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Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy all the way.
So Tracy, everyone just like very into affordability these days in the cost of living and all that stuff. But I think, you know, there's all kinds of things you can do and whatever, but it seems like one fundamental thing, which is probably true, is whatever we're talking about, whether it's building infrastructure for public transportation, whether it's building offices, whether it's building houses, Like, there's various costs involved, but
one is like just the cost of construction. And if the cost of construction is very high, it's hard to imagine affordability improving much on anything, right.
So, yes, absolutely, I can't really that point, But it does seem like construction is this like one area where so many different things come into play. So you have the cost of basic materials, which have gone up, especially since the pandemic. You have the cost of labor, which has also gone up since the pandemic. You have the cost of insurance, which has also gone up since the pandemic.
You have regulations which we've done many many episodes about the added costs from the permitting process for various things. It just seems like it's this bucket where you can throw all these different factors in and then get this kind of like reinforces itself and just makes it even more expensive.
Yeah, totally.
And then you know you sort of hit it with the insurance, but also just like cost of financing, right because like as interest rates go high.
The yeah, I forgot financing that too. It's a big bucket.
It's a big bucket.
And like we know that construction is an area across the economy, not just in New York City where we talked about it. With residential housing, there's been a lot of productivity growth, right, Yeah, like there's.
Been like no productivity growth according to at least one paper I read. I think it was a Richmond fed I will have to go back and check. But it's a really unusual industry in the sense that you haven't actually seen you know, we don't have robots building houses yet.
We don't have robots building houses yet, So I don't know, you know, I think we need to learn more. You know, sometimes you see these viral statistics like oh, the MTA spent sixty million dollars on building an elevator, or cost three million.
Dollars to build seven million installing those plastic fins on the subway turnstiles. I'm not even sure that qualifies as construction, but seven million.
Millions to build a bathroom, which is not fun if like you have little kids, all kinds of things. Anyway, we should do more about wide costs a lot to build and maybe whether there's something that can be done about it.
Absolutely, let's do it. Well.
I'm very excited to say we really do have two perfect guests.
Today.
We're going to be talking about the high cost of construction, more infrastructure and stuff like that. In New York City. We're going to be speaking with Elizabeth Crowley. She's the president and CEO of the Building Trades Employers Association, also known as BTA, as well as Michael Capasso. He is a president and CEO of CAC Industries, Inc. So Elizabeth and Michael, thank you so much for coming on od lots, thank you for having us.
Yeah, thank you, Joan Tracy. We are grateful for the opportunity to talk today. I represent over twelve hundred contractors in the BTA who are building our skyscrapers, our subways, building commercial buildings, hospitals, schools, about sixty five billion dollars worth of work annually.
And wants to tell us about sac industries. What's your background?
Michaelac's Public Works heavy highway contractor based in New York City and Queens. We work for the public agencies, Port Authority of New York, Department of Design and Construction, Department of Environmental Protection, MTA mays Battery Park City.
Did you see the highline as well? Yes, that's amazing, amazing. Do you know that I do some research before I come on this podcast. I know a lot of people don't think so, but you know a little bit. Okay, let me ask the first question. Let's just get it out of the way. But your organization represents unionized workers, and I think your company is also unionized workers. A lot of people are going to hear a high cost of construction and NYC and immediately go to the union factor.
What is your response to that.
Well, our members are employers, so they're really businesses. We're a business association and our members are employing over one hundred thousand workers and we're proud that we're union contractors. You know, we're the good guys, and there are a lot of non union contractors out there that are racing to the bottom. We're paying for benefits and wages, and
that's just part of the cost of construction. And really what we're looking at doing is reforming costs that are more controllable, you know, the costs, the hidden costs that go into construction, such as construction insurance.
Definitely want to talk about construction insurance and all this stuff, But again just on this point of like how much is quote hidden costs versus how much is just labor. Maybe Michael, you could like sort of break down or either one of you breakdown how we should think about, like, in a given project, when people see these big numbers, how much should people think about the labor components specifically versus measuring these these other costs.
