Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment and Materials Constraints

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Slide. Title, Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints. A man appears on a video call at the top left-hand corner of the slideshow.

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ADAM KALLSTROM: Hello. I'm Adam Kallstrom. I'm our construction INDUSTRYEdge lead here at Travelers. I'm going to be your moderator today. I'd like to welcome you all to our webinar, don't let shortfalls be your downfall-- navigating construction's labor, equipment, and material constraints.

I think it's an interesting topic just given that the construction industry has certainly been through quite a bit over the last couple of years, and it certainly has had to manage multiple hurdles. And it feels like they keep coming at this industry, and it's been a very resilient industry. And we're starting to see things that are very positive signs for the industry going forward. That's the good news, right?

Spending has rebounded to prepandemic levels. The federal government's got some pretty substantial bills out there that are going to pump hundreds of billions of dollars into infrastructure projects. We're seeing very healthy backlogs. We're seeing confidence indicators all pointing to some pretty good results for the construction industry going forward.

But with all of that good news, there are certainly some challenges that the industry has faced, not only in the past, but will continue to face going forward. And really, the big ones are really around shortage of labor, materials, the increasing cost, inflation, things leading to project delays, budget pressures. We really just see those persisting for quite some time. And what we want to talk about today is just to give you some insights from the colleagues that we've got here today and then also provide you some practical solutions as well.

Before we get going, just a couple of quick housekeeping items. There are a number of modules on your screen, including our presenter bios. There are some additional construction content resources. And then there's also an area to submit questions. We'll address submitted questions at the end of the webinar. If we don't have time to get to the questions, we'll certainly do a follow up on those questions.

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Slide, Our Panel. Four pictures, with names and titles. Text, Panelist, Tony Gadaleta - National Practice Lead and N.U.O. Travelers Inland Marine - Construction. Panelist, Stan Halliday, Chief Underwriting Officer for National Accounts, Construction Surety at Travelers. Panelist, Ken Wengert, V.P., Risk Control, Construction, Energy & Marine at Travelers. Moderator, Adam Kallstrom, A.V.P., Construction, Energy & Marine at Travelers. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints.

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Very excited, like I said, to be joined by my Travelers colleagues here. And I'll let the panelists introduce themselves. And we'll get started with Tony.

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Tony Gadaleta appears on the video call.

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TONY GADALETA: OK. Thank you, Adam. Yeah, my name is Tony Gadaleta. I'm the national practice lead and NUO at Travelers. I've been with the organization for about 20 years. Overall experience is about 37 years. And most of that being involved with large property in the marine and ocean marine risk.

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Stan Halliday appears on the video call.

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STAN HALLIDAY: And I'm Stan Halliday. I'm one of the chief underwriting officers in our construction surety group. My focus is our national contractors, the very large contractors. I've been with Travelers for 35 years, pretty much all of them in that role.

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Ken Wengert appears on the video call.

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KEN WENGERT: Yeah, and I'm Ken Wengert. I lead the risk control team here for construction, energy, marine. I've been at Travelers for 22 years and excited to participate in this discussion.

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Adam Kallstrom reappears on the call.

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ADAM KALLSTROM: Excellent. Thanks, guys. Before we get going, we just want a level set just again on the things that we want to talk about. We're going to level set some of the challenges that we're seeing-- things that we're hearing from our customers that they're talking about that are stress points in their day-to-day running of their businesses. We'll certainly highlight ways these challenges are impacting bottom lines for contractors.

We'll talk about things from types of losses to things that contractors should be thinking about from a future decision making standpoint. And then we'll certainly leave you with plenty of practical solutions and valuable resources to help you address some of these key concerns. So we will get going here.

So I think we're going to begin, again, with an overview of where the industry is seeing the greatest supply chain issues.

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Slide, Today's Materials and Equipment Challenges. A picture of stacks of bricks and metal rods at a construction site. Text, Delivery Times, Supply Shortages, Fluctuating Material Availability, Equipment and Parts. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints.

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And that's really in materials and equipment. We'll cover the labor piece a little bit later on in the webinar in quite some depth.

