Posted on Aug 30, 2010
John M Grau
When I started this blog, my intended audience was NECA-member electrical contractors. But as the readership grew and the posting were reprinted on my Facebook page, I’ve found that quite a few IBEW local unions and members are regular readers. So with Labor Day approaching, I thought I would write this posting with them in mind. And while most Labor Day messages are usually a salute to the workforce, this one is about a challenge.
It’s not news that the construction industry is struggling. And even considering the loss of work due to economic conditions, the union portion of the electrical contracting industry continues to lose market share. So, we know instinctively that we have to change what we’re doing in order to survive. But change is hard, and we often hope that if we close our eyes and wait long enough, when we reopen them things will be back to the way they were.
IBEW members think about how hard they worked to gain the wage rates, benefits, and working conditions they enjoy. And NECA contractors think about all the money they invested in building their business and the expertise they developed in going after certain types of work. But as much as we’d like to hold our ground, we can’t when that very ground has moved out from under us.
The thing is, there’s plenty of opportunity for work. It’s the electrical work that’s being done by other electrical contractors and electrical workers.
So why aren’t NECA electrical contractors going after that work aggressively?
It takes time and money to prepare a bid or sales proposal. While a contractor doesn’t expect to get every job he goes after, he wants to have a reasonable chance of success. If there’s little or no chance of submitting a competitive price, it makes sense to not even bid the work.
So what’s needed to be competitive?
Good management in terms of scheduling, purchasing, material handling, and all the things a contractor is responsible for is a big part of it. But as one of the most significant costs, labor has a part as well. On a typical job, the cost of direct labor makes up over a third of the price, often more than the cost of the materials installed. The employer’s profit is around 3%
Pure labor cost (wages and benefits) isn’t really the issue. It’s how that labor cost is applied to the job. Some types of electrical work or parts of an electrical project require highly skilled, technically competent electrical workers. Other parts require less skill. If the technical portions of the job are performed by high-skilled workers and non-technical by low-skilled workers, and each is paid accordingly, labor costs will be competitive.
But won’t a contractor just use the lowest-paid workers?
Not if he wants to stay in business! Asking someone without the proper knowledge to do a highly skilled job is a sure recipe for disaster. But as we’ve discovered by our market share numbers, it’s just as competitively disastrous to have a highly paid worker doing a low-skilled job.
Besides pay and skills, the other big component of labor competitiveness is productivity. You know, getting eight hours work for eight hours pay. But another aspect of productivity is developing expertise on certain types of jobs.
For instance a contractor may do a lot of data center jobs. He’s learned how to do them quickly and well. His management staff and work crews are better than anyone else at getting the job done on time and under budget.
That’s great, but what if the next job is in the jurisdiction of another local union? Can he bring his expert crews in to do the work, or is he prohibited from doing so under portability restrictions? Many jobs end up in non-union hands for just that reason.
Meeting customer’s needs is another competitive issue. Can the contractor perform work after hours at straight-time pay? Can makeup work be done on a Saturday? The more times we tell a customer “no,” the more often that customer will look for someone else who says, “yes.” And we know there are lots of people who will say yes.
I’ve had many union leaders say that if they only knew about the customer requirements they would bend the rules for that customer on that job. That can work for big jobs with big lead times. But for smaller jobs that need quick decisions, it doesn’t. You can’t build a business or go after new markets and customers if you have to ask permission every time you bid a job.
These aren’t the only impediments to competitiveness and market growth, but they are the ones most often noted by NECA members.
Most electrical contractors are in business to make a profit and to grow their business. It’s what gets them fired up every morning when they go to work. They want to have a shot at all the work that the non-union contractors are getting. It pains them to walk away from bidding a job. And it’s frustrating for them to know that with a few changes or a bit of flexibility they could get those jobs. And by getting those jobs they would hire more people and make everyone’s life in our industry better.
Just some of my Labor Day thoughts. I would appreciate comments or thoughts from IBEW members or others on what changes they think are needed to grow our industry once again.