Yeah, I mean, I would say typically labor ranges thirty to thirty five percent of the total construction cost. But getting back to your original statements about union and sometimes people think that raises the cost of construction, I would actually take the counter argument to that. All the public works contracts in New York and the utility contracts are subject to the city or the state prevailing wage laws, which the union's rates are in line with Labor Law
two twenty, which are in the city contracts. Those the wages and benefits you have to pay the employee. So it's not the union wages that are costing too much money. They're in line with all the rules and regulations of the city and state. When we think about union wages and why maybe there's this misconception. Yes, compared to people that are not paying union wages, these people are paying good, honest wages and benefits for the work they put in
during the day. There are people cut corners who don't pay that fair market rate, which is where that kind of concept comes from.
And look, there's a lot of cost to the delays. And when we look at yeah, when we look at our government leaders. Now we have a new mayor in the City of New York who believes that we should pay baristas forty dollars an Now, so when Mike talks about the cost of union labor, it's not much more an hourly rate. And these are inherently dangerous jobs. But we have a mayor that wants to build more abundantly,
wants to cut the time it takes to build. So the land use process from two years down to under six months, and we support that, and the stars are aligning also with the governor. You know, she has an ambitious plan to build a new subway or railway from Brooklyn to Queens. We haven't built like that in like over one hundred years. She's in her budget going after our environmental review. I mean environmental review should only take
a few months. You can see that process sometimes take well over a few years, some bad cases five years. And so what we're doing here as an industry leader, the BTA, we're looking to reform insurance costs so that we can not only build more abundantly, build faster, but bring down the cost. And this is a substantial cost.
We found out from a recent report that nearly ten percent of construction costs are wasted in New York as opposed to any other state, even expensive states like California, the cost of insurance is only about two percent for the total project costs, where we're spending upwards of ten twelve percent.
Definitely want to talk about insurance. But you said something interesting there that just reminded me. You said, delays add to the cost pressure This might be a dumb question, But why is that? Because I think back to like my own home construction project. If I have a contractor and he says it's going to take six weeks, but then he gets caught up on another project, it ends up taking eight weeks. The cost usually doesn't go up. It's just frustrating for me because I have to live
in a construction site. Also, I want to say, my contractor knows I have a podcast. He's a very good contractor. Delays rarely happen, so thank you very much. But why would that cause additional expenses?
Well, just sheer time. I mean what can be controllable, certainly the land news process. Before representing the BTA, I was a New York City Council member, so I served for nine years, and a quick case by the time it goes through the local community board, the borough President's office and then comes to the council with the best lobbyists,
happens within two years. And so if the mayor could get that narrowed down, and the council speaker is also pledging to reduce the time to a window of less than six months, that's twenty five percent of the average, and so that's significant time saved. That's something that we should be able to control, and if our government leaders want to control it, that's real reform.
I'm not surprised at all to hear about like delays a particularly environmental review. People like talk about this. Let's
actually talk about it a little bit more grainuarly. Like, so, like you get like some projects that you want to do I don't know, maybe something with a highway or something like that, and you have some time frame or some window that you think like you could get this done, and then we always hear, oh, delays, Right, what drives the delays, who intervenes, and what are the processes by which, like these calendars get very extended.
There could be design errors or omissions in the bid documents. Okay, so when you actually go out to commence construction and do your preliminary work, the drawings don't match up with actual field conditions, which then result in changes to the contract and that process can be very lengthy. So now you have to document the changes. Then as a contractor with one of the public agencies, need to negotiate those
changes then get it approved. Depending on what the agency is, it could be with the Controller's office in the City of New York, or if it's at the MTA with the board or whoever approves it at the MTA, and all those steps take time. While those delays are being incurred, contractors are then experiencing indirect overhead costs that are assigned to the project. Well, no productive work explain it.
What are these indirect overhead cost?
Project managers, projects, supervision, safety directors, quality assurance personnel.
So their salaries and their fees continue to run.
You can't reassign them to another project while they're waiting.
Correct, they're assigned to a project. You don't know when those processes will come to an end, so it could go very expeditiously, it could be delayed longer, depending on how complex the changes are. So that project staff sits there in theory underutilized, and then, as is our contractual right, we will file a claim with that contracting agency for those additional costs coupled with that and I don't know
how these costs are calculated. The agent see internally also has those same costs for the people on those projects, whether in house staff or through third party consultants, accombination of the two. So those costs all get compounded while these changes happened.
And what are the last projects I've funded as a council member was to pay for turf in a park like just like a running athletic field replacement, simple replacement. It was funded fully in the budget. I left the council in twenty seventeen. They only cut the ribbon on that project being fully completed just in twenty twenty four.
