Editor's note: This article is part of Construction Dive's 50 States of Construction series, in which we talk with industry leaders across the U.S. about the business conditions in their market.
California may be known for its relaxed lifestyle, but in the state's construction industry, life these days is anything but slow. As tech companies, hospitals and higher education institutions continue to grow their footprints in the state, contractors there are racing to keep up.
That booming activity has come amid a tight labor market, triggering a push among the construction community for more efficient processes, according to Mike Humphrey, a management committee member at DPR Construction. The Redwood City, CA–based company, which has 21 offices in the U.S. as well as one each in Seoul and Singapore, is one of California's largest contractors.
Construction Dive spoke with Humphrey about the current supply-chain bottleneck, the unique construction challenges that come with building for the tech sector, and his outlook for a market in which work is "just not slowing down."
Editor's note: This interview has been edited and condensed.
How does the California market differ from the rest of the country?
HUMPHREY: The San Francisco Bay Area is typically hotter than the rest of the country, but we’re seeing now that the market is hot everywhere. We specialize in the technical trades, so we build for advanced tech, life sciences, healthcare and higher ed. All of those construction markets are really hot. We keep thinking that at some point this has to slow down, but we’re looking at a lot of backlog. Developers are the first ones to start to get nervous about spending money, but we’re getting more people asking us to budget [big projects]. Our architect and consultant friends are all really busy. That’s another leading indicator for construction.
What we’re really watching is the fatigue in the marketplace. What’s interesting is none of us have really bumped our numbers. There is escalation happening, but it doesn’t seem like the general contractors are escalating. We’re still in the Bay Area working at 2% fees. The reason is that we’re all still scared from 2009. We know that we want to have that big piece of backlog so that if 2009 were to happen again, we could ride it out. We’re all still very competitive, especially for the stuff that could take us into 2018 and 2019 and give us a little security moving forward. But the work’s just not slowing down.
What kinds of challenges arise with that booming demand?
HUMPHREY: Everybody wants [the work completed] faster. Our subcontractors are literally getting fatigued. It’s getting dangerous, where if you try to force a job to get faster and faster and the subs are working double and triple shifts, people are getting hurt out there. The tolerance level for pushing speed using labor is getting lower. So there’s a huge push on productivity, efficiency, prefabrication — anything that we can do to use a little less manpower and a little more technology or intelligence.
That’s where the next bottleneck starts to come. Let’s say for exterior skin systems, it used to be that you’d put a crew of 40 people out on the job site, they’d build the scaffolding around the building and build the skin in-place. There’s a lot more now of building them in units in the factory, shipping them out and snapping them onto the skin.
So the bottleneck just moved to the shop. It’s about how much shop labor can you get. If you go even further upstream, the guys in the shop can’t fabricate stuff if the engineers haven’t drawn it and designed it. You push all the way upstream, and the subcontractors are working very hard to get good engineering talent who can engineer, draw and design fast enough to keep the shop moving. In the past, I could’ve said the bottleneck was here or there, but now it’s in all parts of the subcontracting world — engineering time, shop time and field time.
How does that impact the way you interact with subcontractors?
HUMPHREY: Subcontractors are not a commodity; they are partners. We work hard to build relationships with them, to help them be productive. When they come on the job and have demands about what they need to be effective, we must listen to them. That’s the way we should always build, as partners and teams on the job.
How is the tight labor market impacting your business?
HUMPHREY: It’s going to be a strain for a while. For years, people have been talking about the drop in people entering the crafts, but it comes down to people at all levels. We need more specialized and technical talent. We’re not doing a bad job of bringing in engineers to become managers and superintendents, but we need BIM experts, MEP experts and specific trades of self-performed work. Where we used to be able to be generalists, the construction industry has gotten so sophisticated that we need more specialists.
Sometimes coming out of school, people don’t want to have their career path limited. When you start going down a specialty line, people start to worry, 'What if this specialty isn’t a hot commodity a few years from now?' The ability to grow talent is complicated. We’re spending more time building the right development programs so that we understand what our people want and how to match those things up.
Which sectors are seeing the strongest demand right now?
HUMPHREY: Advanced tech is driving all the major industries. Advanced tech for us is mission-critical data centers, and also the Googles, Facebooks and Yahoos. That sector has been able to produce so much data that every other sector now is changing the way they work. When we’re building for a life-science customer or a healthcare customer, when people work there, there are more doctors and nurses and life science engineers that are spending time using their computers and analyzing data than they are using test tubes or doing research because there’s so much data available. Now every sector relies on the advanced tech piece.
There was a big boom for healthcare in California the past few years and we thought that would slow down, but it really hasn’t. There are still large projects in the healthcare world. Life science continues to be hotter than it was three or four years ago. Also, higher ed is one [sector] that you can predict because most of the [schools] have to get their budgets a year in advance for most work, so you can see [what's coming] at the beginning of the year.
How does the construction process differ for the tech sector versus for other clients?
HUMPHREY: The tech sector really is about speed these days. For building a hospital, it’s methodical. In California, there’s more regulation around healthcare, so the people on a healthcare job are in for a long, slow job to get it right. People on advanced tech jobs are in for a sprint. We’re working on how we balance our people. There are the people who run the mile and the people who run the 100-meter dash. We’ve got to get the right people on the right jobs and even trade them off from a long grind to a fast project.
What are some of the biggest trends you see emerging among client requests?
HUMPHREY: There are more customers interested in wellness. It’s not just LEED certifications or green building, but having their spaces be healthy in lots of ways. Meeting space is being rethought. Getting people to use stairs more than elevators, changing out kitchens so healthy food is more prominently displayed. It’s just these subtle changes people are making in their architecture and design.
There’s a feeling that we want people in this place to be more than just physically healthy — companies are also thinking about mental wellbeing. It’s really refreshing. We’re in a market now where there’s enough money and jobs that owners and buildings are basically a recruiting tool. Those spaces have to be more than just cool to work in. Owners are enlisting us to help them think through their wellness programs.
Do you expect any kind of downturn ahead in the market?
HUMPHREY: We’re so far above normal, I can see us returning to normal, but I don’t see us going to a recession. Normal would be a breath of fresh air. A lot of us would appreciate normal. It's hard to tell. Especially in advanced tech, there’s so much competition. You look at the exponential growth of technology and how fast information moves, and that keeps me thinking it probably won’t slow down even in the next two years.
Looking ahead, what opportunities are you most excited about in the construction industry?
HUMPHREY: Customers are trying new things, whether it’s in energy use or how they use their space. There’s not a lot of cookie-cutter buildings anymore. Everything’s pretty new. In the marketplace where there’s money to be spent, owners can let their architects have more freedom to try new things. It’s a fun time to be building.