullmer: Another challenge with this is that we have subcontractors that want to have credit accounts with us as a supplier and we need to make sure that they’re credit-worthy to be able to pay their bill back. So, on top of the labor challenge, you have the credit piece and a lot of them are difficult to qualify unless they’re getting a joint check from whoever they’re working for. And we’re finding that things are slowing down on that payment side.
Danny Maruji: To follow along with what Patty said, I agree, our construction industry is strong in Utah. I know with Wheeler Machinery, we’ve seen a large increase of new customers for us. But with people popping up with creating a new landscaping company or new construction company or whatever, they don’t quite have the education of how to run their business. They do good work, but it seems that some don’t know how to manage and pay their bills. We’re having a more difficult time of collecting money, when you go look at their history.
Mr. Welling: In addition to the concern that Ron talked about with quality being things in a super-heated market, another concern is safety. You’re bringing a lot of new employees into the industry and even your tried-and-true employees getting so busy and trying to be so much more efficient and more work to do and less amount of time. As managers of that process, we’ve got to make sure that helping our people understand that safety is our highest priority. We can’t do anything if those guys go home sick or injured. I know several of our companies have made some dramatic increases in our safety performance and it’s been rewarding.
Mr. Babcock: Are there any new trends you’re seeing in the industry? For example, where is BIM (building information modeling) at in the industry, now that it’s been around for several years? Is BIM modeling being used officially at this point? How are we doing in the industry to implement those types of things?
Ms. Fullmer: With BMC, the “ready frame” is our model. It comes out precut and labeled, so the frameing time is less. You can have actually a little less-experienced person because it’s all labeled and it’s just stand up and that’s been very successful in our Colorado market. In Salt Lake, it’s worked well. Our whole company is doing ready-frame now that has been a solution to some of the problems. And then our new truss plants that are automated are also benefiting the market. We’re getting things out quicker because it’s all automated — so less labor. But labor still going to be the issue forever.
Mr. Zimmerman: We don’t we have to go really large as far as projects before we use BIM. On the industrial side, the modeling is vital because piping is always interfering with the electrical. We frequently find ourselves, if we’re not getting both scopes, we’re finding ourselves at odds with the electricians, even more than guys on the commercial side and the residential side. BIM is huge for us, and I think the industry, in terms of identifying conflicts and managing a project properly.
Mr. Hurley: We’re seeing some of our BIM-trained or technology-savvy employees from the college-educated workforce. But a lot of the detailed training is in-house. We do a lot of 3D modeling, solving conflicts, trying to be proactive. We’re seeing more of that than ever.
Mr. Moore: I think many, if not most of us, are using BIM. Ten years ago, we didn’t use BIM as much, but I think every year we get a little bit better at it. I think many of the larger contractors have in-house BIM departments and we use BIM on nearly every project now. Especially anything that’s over $10 or $20 million. Those projects take a lot of coordination, whether it be a healthcare project or a lab project. We’re using BIM on office building and multi-family, but we’re not really fully integrated and working between all disciplines perfectly yet. I think we have a long way to go, which is actually an exciting part of our business, because I think there’s a lot of efficiencies we’re going to find as we combine the BIM world with the prefab world.
Mr. Greenwood: I think “heavy-civil” guys are maybe five or 10 years behind. We have our first project with a BIM on a bridge structure on I-80. We do see the benefit, but it seems more suited to a vertical-structure program and I think it needs to be tailored to a civil application.
Ron Dunn: From our perspective, we had to rewind the use of BIM. The 3D modeling and design can be an incredibly successful tool, but also the cause for all of your grief as well, because when it’s easy to make a change, you find that you just do the change. I remember starting out in my career, my boss told me never to draw more in the morning than you can erase in the afternoon, because you wouldn’t be ahead of the game the next day. You had to think about what you put down on the paper before you drew it. But now we’ll work many designs and will it be 10 or 12 architects working on the same model at the same time. And just like a picture, you can add a little bit here and add a little bit here to improve on it, which needs to be done, but that little change in flipping an elevator core, you can do with a keystroke, leaves all the rest of the consultants trying to catch up with it. It’s a wonderful tool and in its final stages, but it’s more difficult to work with in the design early on.
Mr. Babcock: Are owners, either private or public, becoming more knowledgeable or sophisticated now regarding technology such as BIM? Are you finding they’re willing to pay for it?