So what happened to those sing like, what are these studying by the turf? You stick it on?
What happened?
The Parks Department said it was going to be a four million dollar field replacement. Then the contractor came out to the site. There was a lot of surface repair underneath that needed to happen underlying, you know, just you know, uneven surface or something like that. They sent it back. I had to go back before Design Review Council. I mean, it really is something so small and so simple that shouldn't even cost as much as it does. Gets the lave a far too long, and we need real reform
in city government. I believe government leaders are finally addressing this as an impediment to building abundantly.
Really, yeah, so this just reminded me. This is something else I want to ask, But when you mentioned site reviews, is there something unique or sort of inherent about the way New York City is laid out and built and its geography that also makes it more expensive. I'm thinking like in Manhattan, obviously we have crowded buildings. Is some of Manhattan on reclaimed land? I can't remember now.
Well, Battery Park cities all reclaim land there.
We go reclaim land and it's mostly an island with few ins and outs, right, So I imagine there are some restrictions on how much material you can actually get into the city. Does just the physicality of the city make it more expensive?
Yeah, all that's built into the contract costs. So when we're getting vendor quotes for different types of materials that will go into a construction project, most of the manufacturing base is not within the Five boroughs, right, So it's coming either from upstate out on Long Island, New Jersey, maybe Pennsylvania, Southern New Jersey. You have the cost of
that transportation into the Five boroughs, right. So this if you're a vendor who's manufacturing somewhere in Central Jersey, well you probably can make multiple deliveries within the state of New Jersey, where maybe that same freight carrier can only make one delivery a day into the five boroughs.
By the way, Ken Burns's brother, he made a great documentary about New York. It's like a ten hour eleven hour documentary. And there's a whole section on the speed with which steel got from the Bethlehem steel Mill to build the Chrysler building or something like that. Is just an unbelievable logistics I imagine it would be a little bit slower today. Let's get to insurance and all of
that stuff. You even brought us a nice report material scaffold Law Economic Impact, which evidently, even though on the cover of the report has a picture of a scaffold, is not about scaffold.
Not just about skefla, not about.
Scaffold per se per se. But what is the scaffold law and why is this like an important priority of yours?
Well, look, if a worker was to fall off the scaffold, then the scaffold law would apply, and it's to any height related injury. A New York contractor, New York City contractor is held one hundred percent liable and in forty
nine other states, it's comparable negligence. So what we found through that economic impact study was that every hundred million dollars that is wasted on frivolous claims, when you look at reinvesting that into the economy, that's one hundred and forty million dollar output, and that amounts to about fifty five million dollars in wages and over six hundred jobs. And we look at big projects like the President wants to build Penn Station that's estimated to be seven billion
dollars in cost. If we were to put comparative negligence on that project, we could save over five hundred million dollars. That's half a billion dollars.
So just so we understand the difference between comparative negligence and absolute liability. So if I'm a construction worker working on a skyrise or something and I am not wearing my helmet and I fall off a sixty story building, I would be dead. But let's assume that I get injured. I would probably be dead, all right, three story building, yeah, okay, one story okay, But I'm not wearing my helmet, even though my employer says I should be wearing a helmet.
And then I, you know, file acclaim. The absolute liability rule basically says that you can't divide blood between the company and the worker. Is that right? So instead of being ninety percent at fault for my own injury because I wasn't wearing a helmet and I got a head injury, the company is now one hundred percent at fault.
That's absolutely right. And in other states they do comparative netligence and it's really driving up the cost of insurance so much so that insurance don't even want to write insurance in New York anymore.
The market's limited.
It tell us about the insurance market for you, because this is a good thing for us.
So I mean, there's zero purchasing power. Contractors make a significant investment in safety. I promise you there's nothing more important to the contracting community than for every employee to go home safe to their family, loved ones, or whoever that may be. At the end of the day. I know everybody cares about that. But when we go to renew our insurance every year, and the large insurance carriers look at what this market for them is considered or
the least favorable market to write insurance. So much so that carriers don't even want to write insurance in this market anymore, and if they do, deductibles are really high. Rates are really high, So on a percentage base of revenue, we're talking about five, six, ten x other states with much higher deductibles. So now contractors carry the cost of those deductible payouts in their bids, which goes into these public work bid numbers. So that's where you exponentially see
the higher cost of construction. But it actually take it a step further. All the subcontractors and vendors that are going to be working on our jobs also have the same problem. And typically the subcontractors are smaller contractors by either volume or revenue or employees, so they're typically paying a higher premium on a percentage basis. So those numbers are also baked into our contract pricing.
