state of the construction industry - ehlers, inc....• 35% of all construction projects will have a...

STATE OF THE CONSTRUCTION INDUSTRY

2/6/2019 1

Jeff Callinan – J.E. Dunn ConstructionTim O’Neill – DEED Labor Market Information Office

The State of the Construction Industry // 02.07.2019

Market Assessment and Outlook

2018-2019 ASSESSMENT

• Market conditions and perceptions are similar to last year

• Overall, the industry is optimistic; construction markets are healthy and stable

• Architects feel the economy may be approaching a decline

• Engineers, contractors, and affiliates see the economy holding steady, not growing

Associated General Contractors (AGC) of Minnesota, Construction Industry Assessment 2018-2019

2019 OUTLOOK // LOCAL

• 2018 was a near record year for construction activity

• Resulted in lowest unemployment numbers = 2.8% for both MN + ND

• Predicting reductions in market sectors closer to the 2017 level

• But, large-scale projects will continue to generate opportunities over the next three years

• From the Northland to Destination Rochester, public school referendums, roads and bridges, Light Rail expansion in the Metro, and renewable energy

Laborers’ International Union of North America (LiUNA) of MN & ND, 2019 Construction Outlook

2019 OUTLOOK // NATIONAL

• Construction starts will see basically no change this year, and are expected to rise only 0.2%

Dodge Data & Analytics, 2019 Construction Outlook / MOCA, Today’s Construction Economy, 1st Quarter

Construction continues to be incredibly strong despite some headwinds. Historically low unemployment, high job openings, rising salaries, and tight material supplies are leading to rising CIP prices and record sales. Tariffs, sliding housing demand, rising interest rates, and falling confidence aren’t having much negative impact on the boom economy.

MOCA, Today’s Construction Economy, 1st Quarter

Market Assessment and Outlook // SUMMARY

Trends and Challenges

2019 TRENDS AND CHALLENGES

Rising costs associated with:

• Finding trained, skilled labor

• Trade wars and tariffs affecting material prices and availability

Delivering products through lean management and technology

Associated General Contractors (AGC) of Minnesota, Construction Industry Assessment 2018-2019

LABOR AND MATERIAL COSTS (Q4)

JE Dunn Construction, 4th Quarter Cost Index

MATERIAL COSTS (2016-2021)


COST INDEX (2007-2018)

JE Dunn Construction, 4th Quarter Cost Index

External market forces are causing uncertainty, resulting in risks that are driving up prices in the near term. Tariff impacts to construction inputs are already having measurable impacts on prices.


Trends and Challenges // SUMMARY

Industry Opportunities

OPPORTUNITY: Increase Productivity• 40% of construction companies are still using paper plans on the job

• Nearly 60% of construction companies are not investigating new technologies

• 26% of construction workers are frustrated by the lack of tools they need to do their jobs better

• 35% of a construction professional’s time is spent on non-productive activities

• Young construction workers declined by 30% from 2005-2016, with 200,000 unfilled positions in 2016 alone

• 35% of all construction projects will have a major change

• The average cost of rework is 9% of total project cost

• 82% of owners feel they need more collaboration with their contractors

McKinsey Global Institute, Reinventing Construction: A Route to Higher Productivity, 2017

How to Boost Productivity?

Working in seven areas simultaneously could boost productivity by 50%-60%:

1. Reshape regulation

2. Rewire the contractual framework to reshape industry dynamics

3. Rethink design and engineering processes

4. Improve procurement and supply-chain management

5. Improve on-site execution

6. Infuse digital technology, new materials, advanced automation

7. Reskill the workforce

OPPORTUNITY: Select Best Procurement for the Project

Compare the criteria that are most important to your project’s success:

1. Budget: how much to spend

2. Design: what the final project will look like and how it will function

3. Risks: exposure to danger, financial loss, and harm to the brand

4. Schedule: a timetable for completion and payments

5. Owner Expertise: company’s experience in similar projects

Often referred to as design-bid-build, this method is a linear process where one task follows the completion of another with no overlap. The design team and the general contractor are selected separately, and each reports directly to the owner. Plans and specifications are completed by the architect and then bids documents are issued. Contractors bid the project exactly as it is designed with the lowest responsive bidder awarded the work.