But materials and equipment are foundational, obviously, to a contractor's operations. And I really want Tony just to talk a bit about what's distinct about the challenges they bring in today's environment.

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Tony appears.

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TONY GADALETA: Yeah, OK, thank you. So the construction industry, it's already been known for its notoriously complex supply chains. And certainly, the recent constraints have exacerbated a lot of the lead times.

For a construction project, even a small delay in the arrival of materials, components, or equipment can have a significant cascading effect and certainly extend completion dates at job sites. This all in turn leads to additional construction costs, potentially lowers profits, and strengthens the already limited labor force between extended jobs and new startups.

In addition to the material supply shortages and delivery times doubling or even tripling, the other major concern is the astronomical jump in prices for those items. So earlier in the year, the cost of certain materials such as softwood lumber, plywood, asphalt, concrete, inclusive of various metals and irons, they had all seen significant spikes in acquisition costs.

When price escalation was predictable, contingencies were modeled for expected inflation and normal market variations. But think about it. With all these rapid and recent changes, contractors certainly could be suffering on the bottom line, especially if some of those contracts did not have amended stipulations for the cost of work or other such items. We also look at this from long-term jobs. And we will see even greater impacts if materials were not negotiated earlier-- certainly, procured and/or stockpiled.

Again, the types of materials in short supply fluctuates. The key here is that while 2022 has brought much needed breathing room for various links in the global supply chain, it's unlikely the issue of shortages will be rapidly resolved in the near future.

One of the things I wanted to point out-- and I know we have a lot of dialogue around builder's risk and, certainly, materials and related equipment to build as risk. But I think one thing that gets overlooked is really the contractor's equipment piece of this. So I'd also like to point out that the contractor's equipment and related parts supply shortages really hit contractors from a different angle.

Electronic component shortages, labor challenges, manufacturing delays, shipping delays, and high demand-- all affected equipment, dealer inventories, and we really reduced the available number of units for sale. Alternatively, contractors have looked to those dealers and similar facilities for rental equipment. But that too has become a pressing issue over the last few months.

Rental companies that used to convert their older equipment for newer every three years or so really are extending on that. And although there are higher utilization rates for these rental companies and revenue generators for these companies, it also means increased wear and tear affecting safety and increasing maintenance costs quite a bit.

So whether owning or long-term renting, stay on top of scheduled maintenance. It's more important now than in prior years. A downed large and specialized piece of equipment due to a hydraulic leak or electrical fire, it's not readily replaced and can certainly have a significant impact on completing jobs timely.

Conversely, there is some good news here. And where we have that good news is that we think-- and this is just being cautiously optimistic-- that there will be improvements in the equipment and parts availability in the upcoming months and maybe into early 2023.

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Slide, a picture of a forklift loading wood onto a truck. Text, Challenges Once Materials are Available. Domestic Transportation, Thefts of Materials and Equipment. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints.

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So that's just kind of a little overview of what's happening there with the material challenges.

Interesting enough, I think there are some other challenges which confront contractors. Some things to think about is domestic transportation and then, certainly, theft of materials and equipment. So after the contractors have navigated through material production shortages and price hikes, there's always the issue of getting those items transported from port locations, distributors, or storage facilities to the actual job sites.

Reality is, is that trucks carry approximately 71% of all freight within the US. And that includes nearly all bulk materials and construction elements for the industry. So just kind of as a takeaway thought, consider some key aspects when dealing with land transportation.

So it really goes back to having a good logistics plan. And whether that's coordinated inbound and outbound transportation for needed equipment-- and think about that more so in the contractor's equipment space-- creating similar plans for construction materials and related project equipment, site management logistics, communications logistics, and another item I think that gets overlooked a little bit is the regulation logistics from state to state and moving things across borders.

So the other piece is thinking about increased steps of materials and equipment. Construction site theft continues to be a major challenge for contractors. As the cost of materials and equipment continues to rise, unsecured job sites and equipment present a low risk, high reward opportunity for thieves. Also, limited criminal penalties for heavy equipment thefts really contributes to higher crime incidences. And we see a lot of that really in the Southwest states, especially in Texas.