Yeah, our report really when we say contractors in New York are paying ten percent of total construction costs to insurance, that's five hundred percent more than other states, when in other states it's only about two percent. And then Michael mentioned the subcontractor. They get hit the worst on average, if you were a concrete subcontractor or a steel painting contractor you're paying fifteen to twenty percent your total volume of work, and it's unsustainable.
So New York is the only city or only state city, state that still has this long place. Is that right?
Yes?
What happened in other states when we saw it go away.
So the last state to reform the so called scaffol law absolute liability standard was Illinois in nineteen ninety five. So this is one hundred and forty year old law. It's antiquated, it's broken policy. Even both the Democrats and the Republicans when you speak to them one on one, they know this is bail policy. An interesting thing Illinois, the number of fatalities declined after they put a comparative
negligence model in. So those that say it's you know, you have some trial lawyers, then there really it is a cash count for the trial. Why I mean that was.
Gonna be my next question. So if everyone agrees that this is an antiquated law, who's actually standing in the way.
You're definitely going to get any email after this episode and they're like, your guests are totally biased. There's gonna be from some lawyer and they're like, come on and do a follow up, But this raised the question, Okay, the law has been around for over one hundred years, so why not. I mean, like I can understand that that might raise Yes, Okay, New York is going to be a higher cost state. That doesn't explain the surge per se. Has something changed in the last five, ten,
twenty eight years. I mean New York used to do a lot more building, or used to build a lot. Has something changed such that the law has more teeth or bites more.
Than it did?
I mean, and you talk about the disappearance of certain insurance carriers.
The law existed fifty years ago.
Right right when I was first started my business. Yeah, a little over thirty years ago. You know, insurance was an add on the bid where you didn't really focus about it. We're talking about one two percent of the contract price, and that held true maybe up until even ten years ago. And in the last ten years we've seen a significant rise in the cost of insurance. And I think it directly correlates with frequency of claims, third party claims, payouts of those claims, and how either a
judge or jury awards damages in those cases. There's been well documented cases of staged construction accidents on sites.
What Michael said is absolutely true. In New York for scaffold laws, the bodily injury claimed settlements for scaffolows six and a half times the average of other claim settlements. The sheer volume has been increased by tenfolds. We're talking about in fifteen years. And that's why these insurers are leaving. You know why, Now, why do we think we have a real opportunity, Not just because we have this economic impact report that shows is exactly how much we're spending.
Because government leaders are finally talking about the fraud and abuse that's happening. Our governor and her state of the state a last month called on insurance reform for the automobile industry. Now half of the consumers in the state are car owners. Right, they're driving. They could relate to us paying so much more. But we're paying fifty percent more in car insurance compared to every other state, but
our contractors are paying five hundred percent more. And the governor touched upon fraud and abuse, just like Mike said. The governor says we need to address that, we need to lower litigation costs and minds you and that these are order insurance claims out much much less than the scaffold law claims, and we need to fix this. We need reform. So this is a step in the right direction, and we're really focused on reform in Washington right now
that there's movements there. There's a lot of support on this big federal infrastructure package that's a part of a surface Reauthorization transit bill that gets reauthorized every five years. It pays for big projects like a second avenue subway or major roads and highways bridges, and it's a must pass bill, and we think that we'll see reform there first, and we're very hopeful that reform will come soon.
In Albany, how would you actually go about reducing litigation costs? Because my assumption is as long as you're doing like a jury process, it's going to be pretty expensive unless you go to something like arbitration.
Yeah, well, the litigated costs, one would say it goes to jury, but all of these insurance companies right now are just afraid to get that far.
In New York State, so they settle pretty quickly.
One insurance company, Tradesman Insurance, they filed five different reco cases in recent years. Probably i've heard them say that they invested over sixteen million dollars to do personal investigations to stop fraud and abuse. And they say that because they were able to get so many claims dropped by showing the Ford that there were bad actors, they saved
over two billion dollars. And the numbers keep growing. And one law firm, Super and Assault shit that had like three hundred different cases dropped, apparently closed their doors last month. So it shouldn't get to that where insurance companies have to do the reform. This is bad public policy and we need our leaders in Washington and Albany to do reform. Now.