IDEAL FOR• Simple projects that are easy to document and construct• Projects where completion schedule is not the most pressing

priority• Owners that have the experience and ability to enforce the

construction documents and qualify/negotiate change orders

PROS• A familiar and straightforward delivery method• The owner has significant engagement with the architect, as well

as decision making on design options• Lowest initial price is proposed and accepted on bid day

CONS• Longest schedule duration. No overlap of design and

construction• Price is not established until bids are received. The project may

require redesign and rebid if the bids exceed the budget• Quality of contractors and subcontractors is not assured• No cost transparency for the Owner. All savings are retained by

the GC.• This delivery fosters adversarial relationships amongst all parties• Most prone to change orders• No design-phase input from the contractor on issues of budget,

schedule and constructability

Design-Bid-Build

JE Dunn Construction

The owner selects a fee-based contractor based upon qualifications and experience, ideally early in the design phase. Though selected separately, the CMR and design team collaborate as the owner’s agents to develop a design that provides the owner with the best value. An early guaranteed maximum price (GMP) is provided by the CM, who then hard bids the scopes of work to trade subcontractors.

IDEAL FOR• Owners that prefer to select both the architect and the CM,

based on qualifications and experience.• Larger and more complex projects.• Owners that desire a delivery method that is faster than

design-bid-build.• Owners that desire a fully transparent process.• Owners that desire an early guarantee of cost and

subsequent cost savings.

PROS• CM provides cost, schedule, and constructability assistance

during all design phases.• Owner has the ability to select CM that is most qualified for

the project.• All pricing is fully transparent to the owner and savings

realized during the bidding process are returned to the owner.

• Faster schedule than design-bid-build, as fast-track construction is possible.

• CM carries the risk for cost, quality, and schedule.• All subcontractor contracts are held by the CM, and the CM

is responsible for their performance.

CONS• Prequalification of subcontractors may limit competition

during bidding• Early GMP may require contingencies to cover

unknown/unforeseen issues

Construction Management at Risk


In Agency Construction Management (CMA), the owner selects a fee-based contractor to function in an advisory capacity as the owner’s agent. The CM is responsible exclusively to the owner and acts in the owner’s interests at every stage of the project. The CM and design team collaborate to develop a design that provides the owner with the best value. Construction is typically provided by prime contractors other than the agent CM. No guaranteed maximum price (GMP) is provided by the CM, as the owner carries the risk for cost, quality, and schedule.

IDEAL FOR• Public agency owners that prefer to select both the architect

and agency CM, based on qualifications and experience.• Owners that desire a delivery method that is faster than

design-bid-build.• Owners that desire a fully transparent process.• Owners that do not desire an early guarantee of cost, and are

capable of managing the contracts, performance, and schedule of all subcontractors.

PROS• Contractor provides cost, schedule, and constructability

assistance/opinions during all design phases.• All pricing is fully transparent to the owner and savings are

returned to the owner.• Faster schedule than design-bid-build.

CONS• The owner carries the risk for cost and schedule overruns, as no

GMP has been established.• The owner holds all subcontractor contracts, and is responsible

for their performance and quality.

Agency Construction Management


In Design-Build (D-B), the contractor and architect team together as one entity, hired by the owner to deliver a complete project. A guaranteed maximum price (GMP) is provided by the D-B team early in the project based on preliminary design. The D-B team then develops drawings that fulfill the criteria and complete the design while staying below the furnished GMP. The contractor solicits proposals, receives and awards contracts.

IDEAL FOR• Projects where an owner desires a single point of contact

and contract.

PROS• Single point of contact responsible for design and

construction.• Selection based on qualifications, experience, and team.• Contractor provides design phase assistance in budgeting

and planning.• Speed: fast-track construction is possible.• GMP is possible earlier in process.

CONS• Difficult for owner to determine whether the lowest price has

been achieved for the work.• If fast-tracked, changes may be difficult and expensive to

make.• Quick decisions are necessary with reduced time for reviews

and input.• Considered a “sophisticated” delivery method, owner must

have a clear understanding of scope and concept before selection.

projectdefinition

Design-Build


OPPORTUNITY: Use New Methods and Technologies

• Integration of trades

• Prefabrication

• Smart technology

Owners should be the main beneficiaries of a move to a more productive model . . . they need productive contractors that they can trust and that provide them with choice, high quality, and low prices—at scale—before they can change procurement practices and build capabilities for a new paradigm.