Some common types of construction site theft, the obvious-- copper theft, lumber theft, small tools, power tools, and, certainly, last on the list, heavy equipment. So takeaway key to prevention is to make it as hard as possible for would-be thieves to quickly make off with your construction assets.

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Adam appears.

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ADAM KALLSTROM: Thanks, Tony. Certainly a lot for contractors to chew on. And when you think about that, the overall effect of the material shortages, price increases, transportation, logjams, and the increase in theft boil down to a couple of things, right? It's really time and money. And those are certainly essential elements in any construction project. And it's going to ultimately lead to things like project delays and overall increased project costs.

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Slide, a picture of men in vests and hardhats standing near a desk covered with blueprints and a laptop. Text, Financial Consequences of these Stressors. Pricing Before Work Starts, Backlog Risk, Procurement Process, Who Bears Changes in Cost. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints.

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I would like to get Stan, Stan Halliday's perspective more from a financial consequences standpoint and to things that he is hearing from his contractors and then, certainly, some practical solutions that contractors can take. Stan.

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Stan appears.

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STAN HALLIDAY: OK. Thank you, Adam. Yes, I'll try and touch on some of the financial consequences of what we see in the supply chain and with the material pricing and the challenges that exist there. And I think the first thing to start thinking about is when are you able to price your work if you're a contractor? Or when does your customer get to price its work if you're an agent or broker?

If you think back in the last 2 and 1/2 years, we've seen a-- probably the widest gamut of pricing that I've ever seen in my career. When the pandemic first hit in March, prices crashed. Everyone was thinking, everything was going to come to a stop. And everyone got very aggressive when pricing. And if there was any work out there, they were trying to get it at that point in time because they were concerned there wouldn't be any work.

But with the resultant stimulus packages and things of that nature, work became over plentiful. And construction was found as an essential business, so jobs kept going in most places, not every. And what really surprised everyone was how fragile our supply chain was.

And lockdowns in certain countries where we needed key materials-- like Italy, or China-- totally disrupted construction jobs in Georgia, which was, I think, a little bit surprising to everybody that isn't in the construction industry day to day. And so it put a real challenge on when you can get prices locked in for your work and you know what options you have to get that material. So it really brings to mind the procurement process jump in a down one there.

Collaborative procurement processes are on the rise. And I think part of it is this supply chain issue. If you think about it, as you're going into this pricing, hard bid jobs typically, hey, you give hard prices, you lock in all your subs, and then the owner rewards to work. But it's hard to do that when subs are holding prices for five days or suppliers are saying, hey, we can hold that price for three days, but after that, it's floating. And when you need to lock it in and you can lock it in, we will. That really creates some challenges. If you don't know when you get the work.

So trying to get owners to buy into being a little more collaborative and allowing you to determine your final pricing later in the process, working collaboratively with the subs. And then you have delivery issues. Maybe the architect has specified some material that's got a-- normally you could get in 90 days, but now it's going to be 9 months. And that's a very common thing now.

And what can be helpful with that is helping the owner and the architect identify workable alternatives. And maybe they're at a little more price. Maybe they're less a price. And that comes down to working with the owner to see what's more important. Is it schedule, or is it how the building or the construction job is going to look? So all of those things really play into this thing.

Maybe the owner will let you buy the material early. That's something to discuss with them. We're seeing that more and more. But if you do buy it early, then you have to worry about where am I going to put it? How is it going to be insured? When's the owner going to pay me for that? Are there consequences to buying it early?

All of those things can have financial consequences on your job. If you order something early but it get exposed to conditions and all of a sudden isn't usable, you really haven't helped yourself. So a number of those things logistically are really, really important.

And what does that mean to the ultimate contractor? I think that falls to backlog risk. Who is going to bear the additional cost if you're unable to lock in and agree on the cost? There's really three parties in the transaction. In some instances, like we talked about, if the owner allows you to buy it early, maybe the owner is going to pay that little bit extra to make sure they can get their project done in time.

The other option would be the prime or general contractor. Maybe they're going to bear the risk because they need the sub so badly that they'll take some change in price. But oftentimes, it's going to be the subs or suppliers that the price risk flows down to them. It's sort of like plumbing.