It's I mean, I think it's well documented. It's all public information of just one building or a couple of buildings, where multiple claimants from the same building, with the same law firm utilizing the same medical practices filing these lawsuits.
Yeah, and some of the doctors are losing their licenses and they're barred from workers' comp cases, and so that is reassuring to see action happen. And we've reaching a critical mass at this point. So I think that's why now we're hopeful for reform.
Michael, can you talk a little bit more about today versus mid nineties. You win a bid with the city or whatever, you have a project. You mentioned Back then, insurance was an add on. Okay, there was one or
two percent. I was ten percent. But setting aside the price going out and finding which carrier will take that, can you just talk about what life was like I don't know again thirty years ago verus today in terms of going out into the market for finding that insurance available, options, negotiations and so forth.
Yeah, I mean it was much easier and much more simple twenty thirty years ago than it is today.
All Right, what did you do?
You talked to your insurance broker. They would come back with three or four quotes, all roughly the same. What did you feel comfortable with? You would do your annual renewals. There would be incremental cost of living in fla shenary adjustments to your annual rate. You signed on again for another year. Now it's a much more detailed, thorough process, thorough review, how much you're going to raise your deductibles.
Where back then deductibles might have been twenty five thousand dollars, I mean, I think we're at seven hundred and fifty five hundred and seven hundred and fifty thousand now per occurrence. I mean significant significant changes where now the insurance company will dictate when you're going through your quotes, if you don't raise your deductible, we won't even write your insurance
where that didn't happen back then. So there was much more purchasing power in the contracting community twenty thirty years ago in the marketplace than there is today.
Yeah, this is what I wanted to ask. So if the scaffolding law goes away, are you confident that new insurance actors would actually come into the market, because it feels like part of the problem here is a lot of people have exited, so you have limited insurers to actually choose from, which means they now have all the pricing power.
I think the free market will work itself. It's a competitive market right now for the limited that do do business in New York. I was just on the phone earlier today with Zorich, which is a worldwide inshore, and they stopped ensuring small contractors and they'll only do big wrap up projects. In New York State, our Department of Financial Services regulates the companies to make sure that they can't charge too much or too little. And again it's
the market. As long as they can prove they can make money here in New York, they'll come back.
It just dawned on me. One other thing to consider, which sometimes is good for the local contracting community, but also not necessarily good for the overall city of New York. There are contractors based in other states that won't work here because their insurance companies will exclude their policy from working in New York, and then they would have to buy jobs specific or site specific policies, which are also
very uncompetitive rates. So it's easier for them just to stay out of the marketplace that then, in theory, may drive down competition right from a low cause bid analysis, I think.
And interesting, you know, to bring it back to what the governor has taken on in her state of the state or her and her budget auto insurance. You know, we mentioned the trial lawyers and how this is really a cash cow for them, but you know, they like to paint the insurance companies as the bad actors.
But we look in.
Places like Florida, for example, they had a similar no fault auto insurance policy like New York currently has, and they changed the policies there and they've given rate payers double digit refunds. So there is a situation, a scenario where we could see the same for our contractors if real reform happens here in New York.
Just to be clear, does the high cost of insurance also apply to projects where heights presumably don't come into it very much? So you know, if you're build a new subway tunnel or something like that, I assume there's probably some scaffolding involved, but like maybe you're not falling too much.
You could be standing on a ladder in a sewer trench, six inches up on the ladder, with the ladder secured on the bottom of the hole, tied up, all in conformance with ocean regulations, and if the employee falls six inches to the ground, which typically we all think we would be okay falling six inches, but then some injury arises months later and ends up in a lawyer's desk and the contractors ensued there'll be some sort of payout
and that would fall under the scaffold loss. So even though you're not up on the heights of a building, not building a superstructure, that law still applies.
I find this argument to be very compelling, and the high cost of insurance on a per project basis in New York City versus every other state, that seems like an issue.
Unquestionably. All that Big.
Said, some of the numbers you read about construction processes, Okay, let's say we take only thirty percent for labor or labor is thirty percent of the job, and then let's say insurance is ten percent of the job.
