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Energy industry drains Houston’s construction talent

Houston Business Journal Publishes ...

Energy industry drains Houston’s construction talent; impacts project costs, timelines

Within Houston’s economic upswing, developers busily plan the city’s next batch of office towers that will grapple for space among the rapidly changing skyscape.

The Houston Independent School District envisions a day when its $1.89 billion bond will be realized with 40 updated high schools.

Commuters yearn for the chance to take the completed Grand Parkway as a new route to work and home again.

And yet the challenge to realize these dreams is not the funding — it’s the talent to build it.

In Houston, the energy sector is bleeding the construction labor pool dry and may have a detrimental impact on Houston project development time lines and construction costs as early as this summer. The high-growth energy sector that has driven the local economy has also lured many workers away from the construction industry to more lucrative career paths.

Talent wanted

As part of Houston’s enormous construction boom, Chamberlin Roofing and Waterproofing’s local office recently sought to fill 40 skilled labor spots.

Art Canales, executive vice president of the Houston-based subcontracting firm, brought in 80 candidates from cities across the South. After phone screenings, drug tests and documentation verification, he whittled the lot down to 10.

“It has been absolutely difficult to find the experienced personnel to work for us, and there are different reasons we’ve struggled with it,” Canales said. “We have tried different strategies to recruit, like advertise in depressed states, offering to lend the workers money when they got here, put them up in a hotel for a few months until they find their bearings. But the ones that did come here, it’s been difficult to retain them, as well."

Chamberlin’s fight to find quality employees is a testament to the labor shortage contractors across Texas face, and, within Houston, the pressure is very much the same, despite the dramatic increase in construction work in the area. The company employs about 800 in Texas and Oklahoma, with about 400 in the Houston area.

In February 2012, the Houston-Sugar Land-Baytown Metropolitan Statistical Area recorded $383.9 million in future nonresidential construction contracts, up significantly from $276.5 million the same month the previous year. Total future construction contracts in Houston in February 2012 year to date added up to about $1.68 billion, 12 percent more than in the previous year. Much of that work can be traced to large-scale energy projects, such as Exxon Mobil Corp.’s project and the Anadarko Petroleum Corp. (NYSE: APC) tower in The Woodlands area.

So far this year, some $794 million in contracts for future construction have been reported through projects like the HISD bond work and Grand Parkway construction. And more is on the way.

“The construction that’s anticipated to be built in the Houston area over the next few years is pretty impressive,” said Jerry Nevlud, president of the Associated General Contractors Houston chapter. “Many subcontractors are going to have a hard time manning up the numbers to accommodate the volume of work projected.”

In addition to its increased construction volume, the energy sector’s offshore and on-shore needs for labor could be one of the causes for the labor shortage, Nevlud said.

During the recession, many construction workers in Texas found transferable jobs in areas with high shale activity and oil production — many of whom will not likely leave a career where they can make thousands of dollars more a year.

To compete with the energy sector, wages in the construction industry will have to rise, which will increase building costs and completion time lines for companies buying new space, Nevlud said.

“The industry is looking at rising labor costs. These (contractors) are going to have to really work to find the people,” he said. “The Exxon project in and of itself requires an active effort to recruit the amount of labor it needs of specialty contractors and is taking those craftworkers out of the workforce for other projects.”

As an example, a worker who does construction and related work in the Houston area made $16.53 an hour on average or $34,380 a year in May 2011. That same person, with transferable skills, could make $20.48 per hour on average, or $42,610 a year, as an extraction worker for the energy sector in Houston. And Texas cities like Beaumont, Midland and San Antonio pay even more, according to the Bureau of Labor Statistics.

“We have tried and tried to raise wages, but if the competition doesn’t come up on that with you, it’s hard to sustain it, you just can’t compete,” Chamberlin’s Canales said. “We don’t have a fighting chance of competing with the energy companies (for the same workers).”

A less desirable field

The construction workforce is not only disappearing, it’s also aging, said Shannon MacArthur of the American Subcontractors Association Houston chapter.

“The majority of our skilled trade workers are of or near retirement age,” she said of standard construction workers, who are an average age of 53. “These men have been out there on these job sites for years, and, some of them, their bodies can’t take it anymore.”

In addition, the construction industry may not attract the next generation of workers.

“There’s a stigma on the industry,” she said. “It doesn’t have that appeal to the younger generation, and they don’t see that the industry is a way they could easily make good money.”

MacArthur, who also works for Marek Employment Management Co., a construction-staffing agency in Houston, said recruiters in the industry are looking to find creative ways to hire.

“They are starting to look outside the current market, which they’ve done in the past but not as extensively as they have now,” she said. “They’ve been looking at their competitors to hire away talent and have made pushes for college internships.”

Feeling the pressure

The aftermath of a recession followed immediately by a boom is a notorious time when many subcontractors go bankrupt, said Tadd Tellepsen, co-owner of Houston-based Tellepsen Builders. Tellepsen ranks No. 3 on the Houston Business Journal’s 2012 list of Largest Houston-Area Commercial Building Contractors. The company has about 575 employees in the Houston area and 1,200 nationwide with companywide revenue in 2012 of $400 million.

“More subs (subcontractors) go out of business when you’re coming out of the trough because demand is increasing,” he said. “That’s when subs are very susceptible to going out of business. They have to really manage their cash flow and bid for work in a rising-wage market.”

This means general contractors have to pay much closer attention to which subcontractors they award work.

“We can’t just award on lowest price. We have to evaluate that subcontractor’s financial viability, see how they’ve conditioned their backlog and note how many projects they are doing,” he said. “We have to know what kind of financial condition they are in. We have to be more conservative and cautious.”

Many general contractors share the belief that the industry is just scratching the surface of the labor shortage.

“This is a natural price progression because of pure supply and demand,” he said. “If it gets to too high, certain developers will not be building their buildings.”

Gregg Lynch, executive vice president of JE Dunn Construction Co., said his company has felt the industry begin to tighten, but it may not be cause for alarm just yet. JE Dunn has about 137 local employees and was awarded more than $139 million in contracts in 2011.

“As we get into the next three to six months, there’s a number of projects on the books that we’ll start to see come out and go into contracting,” he said. “We feel it coming and haven’t seen it be a huge detriment yet, but, this summer, we may start to enter into that timeframe that brings the shortage for general contractors as well.”

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