And in those instances today, most of those parties-- subs and suppliers-- are very, very busy. And they have a lot of pricing clout. And you have to work together maybe more than you ever have before in figuring that out.

And often what happens when subs have a lot of work is they overextend themselves, and that can put stress on subs' financial statements. Maybe they're not getting paid. Maybe their bank's starting to put pressure on them on their lines of credit. The other thing we've seen happen as well is with some proposals, the sub has given you a price.

And by the time you want to lock it in, that price just isn't doable for them and they're not honoring it. They're just saying, I can't honor it. It won't work. The price is now five times that or 50% more or what it might be. But it's very much more volatile than it has ever been in my career.

So all of these things add up together and put stress on the contractor's backlog. Maybe not a single job just goes crazy where everything's gone wrong. But every single job has pressure on it. And you can see little nicks and writedowns that impact the financial results of the contractor.

And we all know contractors work on very thin margins. And so that consequence can have on how much money they make. Or are they going to have a loss? Can they stay in business? Can they continue to hire and pay raises? All of those things put a lot of stress on our contractors, and these things impact them, so.

I know I've covered a lot, but why don't we move on and cover some other things, Adam?

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Adam appears.

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ADAM KALLSTROM: Thanks, Stan. Yeah, I appreciate that. A lot of good perspectives there. And certainly, again, just highlighting the financial risks that contractors are starting to feel, right?

Ken, your risk control team has boots on the ground, right? You guys are talking to contractors day in and day out, and you're kind of hearing one day changes quite a bit from the next day. So you kind of see it, you hear it, and you see what contractors are doing. What are you guys talking about in terms of helping them prevent the losses and solutions to some of these issues that both Tony and Stan have highlighted?

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Slide, Preparing for and Helping Prevent Situations that Can Lead to Loss. A picture of two people standing in a construction site, holding a large piece of paper. Five textboxes in a circle, with double-pointed arrows between each of them. Text, Collaborative Approach, Protect What You Have, Preventative maintenance, Business continuity, Effective Communication. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints. Ken appears.

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KEN WENGERT: Yeah. Thanks, Adam. And for sure it's definitely a dynamic work environment when you're talking construction. That's really nothing new other than the fact that we have several factors come into play at the same time here, whether we're talking the labor piece or equipment, material shortages, and the supply chain impact. So the convergence of all of this has definitely made it more critical than ever that effective communication is taking place.

And I'm not just talking during the course of the project, but well in advance, as well as throughout the course of the job recognizing that there are going to be changes. There are going to be gaps. There are going to be hurdles that have to be overcome.

And if we're not approaching it in a collaborative way as Stan mentioned, it's really going to have a negative effect on all of the potential stakeholders. So it's incumbent upon the project teams, whether you're the owner, GC, subs, design partners, supplier, distributors, manufacturers of components-- so many different pieces of the puzzle-- we need to be approaching it in a more holistic manner. Again, helps you identify those potential gaps earlier in the process and identify alternative means.

And when I say alternative means, if you're unable to get a particular piece of equipment, do you have another piece lined up, either from your own schedule, your own inventory, or do you have a supplier or distributor ready to have another excavator available for that job? If you suddenly realize you have a need for increased utilization of subcontracted haulers, do you have additional trucks lined up that are going to be able to help you in the moment of need? A lot of things changing right now. But the more that we can be communicating about that and collaborating across the group, the greater the chances that we'll overcome these obstacles.

Tony talked a lot about the theft prevention efforts and some of the challenges with equipment and particularly building materials. One of the best ways to address a shortage is to protect what you've got. Really ensuring that our customers are talking about innovative ways to protect what they already have, either on site, back at their shop, in a warehouse. Really evaluating the security of a job site, access to the job, where you're staging the materials.

And in many instances, it just comes back to simple inventory logs. Making sure that you've got an accurate, current list of equipment and/or materials, where it is, what's being utilized, what's available in the event that there is a shortage on another job site. And some have even gone so far as to use QR codes or other software to help more proactively plan and identify this equipment for the moment of need.

