Earl R. Hall, Executive Director, Syracuse Builders Exchange
Considering the multi-year, $2.5 billion Route 81 project, and the highly anticipated start of Micron’s 20-year, $100 billion semi-conductor chip fabrication project in Clay, the media and elected officials have used the word “megaprojects”. These unusual megaprojects garner great interest and typically lead to questions about the impact of these projects on society. As a result, people have asked me about how such megaprojects impact the construction industry in central New York.
To begin with, it is important to understand that the construction ecosystem, although resilient, is fragile. The tripartite balance that exists between project owners, contractors and labor has never experienced projects of this magnitude happening at once, so forecasting the impact on the industry may be difficult. Making assumptions is what a good actuary does to assist in predicting the future, so I will make assumptions to provide better context.
Assumption #1 – Labor
The lack of labor continues to plague the industry, which in some cases may result in a contractor’s inability to complete a project on time. Failure to complete projects on time may contractually lead to liquidated damages. Delivering labor to Micron will certainly be a challenge as the regional industry today does not have such capacity; however, one can assume much of the labor for Micron will be imported from other regions of the United States. As a result, I do anticipate the project will have the labor force necessary to achieve project delivery requirements, but certainly there will be labor challenges. Moreover, regional contractors serving traditional clients, such as hospitals, universities, industrial and institutional facilities may not be materially impacted to the extent of not having available labor.
Assumption #2 – Project Schedules
Project owners’ delivery schedules are becoming increasingly aggressive, both in the public and private sectors. Often the contractor’s ability to achieve the schedule is dependent upon a wide variety of items but having adequate labor and timely delivery of construction material, such as concrete, is essential to achieving schedule goals. Although much of the labor on the megaprojects may come from out of state, one should assume meeting project owners’ future aggressive schedules may be more challenging due to the potential labor pressures associated with megaprojects.
Assumption #3 – Wage Growth
Anticipating future regional wage growth is paramount for construction contractors and project owners alike. How will the megaprojects impact future wage growth? Over the past two years, construction industry employees have enjoyed advantageous conditions leading to above average wage growth. I expect this environment to continue, with wage adjustments far exceeding inflation. Additionally, many employers are rewarding their best employees with additional compensation, benefits and other incentives to remain with their employer.
Forecasting future regional wage growth will be difficult as it remains unknown the incentives required to attract labor to Micron’s project. While Micron’s 20-year project has a Project Labor Agreement which contains the unions’ wages and fringe benefit schedules, I anticipate such wage schedules will be the “minimum wage” requirement for this project.
“What does this all mean?”
The most asked question is, “How will these megaprojects impact other project owners?” This question is most difficult to answer; however, one can assume:
- Continued exceptional craftsmanship from labor.
- Continued exceptional project management, execution and delivery from construction industry employers.
- Renewed focus on the tripartite relationships.
- Increased cost of labor and associated increased cost of construction project budgets.
- Less compressed project delivery schedules.
- Billions of dollars in new construction spending for new projects surrounding and supporting these megaprojects.
- Continued labor shortages.
- Enhanced Career and Technical Education programs in public schools.
- Increased construction in the housing market.
- A revitalization of the central New York region.
These two megaprojects, along with additional capital investments from both the public and private sectors, will directly fuel the incredible economic development central New York will experience over the next decade. It will be essential that the construction industry, and society in general, take advantage of these opportunities and overcome any of the barriers associated with change.