So this other part.
And when you read about the cost of an elevator in a subway, it seems like even if we like knocked off a lot of it for insurance and labor, whatever, it still seems crazy expensive in New York.
So can we just talk about, like are these numbers real?
Like when we see like, oh, it cost sixty million dollars to build an elevator somewhere, is that real or is that clickbait?
What's going on there?
I mean, I don't know where it costs sixty million to build an elevator. But look, remember there are subsurface conditions in New York that you have to deal with, like relocating utilities and gas manes and steam mains and a lot that all may go into the cost of that elevator, but it's really not the direct cost of the elevator. So like when the MTA goes and puts
a new elevator in on a corner. Yeah, yes, maybe the cost of that elevator project sounds enormous, and it is for the elevator project, but not all of it is directly tied to the elevator. It's clearing away.
But other cities have this too, right, Like I mean, yeah, absolutely, it's not all There's going to be real estate acquisition costs and all the issues and materials and everything. But I get the impression that like building an elevator in New York City, like, should taxpayers.
Be happy with?
Like the numbers and they seem very high, and they seem out of proportion with what we see in other city.
Yeah, I don't know the comparative data.
Yeah, we are most expensive to build in comparison to other cities like San Francisco. Yeah, but it's still very expensive to build there too.
Sure, so what are we paying for?
Like?
What what are these number? I mean again, let's go back to the turf example. Yeah, turf on let's and.
You did and I laughed before when you mentioned the Skyscraper, the Chrysler Building, and the Bethlehem Steel and how that was probably put together in less than a year, the Empire State Building, and today we're building mega towers that were taken three four years. And while they're important projects and the very expensive projects, we were able to do it in such a shorter time frame back then. Of course,
you save money when you reduce the time. Back to that track, it was in Juniper Park, and it's funny that you mentioned that, but actually I realized after you spoke about Battery Park and how you know that was water before we expanded, that was a swampland once in Queens that particular park. And so those are the constraints that we don't think about when we're building In New York. It's so hard to find schools, you know, places to
build schools. I remember as a council member just having the most overcrowded school district and so many sites were contaminated and we couldn't find a good site. It's just these difficult things that happen in such dense city and part of the reason it's so expensive to build here.
Does anyone have any good examples of building like efficiently at not so much cost relatively in New York City or New York State speak, but still to a high standard, like an example of a project that was done really well. Michael, surely you should be naming some of your own Yeah, No.
We don't have, unless they're a major design flaws or errors. I feel like almost all of our projects do go extremely well. Right. It's a competitive marketplace. We're the low bitter right typically when you get the job, which means we're the cheapest price, the lowest responsible bidder, and more often than not, we don't have these major overruns or changes. They seem to go fairly well.
And Michael introduced himself as the president of the company is But me and Michael worked together on the Mayor's Task Force for Capital Reform, and we went up to Albany as part of the reforms two years ago and push for progressive design bills or different ways of building projects that New York didn't use, in other states used and that actually decreased the timeline and you were able to build for less by using these delivery methods. And I think that at Shirley Chisholm Park they just may
Or Mom Dommy cut the ribbon. But DDC is pointing to that project that's coming in under budget and in a short amount of time that was estimated that it would take to build. So there are ways we could work together, putting our minds together to bring about real reform.
I think one area that we didn't touch on, which I think is important. I know you probably know the statistics right if you look at the counter argument, like if you said the trial lawyers to what's driving these insurance costs? You would think if these stricter rules and laws are in place, it would make everything much safer or safer for the worker, less injuries. And do you want to touch timulous.
There's nothing more important than safety. That's a cornerstone of the work that our contractors do. You know, they want their workers to go home as safe as they were when they came to work that day. We're you know, even focusing on culture on the job site and total wellness. That's important. So we need to continue to be forward thinking.
But the data set, the results in New York are equal to other states, oh, in.
Terms of our rate of fatalities. In fact, New York has a higher rate of fatalities. Despite this law in comparison to state like New Jersey or the average in the country. You know, when we have nearly twelve fatalities per one hundred thousand workers, whereas the national average is under ten, and so we're twenty percent higher in New York despite having such a strict liability on contractors.
Can we talk a little bit about current conditions.