But you also have to be thinking about the delays and the impact on schedule. For example, if you thought the project would be completed by August but now it's going to run through to February, being cognizant that if you've staged additional materials on the floors of a structure that maybe doesn't have the permanent roof or hasn't been fully enclosed, you could be subject to moisture damaged. Drywall that suddenly gets excessive moisture can create a real problem.

And we also talked a little bit about alternative building materials in the event that there is an excessive delay in certain materials. Working with the design partners, working with the architect and engineer to make sure that they've actually reviewed and approved what it is that's being proposed as an alternative. The worst thing that we could have happened is a well-intended attempt to make a recommendation for an alternative mechanical system or component that isn't compatible with the rest of the existing system. That wouldn't bode well. So again, getting back to that collaborative model that Stan talked about, we really want to make sure that all the stakeholders are on the same page and that we're working together to address these challenges.

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Adam appears.

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ADAM KALLSTROM: Thanks, Ken. Yeah, I think those are some great ideas and things that, again, contractors should be thinking about how they implement those into their own operations.

I'm going to pivot to our other major topic that we cued up earlier. And that's really around the labor shortage piece. And again, this isn't a new issue to the industry, but it's become a lot more acute, right? Because demand is so good right now, and we're seeing the strain, not only on unskilled labor, but certainly, the skilled labor piece has become such an issue in the industry that we're starting to hear contractors starting to get creative and do some things in order to attract folks into the industry.

Again, we see relatively solid growth for the foreseeable future in the industry. But I think, again, I'd like to highlight just some of the things that we're seeing and hearing from our customers. And we'll kick that off with Stan to start talking about that.

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Slide, Construction's Skilled Labor Shortage. A picture of orange vests and black hardhats hanging on a wall. Circular textboxes. Text, Wage Inflation, Attracting New Labor, Impact on Quality and Productivity. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints. Stan appears.

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STAN HALLIDAY: Thank you, Adam. So yeah, when I meet with our customers, the number one issue that I hear without a doubt is labor and people-- having enough talented people to do the work. And don't think that it's just limited to craft labor. It's at all levels of the construction process.

From the owner-- there's not enough talented people with owners to go and manage their work. They're more and more reliant on consultants than ever. It's that way with architects and engineering firms and they have enough talent to do all the work. And I hear numerous times, the poor quality and the incompleteness of some of the design documents that contractors are asked to propose on.

And then, finally, at the contractor level, not only we said craft labor, but at the superintendent level, at the foreman level, at the project management level. Again, very challenging to find enough skilled professional folks to fill all of those roles. And all that put together given the construction environment in today, where there's so much work and almost every one of our contractors have asked us for their largest job for us to support this year or their largest backlog ever. That puts a lot of stress on the contractors.

And what happens when you're dealing with less-experienced people or understaffed people? It impacts a lot of things financially. Productivities aren't going to be as high. And a lot of what estimation is about is how quickly you can produce things. And so productivity levels are impacted.

Quality issues-- if your labor force is not as skilled and inexperienced, it it's logical to think there's probably going to be more quality issues. That means you need to invest as a contractor and your agents in a very aggressive and proactive quality program to try and avoid construction defects, to try and avoid rework issues that are very, very expensive. So again, focusing on your quality is very, very important.

As you may logically think, safetywise, less experienced people tend to be the ones that get hurt the most on the jobs. And when people get injured, it affects schedule. It affects morale. A lot of times, you have to shut down the work if it's, heaven forbid, a significant injury. All of those things then go back and impact productivity.

It also impacts your ability to attract workers. If you're known as the contractor or the subcontractor that doesn't provide the safest work environment, maybe that's a thing other contractors bid against with you. So all of these things together impact the bottom line.

And so how do you go about attracting new labor? I know there's a lot of smart people thinking about this. Some of it is demographics. I mean, we have talked for years about how the baby boomer generation was going to phase out of the workforce. And that is starting to happen.

And though we're replacing them with a large group of people, let's be honest, how many of our kids are looking to work in construction? How many people are being encouraged that way? We need to do more of that. These are good, high-paying jobs. But there's not a lot of-- at the high school level, and we're not investing in the way and trade schools that we used to and things of that nature. So all of those things need to be part of that.

