To assist the construction industry in determining the best course of action to move their companies forward, a three-month-long survey of construction contractors in the New York region focusing on the most significant issues and trends, as identified by an advisory panel of industry experts, was conducted by Grassi & Co. The topics covered include labor conditions, the regulatory environment, safety compliance, technology, cybersecurity, and insurance—all issues that impact the profitability of the construction contractor’s business.

Reflecting the responses of over 100 industry insiders, more than 82% of the respondents were either general contractors (43%) or sub- contractors (39%). A summarized version of the results is as follows:

The top issues identified relate to the skilled labor shortages, general business conditions and the challenges of complying with regulatory oversight, compliance was cited by more than 25% of the survey respondents as a top industry concern.

Union Versus Open Shop

When respondents were asked about union trends in the construction industry by sector, 46% of industry professionals said that non-union and open shop work had greatly increased in the residential sector, and further indicated that the share of non-union and open shop in the non-residential sector was increasing as well, but at a slower pace.

This trend was cited less frequently in the civil/infrastructure sector, with almost half seeing no change on projects in that sector. More than 87% of the survey respondents believe these current union versus non-union and open shop trends will continue. This shift in share, between union and non-union contractors, has broad implications for the competitive landscape.

Regulatory Compliance

Another challenging issue for contractors has been compliance with the minority/women-owned business (MWBE) requirements. More than half of the survey respondents (54%) said MWBE compliance was difficult or very difficult while only 13% said it was easy or very easy. Roughly one-third (34%) indicated that MWBE compliance was not a significant issue for their business.

Staying with the compliance topic, survey respondents were also asked how NY Labor Law Sections 240 & 241 is impacting their profitability. While the consensus was generally negative, assessments on the scale of the impact varied considerably among industry professionals. For 42%, the negative impact on the bottom line was large, while 46% said the impact was negative or slightly negative. Only 12% said that there was no impact.

“New York State and City regulations are becoming unbearable…I think a sensible tradeoff for having to provide so much OSHA training is that the contractors should be able to hold employees who have height-related injuries partially responsible for their negligence,” was just one of the many comments received.

Respondents were also asked how Local Law 196 (construction safety training) was impacting their businesses. Sixty-three percent said they were factoring compliance costs into their project bids. Safety training seemed to be a significant investment focus of compliance for respondents, with 60% saying that they were investing or planning to invest in safety training. Forty percent of firms were complying with Local Law 196 by hiring in-house safety personnel and 36% said they were engaging outside firms. Twenty-nine percent said they were investing or planning to invest in safety technology.

Cybersecurity

Cybersecurity and related awareness was another key issue raised in the survey. With an ever-increasing reliance on data at the core of every construction business, around 45% of respondents strongly agreed or agree that construction projects are increasingly susceptible to cybercrimes.

Construction sites are especially risky. Many people have access to confidential information and the industry uses network-enabled equipment in a relatively unsecure environment. Work-site cybersecurity caused concern among 76% of survey respondents, and it’s clearly a problem with the potential to have a material impact on any business. The construction industry should think beyond their four walls to ensure they have not only a physically safe job site, but also a cyber-safe jobsite.

In addition, according to the survey, only about half of contractors have cyber insurance. At one time, this coverage was reasonably priced, but with the rise of cybersecurity incidents, costs have risen as well.

Tax Reform

Another change impacting the industry these past few years lies with income tax reform. Anytime there is reform, it creates a tenuous situation because there’s always uncertainty surrounding the regulations. However, reduced tax rates are generally a good thing for any industry—especially for the construction industry, which relies heavily on cash. The change in the small-business threshold from three-year average annual revenue of $10 million to $25 million could be seismic as it enables qualifying companies to go back to a cash basis for income-tax reporting purposes. It can take construction companies extended periods of time to get paid, so not having to pay tax on uncollected revenues creates an opportunity to retain corporate capital and cash for reinvestment and growth.