Construction lawyers seeing changes shaped by skilled labor shortage

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Wisconsin’s shortage of skilled construction workers is reshaping how construction services are being bought and what legal issues the industry is facing.

Milwaukee attorney Roy Wagner of von Briesen & Roper says that while construction services are again in high demand, the industry is in a much different situation than it was in the pre-recession years.

“It’s nice to see a lot of cranes on the Milwaukee horizon,” he said. “It’s certainly a great contrast from eight to 10 years ago. Again, it brings its own risks with it, with the high demand.”

He noted that there is a significant shortage not only of skilled laborers but also project managers.

The lack of both, he said, coupled with the current high demand for construction services, gives rise to risks for both contractors and developers.

Some owners and insurance companies have expressed concerns about the inexperience of new line workers. People with less time on a job are at greater risk of suffering injuries and of using improper construction techniques, Wagner said.

“It’s not a slam against them,” Wagner said. “It’s just reality.”

The same goes for project managers. When the recession hit, many of the most experienced project managers retired and were not immediately replaced.

Wagner said he is now seeing contractors respond to the shortage by turning to headhunters to poach project managers from their rivals. Employees are also being promoted to the position of project manager much sooner than many of their predecessors in the pre-recession years.

This might help solve a short-term problem but won’t come without disadvantages.

“Inexperienced project managers, inexperienced line workers are going to create more risks for contractors and owners both for coordination, sequencing and completing projects on time,” he said.

Saul Glazer, a Madison attorney, noted that the skilled labor shortage could also push the industry into doing more modular construction. This type of construction tends to use relatively less labor because of its greater reliance on pre-fabricated building components.

Glazer warned of one perhaps unintended legal consequence that could stem from a shift to modular construction. Contractors, because they are essentially providing a completed product, could suddenly be exposed to more product-liability claims. In compensation dispute, though, they would most likely find themselves involved in fewer construction-defect cases.

Wagner also observed that the high demand for construction services, coupled with the labor shortage, has resulted in a change in the way construction services are being purchased.

“I think we are seeing a way of purchasing construction services that is more collaborative,” he said.

Rather than bidding a project out to five to eight general contractors, owners are working with construction managers and designers earlier in the planning phases. They will then find a general contractor who will bid the work out to local subcontractors.

As a result, said Wagner, construction professionals will begin dealing with different legal issues.

“I don’t think we’re going to have the types of claims and claim issues that we’ve had in the past,” he said. “You can’t necessarily find someone and replace them. … Owners and contractors will have to be more creative and accommodating.”

Wagner and Glazer are also expecting changes coming from the state Capitol. The Legislature is back in session and lawmakers and Gov. Scott Walker are working on the state’s next biennial budget.

A plan to eliminate certain mandatory project labor agreements for local projects has already made its way to approval in the state Senate and Assembly.

Changes could meanwhile be coming to the state’s prevailing wage requirements. Last session, the state Legislature repealed prevailing wage requirements for local government projects but left them in place for state agency and highway projects.

Walker’s recent proposal for the next biennial budget calls for those state requirements to also be repealed.

Glazer noted that the state can do nothing to eliminate prevailing wages for highway work that uses federal money. The federal Davis-Bacon Act will still require that prevailing wages be paid on these projects.

As for state projects, Glazer predicts repealing the current prevailing-wage requirements would make a difference in the industry.

“The basic issue is that over time, some of the larger contractors that have union contracts may get under bid because they have to pay their workers more as opposed to a non-union contractor,” he said. “It’s really kind of a balance between the fact that there’s a labor shortage, so wages will be at a certain level because that’s what the market dictates versus the prevailing wage.”