How the construction labor shortage is colliding with project hiring requirements - Goals vs. reality

When a massive construction project comes to town, it seems everyone scrambles to get a piece of the pie. Understandably, if public funding is at play, then the political pressure is on local officials, developers and contractors to make sure there is a visible, high-profile payoff for the community.

Sometimes that pressure comes with special hiring requirements. Public officials and residents would like to see as much of those taxpayer dollars reinvested back into the community in the most concrete form of economic opportunity there is, a weekly paycheck.

However, in an environment of ongoing construction labor shortages, are hiring requirements on publicly funded projects feasible, or do they set up contractors for major fines and penalties?

Cases of success and failure

Sometimes, it works. Mortenson Construction, by all accounts, is a pro at meeting diversity and hiring mandates. While building the new $1.1 billion Minnesota Vikings U.S. Bank Stadium, it surpassed the project's minority workforce goal of 32% by five percentage points. All of those workers were Minnesota residents, with approximately 400 from the local Minneapolis area. Not too shabby, but what if that requirement had been limited to Minneapolis alone? The economic impact analyses were state-based in the case of the Vikings facility, so, aside from a few targeted zip codes in Minneapolis, there are no numbers readily available to reveal how much of the workforce included Minneapolis residents.

"Mandates don't get at the heart of the problem"

tweet this quote Share on Twitter

Even if the target had been 32% Minneapolis hires, it is significantly less than the 51% required by the City of Detroit for the Red Wings in its project development agreement for the team's new $627.5 downtown hockey venue, Little Caesars Arena. State-issued bonds ($250 million) and city property taxes ($35 million) have provided a significant chunk of the venue's construction funding, so it follows that the local hiring requirements would be higher than other projects. But in this case, Michigan residents alone aren't enough. According to the agreement, 51% of workers have to be "bona fide Detroit residents," and 30% of construction contracts must go to Detroit-based companies.

The project has exceeded the company goals, with an estimated 38% of local firms under contract. However, things haven't gone that well on the local-hire side. The City of Detroit last week announced that it had fined several contractors a total of $500,000 for failing to meet the hiring mandate. By all accounts, project developer Olympia Development and general contractor Barton-Malow-Hunt-White — a joint venture of Michigan contractors Barton Malow Co. and White Construction, along with Indianapolis-based Hunt Construction — and its subcontractors have been aggressive in trying to attract local workers. They've held job fairs and organized their own training sessions in order to entice residents to learn a trade.

Even Detroit's Portia Roberson, who directs the city's office of human rights and monitors how well the project meets workforce requirements, told the Detroit Free Press that she believes arena officials have made their best efforts to draw in local workers. The fines, she said, would go into a fund to help provide worker training for future projects.

The potential pitfalls of requiring local workers

This begs the question, however: What if there just aren’t enough workers in some areas of the country to meet such ambitious hiring goals?

Whether it pertains to local or minority hiring requirements, 51% is abnormally high, according to Andrew Richards, co-managing partner at Kaufman Dolowich & Voluck. For example, he said the federal and state minority mandates in the New York area typically top out at 30%, "and they can't meet the goals here either."

Richards added, "They're not realistic. The government shouldn't be in business. It wants to wave a magic wand without any sense of reality."

"Any firm will do its utmost to make sure individuals have training, but you can't teach experience"

Brian Turmail, senior executive director of public affairs for the Associated General Contractors of America, said the AGC "has long opposed any kind of hiring preference being connected to construction projects." Two-thirds of AGC members are reporting problems finding qualified workers, and if most contractors could fill their workforces with local hires, they would, he said.

However, according to Turmail, Detroit and other cities that are having trouble meeting hiring requirements could be reaping the consequences of their own actions. School systems all over the country have stripped their programs of career and vocational training, leaving little in the way of newcomers entering the construction workforce. Turmail called the fact that the Red Wings arena contractors held job fairs and training programs and still couldn't find enough workers a red flag. "Mandates don't get at the heart of the problem," he said.

In addition, Turmail said that some firms, in the scramble to find workers to meet hiring requirements, might bring on workers a little too soon, making the project site a more dangerous place for everyone. The first 90 days on the job is the most perilous time for new hires. Some companies might even be tempted to bring on workers who are not quite ready in order to avoid hefty fines like the one levied by Detroit, he noted.

"Any firm will do its utmost to make sure individuals have training, but you can't teach experience," Turmail said. "If they'd had tech education, they would have that experience. That's exactly where they learn it."

Similar obstacles in minority hiring requirements

A similar paradox can also be found in minority hiring, according to Richards. He said mentoring programs would go the furthest in building up a reliable stock of minority contractors, but the laws simply don't permit the kind of relationship between minority and non-minority contractors that would be the most beneficial.

"Established companies work as mentors, but law enforcement has to back off," he said. Richards added that he believes a mentor should be able to provide tangible assistance by lending the smaller contractor equipment or providing supervisory assistance in a pinch, but those acts are often against the law.

"Any help they give them is deemed to violate requirements and constitute fraud. No company wants to get indicted," he said. Nevertheless, Richards said that mentors are a necessity because the typical small minority contractor "can't go from a $1 million to a $25 million contract" without one.

What's next for hiring mandates?

So where are hiring requirements headed? Most likely up, according to experts. Even with construction organizations predicting unprecedented skilled worker shortages in the not-too-distant future, San Francisco has a 50%, across-the-board local hiring requirement currently being phased in, with the city mandating that half of all workers on city-funded work be residents of San Francisco or San Francisco County by 2017.

Requirements like these concern industry experts like Turmail because contractors are already having a hard time meeting their staffing needs.

"The real problem is failure to invest in tech education," he said. "We know it's the more effective way (to boost the local workforce) unless your goal is simply to collect fines."