So one of the things that we hurt a lot in like twenty twenty one, twenty three, this like intense scarcity of skilled tradesmen and various things electrical, et cetera. How is that Is that still a big Is that a big issue? Still a major constraint right now finding available labor?
I think an aging workforce at least I mean without me having any demographic data, just like visual context, and we do have an aging workforce. I don't think the younger generations are so inclined to either go to a vocational school or some type of trade school. I would sit here and I would tell anyone I think it would be a great industry with the disruption going on in the world right now, with you know, the advent of AI and on all these jobs.
Like for you, like right now, is this like when you think of the various headaches that you have in your life, is keeping a sort of steady the available flow of labor that knows how to build things like one of the things that keeps you up at night.
Yeah, I mean available flow of labor is one of the things that's kept up at night since I started my business. Okay, we converted to a one hundred percent employee owned company a couple of years ago, so much so that I included the trades people, So the collectively bargained employees or the different unions in the city are part of that ESOP.
That's very unusual, and I applaud Michael and his team for doing that. But when we think about workforce needs, many of our contractors that are doing the infrastructure work, like Michael, are experiencing difficulties and often take talent from one another. So ESOP is going to stop that for sure. But when you look at the commercial buildings that are going up, which is more of a private market or residential,
that is not happening. We really didn't have a chance to talk much about affordable housing, but that any of that building is much more likely to be non union today, which is a real shame because a lot of times those workers are not getting paid on the books. More likely, eighty percent of the injuries that happen on job sites are happening on non union job sites. So we really want to prevent that and help promote union employment as much as possible.
Michael, you mentioned AI, So now I have to ask, you know, we dug in a little bit into construction productivity at the beginning of this conversation, and you know, I think construction is largely done now as it was probably like twenty or thirty years ago, and there happened some technological advances like the nail gun, but beyond that, we don't have actual robots that are like putting shingles
on our houses and things like that. But how confident are you that it's gonna actually stay that way forever? Because I mean ms chat GPT kind.
Of like how you're looking at me, like I've got like vibe code. I'm going to vibe code the Running show.
It's all Joe's fault. But it came out of nowhere for white collar workers. Could it come out of nowhere for blue collar I think so.
Look, I don't think it's going to replace the Workforce. Actually was at a construction conference a couple of weeks ago, and my biggest takeaway is AI isn't replacing employees, but employees who use AI will replace the employees who aren't.
Do you see that, Like are there in your firm or are you getting value from it? Is anyone doing anything with like tech or anything? So is anyone using it.
For We had our off site strategy session last week and one of our quarterly priorities is all around implementing artificial intelligence in our processes and workflows. So really, how can we get information sooner? So instead of relying on maybe these incumbent software models, taking the data we have and using AI to give us analysis of that data much quicker.
So not so much the physical process of putting up drywall, but the planning and.
Look that's coming. I mean I have friends who have robots that can tie rebars now with wire right. They've invested in these companies and I'm not utilizing those robots yet,
but they're out there. Caterpillar has technology the having equipment manufacturer where someone can sit let's call it like what we grew up with a video game, Like it looks like a pole position, I don't I if I'm dating myself, and you can operate four different machines, not at the same time, but from one TV screen for actual caterpillar machines at four different locations, just sitting in like what I would call an arcade machine WOW, with no operator in the seat.
Interestingly enough, you know I mentioned Zorich earlier. Zoric Insurance will only ensure a project in New York if their cameras watching. Now, they use AI after a day's work to study any movement that was dangerous. So it's not just like people, you know, believe it's for surveillance to stop fraud and abuse from happening, but it's really to correct workers to and reduce risk. And they've seen that their incidents have gone down significantly and their job sites are much more safer.
I'm part of a tri venture group doing the East Coast Resiliency project on the Lower East Side. It is one point three billion dollar project and we're utilizing that exact system. The cameras are located on machines on poles and the data gets downloaded every night analyzed by AI. So not only do we get like near misses or data, but we also use it for training the workforce, so the videos that it captures to make the job site safer.
Yeah, what about again, just talk about current conditions. What about materials cost? So we know that the cost of everything surged a lot immediately in the wake of the pandemic, you get to any relief. Have the pacent price increases gone slowed at all? Are there any parts we've talked about, like transformers, like various key electrical parts that you can't get easily at any price. What are you saying right now on just acquisition of materials?
