For construction companies, business is looking down

Firms seek union concessions as work dwindles.

By Geoffrey Decker

In a recent television appearance, the chief executive of one of New York City's oldest and most important construction and development companies was asked to assess his firm's prospects over the next few years. Dan Tishman was far from bullish.

“We can't compete in the marketplace,” the CEO of Tishman Construction Corp. told the hosts of CNBC's Squawk Box. “We've got to find a way to bring the unionized construction platform in New York back into some level of [nonunion] competitions.”

What made Mr. Tishman's comments so significant was that they came only weeks after developers, contractors and trade union leaders completed a highly anticipated round of negotiations for 23 contracts designed to address precisely the issues that Mr. Tishman raised. It is clear that despite some concessions, the unionized construction industry faces continued uncertainty as nonunion contractors erode its position.

The stakes for the city's economy could not be higher. Construction has declined by 12% from its 2007 peak of $31 billion, with the Building Congress estimating work at $27.7 billion for 2011. The drop would be more severe were it not for public infrastructure spending filling part of the gap of private work, which plunged to $2.2 billion in 2011 from $6.3 billion in 2008. In all, the number of construction jobs has declined by about 25,000 since then.


However, the Building Congress predicts a steeper decline as public capital budgets are cut and buildings are completed at the World Trade Center project. It estimates construction work will fall to $23 billion in 2013, and another 20,000 workers will lose their jobs, bringing employment down to as few as 91,000. If the predictions come true, the ranks of construction workers will have been pared by a third in just five years.

Against such a dismal backdrop, the real estate industry remains determined to seek concessions from the unions.

More showdowns expected

“The fundamental question is whether the costs for construction are at sustainable levels to encourage and promote new development,” said Michael Slattery, a vice president at the Real Estate Board of New York. “And I think the answer is they are not.”

Some union deals in the last round of talks yielded significant concessions, Mr. Slattery said. In particular, the operating-engineers' deal eliminated work rules that require developers to fill highly paid positions that weren't seen as productive. For instance, relief crane operators who make $82.15 per hour and oilers who make $66.50 are both required to accompany any engineer on a crane, but they rarely perform regular duties. In early 2011, REBNY estimated that there were 14 “unproductive workers” at the World Trade Center who were earning $400,000 or more in regular pay and overtime.

But new contracts with the carpenters' union and concrete workers increased wages and offered concessions only on buildings that were no higher than 20 stories.

If anything, the 23 new deals have set up more showdowns for this year, when 15 more contracts will expire, including those for the Operating Engineers and Allied Building Metal Industries, and the Mason Tenders District Council and Building Contractors Association.

Meanwhile, industry experts say the most significant development may be the decision of the Building Trades Employers' Association, a large general contracting group and chief negotiator, to opt out of a plan that required its contractors work exclusively with unions. This will allow for the use of both union and nonunion workers on the same site. “We haven't seen that in Manhattan,” said Hope Cohen, a director at the Regional Plan Association.

Worth the cost?

The share of nonunion construction jobs in New York City has quadrupled since the 1970s, but more than 60% of all projects— including the biggest sites—remain union-only. This is in part because union work sites are believed to maintain safer conditions, and union workers complete projects more quickly and with higher quality.

But developers say that nonunion work quality has improved and have begun questioning if the work premium is worth the costs, which are between 20% and 30% more. They say the shift is necessary in light of current economic woes.

“This is not the end of the story,” said Ms. Cohen. “There will be some drama next spring.”