Mr. Moore: I would say the state agencies that we’re working with are probably more apt to pay for BIM than less. The private industry is about 50/50. If the developer or the owner has seen BIM work in the past and seen the benefits, then they’re pretty interested in it. If they haven’t seen that, they’re less interested in paying a little more for that service. But I think at least the DFCM, some of our cities and counties are certainly more interested in BIM. They’ve been sophisticated though; they build enough projects that they realize the benefit.
Mr. Stratford: And their standards lean towards it. They have very sophisticated and high energy standards that lean more towards the use of those products.
Mr. Dunn: The perfect use of it, from my perspective, would be that the model that we create as designers is one that contractors can use and it would be shop drawing, it would just fold out everything. But in most cases, our model is recreated by the contractor’s team and is not an exact reflection of what we have on our drawings. Now, we don’t model every clip or every this or that. And ofttimes, as we’re finalizing our drawings, stuff that doesn’t affect clash detection, we might make subtle changes. The drawings are actually the instruments of services, but if we can get to that point to where the contractors don’t have to recreate the model or do their own version of it, and they can just give us enough time to make it to satisfy everything, then I think that’s where the real advantage would be.
Mr. Babcock: What trends are you all seeing in project delivery methods? With design-build, CM/GC (construction manager/general contractor), design-bid-build, what do you see is the future for the industry here?
Mr. Moore: Integrated Project Delivery (IPD) is new for Utah but it’s being used a lot throughout the country right now. I think a little bit — certainly more East Coast than West Coast, but there are some major projects — the federal government is pretty focused in certain areas in doing IPD and some larger institutions are focused on IPD. I think that’s a trend that will continue to head towards.
Mr. Greenwood: For Granite, our “bread and butter” is CM/GC. That’s where we’ve made our niche, so we’re rarely going to be the low bid. That’s typically not our business. But when it comes to the quality and safety of construction, that’s CM/GC. Owners looking at that want quality and they want innovation and that’s where we excel. We’re not having to compete with low bidders. We’re out of that game.
Mr. Stratford: I think that every project needs to be considered as an individual project with the delivery method chosen for that project. There are instances where a traditional design-bid-build project is necessary. But there’s also very many benefits to a CM/GC, a design-build or even IPD in larger stuff. And I think something that owners need to pay attention to is that there’s lots of options and they need to weigh the pros and cons of each delivery method and choose the one that works best for that particular project.
Mr. Babcock: Are you able to provide input to them on those decisions early on? Are they getting you guys involved early enough to offer some input?
Mr. Stratford: It depends on the relationship with the client. There are some clients that come to us and say: “Hey, what do you think this?” But oftentimes we’re brought in after they’ve chosen a design team and already made a decision on a delivery method. So, it varies.
Mr. Tippets: We talked about professionalism in our industry and I think one peripheral topic related to this is simply that the economy is attracting people to be developers that aren’t qualified developers, either. For the most part, the systems that we’re talking about are way beyond the reach of those people and I think most people at this table are steering away from those kinds of relationships. But we’ve got to be careful whom we do business with in order for us to be able to succeed, too.
Mr. Babcock: Any updates on some of the bigger projects in Utah right now? What is the status of the Salt Lake airport?
Mr. Moore: The first phase, the main terminal and one of the concourses, will open in the fall of 2020. Then the old terminals will shut down and demo will occur and work will then start on those. Meanwhile the Okland-Austin joint venture is doing a north concourse. I think that will be a little post-2020 fall opening. But the entire construction as a whole actually isn’t done until 2026. We’re basically building an airport on top of an airport, so there’s a lot of logistical things that we have to work through as it relates to traffic and utilities and making sure that that airport runs as though we’re not there, as much as possible. I feel like we’re doing a pretty good job of it. That’s the executive summary of what’s happening at the airport.
Mr. Stratford: I think you have a lot of people licking their chops about the old prison site in Draper, but I think the plans there are yet to be determined.
Mr. Moore: I think it will be good for our state. I don’t know how that will all turn out. But I think we’ve got that Lehi, Silicon Slopes area. If you drive down, it’s almost amazing how many new office buildings are being built there every year. That’s going to really make it so there’s no gap between Utah County and Salt Lake County. There’s going to be one continuous Wasatch Front.
Mr. Greenwood: There’s a tremendous opportunity for our state to do some nice things there with the momentum of the Silicon Slopes and all that’s happening with the tech industry that just plays right into the hand, will be fantastic. That, and the west corridor before the inland port and all of the industrial construction that will happen out there with the new infrastructure from the prison that’s going out in the Northwest Quadrant there and just opens up all of that swampland into valuable, valuable property and it will continue to add to the acceleration and stimulation of the construction industry for years to come.