And finally, we need a thoughtful immigration policy. A number of our workers today come from other countries. And they're coming here for opportunities. And we actually need these workers, so having our political folks come up with something that's thoughtful that allows skilled craft labor to come in to work on jobs for us legally would be a big help in addressing some of these problems right now.

So we don't have all the answers. But there's a lot of things that we can work on. But the totality of this, again, is it's going to impact contractors financial performance. And we're going to see that probably with reduced profits as these things impact the performance on the jobs.

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Adam appears.

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ADAM KALLSTROM: Thanks, Stan. Yeah, I think you touched on a couple of things which I think are really important. As firms start to think about how they attract new folks into their organizations, there's plenty of risk with new employees. Even if we look at our own work comp loss data here at Travelers, almost 50% of losses actually are happening with these sort of first year or newer employees to organizations. So they become critical, critical area that, again, construction firms really have to put a lot of focus on.

To that end, Ken, I think, again, you guys are consulting quite often with insureds directly around how they can influence their safety organization around new employees. You want to offer a couple insights?

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Slide, Focus Areas When Ramping Up Hiring. A picture of a man and woman wearing vests and hardhats, talking and laughing. Text, Onboarding Process, Training & Everyday Learning, Take Care of Existing Workers, Culture of Caring. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints. Ken appears.

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KEN WENGERT: Yeah. Thanks, Adam. Again, you referenced, as did Stan, the heightened percentage of first year employees with individual contractors that sustain injuries. That's almost half of the comp claims that we have within our construction portfolio, so certainly eye catching.

And one of the ways that most businesses try to address that is through their orientation process. Making sure that they're establishing the safety rules, the criteria, the culture early on in one's time with them. But I think it's a process, you know? Our best contractors also tie in ongoing assessment and development of those skills, not just throwing a video or have someone read a one-page orientation and consider it good.

Maybe going so far as to even have a mentor. Having someone physically assigned to those newer of employees. And several contractors go so far as to have them wear a different color hardhat. More to make sure that the rest of the team is working on their behalf to also ensure that they are aware of the potential risks and coaching them around best practices and safe work practices.

I mentioned the foremen and superintendents specifically because I think that's also a gap right now in the industry. You think through those that are being put in leadership roles in the field who maybe have much less experience than those who preceded them. They require some skill development as well. You don't automatically know how to onboard and develop talent just because you are the best craftsperson.

At the end of the day, investing the time in communication style, coaching, delivering feedback, verifying for understanding, what worker is going to say, no, I don't understand this, or no, I can't do that? Typically, they're going to say, yeah, I get you. I understand. I can do that. There are certain techniques and strategies that our best contractors use to actually validate whether one truly does understand and can apply these principles, whether it's use of fall protection or work zone traffic control or any number of different activities.

So I think that becomes a big part of not only the onboarding process, but a part of that ongoing every day learning. Tying in the actual skill, the trade, the craft alongside some of these other team dynamics-- jobsite awareness, safety, the economics of safety. From a formative superintendent's standpoint, recognizing that there can be an impact on the broader business in addition to protecting the individual employees and their well being.

And that takes me over to the fact that when injuries do occur in the construction arena, they tend to have more lost workdays than any other industry. It's pretty well documented. And so first and foremost, we want to be preventing these losses-- pretask planning, again, coaching, identifying the proper controls to prevent things from going wrong.

But in the event that there's an injury, we want to encourage workers to report those incidents to seek medical treatment from an occupational medicine provider. The best thing that a foreman or superintendent can do is respond in a caring nonjudgmental manner. A worker who tweaked their back or had a laceration that receives negative feedback from their foreman and superintendent are going to be less likely to bring it forward in the future.

So reassuring them that not only will we get them the appropriate medical care, but the best contractors embrace transitional duty. In this era of labor shortages, focusing on folk's abilities and what the medical provider says an injured worker can do can really augment the workforce versus saying, just stay home and let me know when you're fully recovered.