Yeah, I have not seen prices come down. Okay, you know it's no different when there was like a fuel search charge, right that the oil market spiked and every vendor would put a fuel searcharge on deliveries. Somehow those fuel search charges never go away.
What about other like just other raw materials, like other things that are in like scarcity that you like have a difficult time finding at all at any price right now?
No, I think we're pretty much getting everything we need. I know COVID and coming out of COVID, there was big issues.
When you walk into a building like the Bloomberg offices, do you look around and you think, like, what a marvel of structural engineering or do you think I wonder what the insurance costs are?
No, I think I should have done something different in my career.
One last thing that you mentioned, and I've read people who like talk about like you know, abundance, et cetera. They talk about how a lot of like public projects, there's a big consultant element that many aspects of it have been outsourced from the public sector, that these third parties, and that that drives up you mentioned consultants. Does that Does that resonate with you in terms of where you see potent cost bloat and so forth.
Yeah, I mean I don't know the value of the consultant contracts, but I can tell you based on my experience. We used to work on a lot more contracts that were run in house by the agencies, and now you see a lot of third party like resident engineer and inspection services and other tests that used to be performed in ou so that are now performed by third party consultants.
And often they're called owners reps. And we'll get complaints from our contractors that owners reps are delaying the project, so they continue to get paid for the project, and that's something where we're interested in seeing some reform too. I've heard of that on more than one type of project that could you know, it could be a school being built or a bridge being painted.
Michael and Elizabeth, thank you so much for coming on Odd Loves.
That's a lot of fun.
Thank thanks for having us.
That was great us.
Yeah, that's very nice.
Tracy, that was a fun conversation. I like it felt like we learned about the city in some way, you know what I'm saying.
I learned a lot about absolute liability.
Ye, absolute liability.
That is interesting. Look, I also think the point about delays is very striking to me because again, that would seem to be an issue where you're still paying people to build something, but building it is taking ten years instead of five years.
Or especially at a time when interest rates are high, can they compound extra right?
And also it seems like there's a potential problem of incentives here, right, Like if I am a consultant working on a project and I am still getting paid, the project's not actually going and I can spend a lot of time I don't know, pointing out like individual issues and potentially delaying stuff like that's an incentive problem.
Absolutely, I guess I would say I find the point about insurance to be compelling, and the point about like forty nine other states have gotten rid of these laws and they're not actually even making New York a safer workplace. I mean, it would be one thing, I guess if like New York had like half the accent right as the rest of the country, and then you say, okay, well, look like you could point to a law like this and say this is clearly making causing everyone to take
safety board. Seriously, if you can't point to that, if every other state has gotten rid of it, I mean, I don't have any opinion. But and again I'm sure we're going to hear from lawyer.
About to get make an enemy out of the child bar.
Well, yeah, we're gonna get emails from lawyers saying we want to do a rebuttal episode. But my gut is that there's probably so definitely something to that.
Well, the other thing I was thinking about on the insurance point is, you know, I have this pet theory that like insurers basically run the world. Yeah, I mean, they control a lot of money. They set like not just safety standards, but social standards for a lot of things. Is really interesting here about using AI to monitor yeah, oh yeah, security camerage, footage, like for health and safety, because I can imagine, you know, if that helps the insurers.
I can imagine them asking that to become standard practice everywhere.
It's super interesting to think, like, Okay, yeah, you want to have cameras because if there's an accident, then you could.
Go back and review the footage.
But this idea that like, oh you could like see if there was a near miss or something like that, the AI can detect it directly potentially.
That's interesting.
And then of course there's gonna be all these questions about surveillance and whether people like that. But this is going to be it's gonna be a big topic. Yeah, it's only it's gonna come on very fast.
I know I keep saying this, but we really should do more on insurance. We'll figure out.
We're sureing to do more, you know, like if we keep saying it like we are, you know, no, yes, but even more even more I agree.
Shall we leave it there?
Yeah, let's leave it there.
Okay.
This has been another episode of the ad Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Jill Wisenthal.
You can follow me at the Stalwart hellow our producers Kerman Rodriguez at Kerman armand dash Ol Bennett at dashbod and Keil Brooks at Kelbrooks. More odd Laws content, go to Bloomberg dot com slash odd Lots with the daily newsletter and all of our episodes. You can chat about all of these topics twenty four to seven in our discord discord gg slash odlines.
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