Industry Opportunities // SUMMARY


Q&A // 952.833.5961 // [email protected]

2/6/2019 28

U.S. and Minnesota labor market situations

• Recent employment trends

• Longer‐term trends• Unemployment situation• Labor force participation

rates• Wage trends

2/6/2019 29

Aging labor force in Minnesota: 2006‐2016 age trends

5.6%

‐16.7%

‐6.7%

2.4%

‐2.6%

48.8%

71.6%

‐40.0%

‐20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

Total Under 19years

20 to 24years

25 to 44years

45 to 54years

55 to 64years

65 years &over

CentralNortheastNorthwestMetro AreaSoutheastSouthwest

2006 30

18.4%15.9%14.9%17.6%16.9%11.2%11.3%12.5%12.0%9.9%12.8%11.4%9.5%10.8%9.4%11.7%11.3%11.1%9.0%8.0%4.0%

3.5%4.2%4.9%

1.3%1.3%

4.7%4.3%2.8%3.0%5.0%1.8%2.9%4.7%

2.6%4.0%1.6%1.9%2.1%

1.6%2.5%

1.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

Educational ServicesPublic Administration

Transp. & WarehousingMiningUtilities

Other ServicesReal Estate, Rental & Leasing

Health Care & Social AssistanceWholesale Trade

AgricultureManufacturing

Total, All IndustriesArts & Entertainment

Prof. & Technical ServicesRetail Trade

Management of CompaniesFinance & Insurance

InformationConstruction

Admin. & Waste ServicesAccom. & Food Services 55 to 64 years

65 years and over

2016 31

19.6%20.5%22.3%24.8%24.7%14.7%18.2%16.5%19.0%15.0%20.8%16.1%12.1%14.9%13.5%16.4%17.5%16.6%14.4%12.4%6.7%

5.7%5.8%

8.4%2.9%

1.9%6.3%

7.7%4.2%

4.5%7.3%

3.2%4.4%

6.5%3.7%5.8%

2.4%3.2%3.8%

2.4%3.9%

2.1%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

Educational ServicesPublic Administration

Transp. & WarehousingMiningUtilities

Other ServicesReal Estate, Rental & Leasing

Health Care & Social AssistanceWholesale Trade

AgricultureManufacturing

Total, All IndustriesArts & Entertainment

Prof. & Technical ServicesRetail Trade

Management of CompaniesFinance & Insurance

InformationConstruction

Admin. & Waste ServicesAccom. & Food Services 55 to 64 years

65 years and over

32

142,282

88,517

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0

50,000

100,000

150,000

200,000

250,000

Unem

ployed per Job VacancyUne

mploy

men

t and

Vacan

cies

Vacancies

Unemployment

34

Minnesota Construction Vacancies

Qtr. 2 2018: 5,532 (up 9.6% over‐the‐year)

• 3rd‐highest number of construction vacancies reported in MN since 2001

• Educational requirements:None: 47% (37% for all occupations)High school diploma or equivalent: 38% (32% for all occupations)Vocational training: 13% (8% for all occupations)Associate degree: 1% (7% for all occupations)Bachelor’s degree or more: 0% (16% for all occupations)

• Median wage offer: $18.17 ($14.54 for the total of all occupations)

35

Minnesota Construction Vacancies

1. Construction Laborers: 933 ($13.92 median wage offer)2. Carpenters: 901 ($16.86)3. Electricians: 789 ($19.27)4. Roofers: 473 ($17.69)5. Construction Managers: 408 ($35.82)6. First‐Line Supervisors of Construction Workers: 372 ($19.88)7. Plumbers, Pipefitters, and Steamfitters: 281 ($23.92)8. Helpers‐Roofers: 275 ($17.07)9. Highway Maintenance Workers: 265 ($14.90)10. Operating Engineers and Other Construction Equipment

Operators: 175 ($24.31)

