The majority of commercial and industrial contractors are confident about sales growth, profits, and staffing levels heading into 2018, according to the latest Associated Builders and Contractors Inc. (ABC) Construction Confidence Index (CCI). Despite rising construction labor and materials costs, 55 percent of contractors expect their profit margins to expand in the first half of 2018.
“There are many reasons for confidence among the nation’s construction firm leaders,” said Anirban Basu, chief economist at ABC. “American wealth has never been greater in absolute terms as the economy experiences faster wage growth, surging equity markets, and rising home values. Consumer confidence is at a 17-year high, while unemployment is at a 17-year low.”
That confidence is shared in the residential and light commercial markets as well, with many companies reporting stellar sales last year.
But, as Steve Schmidt, president, Frederick Air Inc., Frederick, Maryland, who is also the current chairman of ACCA, noted, “2017 was a great year for contractors and for the industry as a whole. However, I do know a lot of contractors are struggling with missed opportunities because of the skilled labor shortage.”
In fact, the skilled labor shortage is one of the biggest concerns for most contractors right now.
Jaime DiDomenico, president, CoolToday/PlumbingToday/Energy-Today, Sarasota, Florida, and chairman of Nexstar Network, noted his company had a very good year in 2017, but he thinks that many contractors continue to struggle with labor shortages.
“The demand is there, but it will continue to be tempered by the supply of technical labor,” he said. “The lack of labor was predicted, and it’s happening. It will only get worse, and unless we do something different, we should expect the same challenges over the next several years.”
Schmidt is trying to reverse that trend by reaching out to the millennial generation and letting them know about the opportunities available to them in the HVAC industry. One of the problems, he said, is that younger workers are less engaged with trade associations, and they’re not as interested in the standards development process that organizations, like ACCA, specialize in or the political activities conducted to protect contractors.
“Along with ACCA, I will be working to create new communications methods that engage the millennial generation more as an industry,” said Schmidt. “My goal is to show more value in what we are doing and get young people excited about being involved with trade associations.”
Finding and keeping experienced service technicians will always be the greatest challenge in the industry, said Jaimi Lomas, vice president of the service division at A.O. Reed & Co., San Diego, and current chairman of Mechanical Service Contractors of America (MSCA). Even so, she notes that MSCA member contractors reported both rising sales and profitability in 2017.
“We expect 2018 to be even better as our contractors look to expand their services into complementary markets and new territories,” she said.
In addition to the ongoing labor shortage, contractors are wary about the rise of online middlemen, like Google Home Services and HomeAdvisor, which encourage customers to deal with them, rather than directly with a contractor. Lomas finds this new trend to be rather disconcerting.
“It’s all a little bit scary,” she said. “Both Amazon and Google have the ability to reach our clients in ways no single contractor can. Contractors are notoriously slow to act on technology, and this should encourage everyone to immediately get connected to their clients on the web. Having an agile software partner that can satisfy the changing needs of the clients is more important than ever. Our software partner, for example, has increased the communication, documentation, and efficiency between the office, service technicians, salespeople, and clients.”
DiDomenico is suspicious of any multibillion-dollar, multinational company, such as Google, inserting itself into the contractor-customer relationship. But he believes the Home Services division will provide another channel to find customers and make it easier for customers to connect with contractors, which is why he is currently going through the application process.
“I think it will be a huge directional resource, but after a time, it will probably look more like an online Yellow Pages lead source,” he said. “I think it will be a neutral influence, unless they try to control pricing and scheduling, which they have said they would not.”
Schmidt thinks Google’s entry into the home services industry will have a profound effect on the industry, and he sees it as a prime opportunity for contractors.
“Customer acquisition is no longer driven by traditional channels, and as these new digital opportunities arrive, we need to be there,” he said. “We are going to continue to offer the same high level of customer service and technical expertise that we always have at the same reasonable price. If a customer wants to use a Home Services aggregator to hire us, we need to be there to answer the phone, or, in this case, digital notification.”
Even though the Trump administration is working to reduce regulatory burdens, there are still federal and state issues causing concern for contractors. At the federal level, the removal of the tax penalty on those without health care coverage could bring big hikes in Taft-Hartley health plan costs for MSCA workers, as the spike in uncompensated care for uninsured individuals could transfer into the cost of benefits, according to Lomas.
“On a positive note, we may have some positive changes in our multiemployer pension system that may present plan trustees with new options to reallocate the risk of underfunding in our plans,” she said.
Mandated benefits at the state and local levels will continue to be a challenge as well, Lomas added, especially as it relates to the collective bargaining process.
“The proliferation of paid family and medical leave requirements across California, and in many other states and localities across the country, raises a welter of complications for employers operating in multiple jurisdictions,” she said. “The public authorities need to give more consideration to the bargaining relationship and the representation of the workforce in an independent bargaining unit — the public law should recognize this and exempt collective bargaining agreements from publicly mandated benefits.”
Local issues are also affecting Schmidt, who noted Maryland’s legislature passed a sick leave/paid-time-off requirement last year.
“At Frederick Air, we spent the time to proactively adjust our benefits program and HR documents to reflect the change,” he said. “Contractors need to be aware of these type of changes and not be caught catching up.”
At the federal level, Schmidt is cautiously optimistic the Trump administration will continue to repeal regulations that hurt small businesses. That said, he would like to see Congress come together and address the problems associated with the Affordable Care Act.
“This law continues to hurt small business owners and our employees,” he said. “However, 2018 is not likely to be a legislative year. With the House of Representatives and a third of the Senate up for reelection, don’t expect any big legislative pushes.”
Even with all these issues, DiDomenico is feeling very optimistic about 2018, believing that sales will ultimately be up.
“The new tax reform package will likely have an effect on the perspective of the consumer,” he said.
The new tax laws should lead to a rise in the replacement of old equipment in the commercial market as well, said Lomas.
“Our clients will now be able to write off the cost of new equipment immediately rather than over five years,” she said. “With the economy in an upswing, not only are clients taking better care of the equipment, they are also providing more services to employees and tenants to prevent them from being lured away.”
Traditional property management companies are also taking note of this trend and seizing the opportunity to expand their services to include HVACR and plumbing preventive maintenance and repair work to their customers, leading to increased competition for contractors.
“More than just the loss of work, we can also lose control of the relationship with the property manager,” said Lomas. “It is in our best interest to maintain the relationship with both the engineering staff and management staff. We can do this best through education, as most management companies will jump on technical education for their engineers and management staff.”
Offering on-demand training and educational opportunities should definitely be a priority for contractors in-house as well, according to Schmidt.
“We are all so busy and not as willing to make plans to travel for training programs, so the demand for online and mobile-friendly training is increasing,” he said. “Contractors should be looking for these types of training platforms for their staff. Recurring training is a benefit that younger generations seek when applying for jobs, so it should be included in any contractor’s job promotions. A contractor who invests in their staff is more likely to keep them around for a long time.”