2/6/2019 36

Minnesota Qtr. 2 2018 QCEW Number of Jobs Share of Total Jobs Number of

Firms Avg. Annual Wage

Total, All Industries 2,888,253 100.0% 176,042 $55,744Health Care & Social Assistance 495,146 17.1% 16,698 $50,856Manufacturing 320,801 11.1% 8,697 $64,896Retail Trade 298,163 10.3% 18,809 $30,576Educational Services 236,592 8.2% 4,270 $53,664Accomm. & Food Services 235,724 8.2% 12,127 $19,656Prof., Sci., & Technical Services 162,749 5.6% 22,176 $90,272Finance & Insurance 143,780 5.0% 9,700 $91,936Admin. & Support Services 135,635 4.7% 8,395 $40,092Public Administration 134,976 4.7% 3,380 $56,524Wholesale Trade 131,533 4.6% 13,426 $78,572Construction 129,757 4.5% 16,735 $63,492Transp. & Warehousing 107,724 3.7% 5,679 $52,520Other Services 90,140 3.1% 17,227 $33,280Management of Companies 80,819 2.8% 1,482 $127,660Arts & Recreation 54,599 1.9% 3,324 $32,500Information 52,896 1.8% 4,020 $72,800Real Estate, Rental, &Leasing 35,266 1.2% 6,347 $49,192Agriculture 22,139 0.8% 2,864 $37,232Utilities 13,856 0.5% 470 $98,488Mining 5,952 0.2% 216 $88,036

37

Construction Industry Trends, 1990 – 2018

128,600

2,975,900

1,700,000

1,900,000

2,100,000

2,300,000

2,500,000

2,700,000

2,900,000

3,100,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

Jan‐90

Mar‐91

May‐92

Jul‐9

3Sep‐94

Nov

‐95

Jan‐97

Mar‐98

May‐99

Jul‐0

0Sep‐01

Nov

‐02

Jan‐04

Mar‐05

May‐06

Jul‐0

7Sep‐08

Nov

‐09

Jan‐11

Mar‐12

May‐13

Jul‐1

4Sep‐15

Nov

‐16

Jan‐18

TOtal, All IndustriesCo

nstructio

n

Construction Total, All Industries

38

Construction Industry Trends, 2000 – 2017

126,892130,882131,877131,854135,413136,357134,416127,290117,549100,82995,16898,604

101,595107,364114,180121,665122,802126,573

$50,544

$65,312

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Avg. Annual WageEm

ploymen

t

39

Construction Industry Statistics, 2000 – 2017

31,279

20,33426,438

22,070 19,875 22,887

83,007

54,959

77,248

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Employmen

t

Construction of Buildings Heavy & Civil Engineering Construction Specialty Trade Contractors

40

Minnesota Industry Statistics, 2012 – 2017

Industry Title 2017 Jobs Job Growth Percent

Professional, Scientific, & Technical Services 160,011 28,625 21.8%

Ambulatory Health Care Services 152,364 21,183 16.1%

Social Assistance 96,766 19,328 25.0%

Specialty Trade Contractors 77,332 17,466 29.2%

Food Services & Drinking Places 196,833 16,256 9.0%

Educational Services 228,707 12,613 5.8%

Credit Intermediation & Related Activities 63,250 9,639 18.0%

Public Administration 132,003 9,630 7.9%

Hospitals 126,863 7,642 6.4%

Food & Beverage Stores 56,521 6,151 12.2%

41

County Business Patterns, 2010 – 2016

Establishments by Employee Size

Construction Establishments Total, All Establishments

2010 2016 2010‐2016 Change 2016 2010‐2016 Change

Total, All Establishments 16,368 16,360

(100.0%) ‐8 (0.0%) 150,115 +3.2%

1 to 9 employees 14,513 14,202 (86.8%) ‐311 (‐2.1%) 107,183 +1.9%

10 to 19 employees 1,121 1,105 (6.8%) ‐16 (‐1.4%) 19,818 0.0%

20 to 49 employees 499 693 (4.2%) +194 (+38.9%) 14,025 +13.3%

50 to 99 employees 127 219 (1.3%) +92 (+72.4%) 4,903 +12.5%

100 to 249 employees 88 105 (0.6%) +17 (+19.3%) 2,925 +10.9%

250 employees or more 20 36 (0.2%) +16 (+80.0%) 1,261 +20.2%

2/6/2019 42

Jeff CallinanJ.E. Dunn Construction(952) 833‐[email protected]

Tim O’NeillDEED(651) 259‐[email protected]

state of the construction industry - ehlers, inc....• 35% of all construction projects will have a...

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