And I think it does bring it back to attracting future talent as well. Employees talk. They want their family members and friends to know if they're working for an organization that's supportive of them and allowing them to recover and providing the tools to prevent injuries from the get go. I think they're going to be more likely to encourage their friends or others to want to come join that same organization.

So it kind of goes full circle. Ties it into the labor shortage as well. And I think that we've got several good ideas out there. And I'm certain that our contractors are striving to implement them.

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Adam appears.

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ADAM KALLSTROM: Thanks, Ken. Yeah, this is such an important, critical issue within the construction industry now. I think some additional perspectives would also be excellent here. Tony, when it comes to some of the complexities in the job site and just the heightened need for safety, what are maybe a couple of things that you're seeing that contractors really need to be focused on?

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Tony appears.

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TONY GADALETA: Yeah. So Adam, I would look at one specific area for the moment. And just listening to Ken's commentary, and I think leadership, it always starts with owners, right? So for instance, you can have a certified operator rated for a specific crane. But that doesn't necessarily mean that they're qualified for a specific pick, right?

So that responsibility does come back to the owner to ensure that the operator is properly briefed and trained for that specific lift. So overall, complex jobs, they need a formulated plan. Better training, it leads to better performance, which in turn expands, I think, the interest levels of potential workers. And I think it just attracts better talent to that organization.

So I think it really plays into some of those comments that Ken had mentioned about the organization-- how they look at safety, how they look at training, how they develop, and then how do they keep those employees long term. And I think that's all through performance and payment.

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Adam appears.

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ADAM KALLSTROM: Thanks, Tony. Yeah, Stan, any additional perspective you want to lend here?

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Stan appears.

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STAN HALLIDAY: You know, I just think the competition for talent is going to be critical for who's going to be the most successful. Many of our contractors have very aggressive programs with colleges that they work hard to develop for interns. And they all say that that's a great program for themselves for trying out new talent. And the ones that tend to like the culture and stick tend to be stickier long term as well. That's a little overused of that word. But they all think that that's a big part of it.

The big thing I think that has to change the most though is the mindset in the high schools with the counselors. I do think that there's a lot of young men and women that maybe aren't as interested in working indoors and maybe being an accountant or something like that. But I think the education community looks down on them if they're really good at a skill like carpentry or maybe they want to operate a crane and they like doing something that challenging. We have to change that mindset.

We have to build culture and make people aware that those are things that we need. And we need people that are good at doing that. And that these can be good careers and safe careers. They can come home from that. They get to do some things they can be very proud of.

I've seen some of these people and how proud they are they can show their kids. Hey, my dad helped build this. Or my mom helped design this or whatever. And so I think that's got to be a big part of this.

I know a number of our contractors invest in programs like that. Travelers supports those. So I think that's a big part of what we're going to do.

And then I think the wonderful things that our safety professionals do in helping our contractors put in the right plans, and we share our learnings with them so that they can get their people home safe. And they can learn from those mistakes or even learn from mistakes from others because we can aggregate data now and make them aware that these are the issues that we're seeing.

There's just a number of things that are out there that our folks can do. And it's just something I think we all can, as those that-- I mean, basically, I support the construction industry. So anything I can do to help it and our company can do to help it is very important to our workers even, so.

(DESCRIPTION)
Adam appears.

(SPEECH)
ADAM KALLSTROM: Thanks, Stan. Great perspectives from everybody here. Again, I think there's a lot of good things that are happening. But certainly, we've got to keep that momentum up to certainly get more folks into the industry and then keep them in there, right? I think that's ultimately what this boils down to and what we're talking about here. 

I'm going to throw the group for a little bit of a curve here. But I think this is such an important topic, and we'd be remiss if we didn't touch on it briefly because I do think that it's starting to influence some of these things that we're talking about today around parts, materials, and labor shortages. And that's really technology in the construction industry. 

I think we look at this industry, and there's a lot of talk about just how much innovation is possible, in this industry. And historically, it's been a somewhat slow-to-adopt industry when it comes to technology. But I think that that tide is starting to turn, and I think we're starting to see things not only in the office around software platforms and technology that can integrate projects and things like that, but I think we're starting to see things and hear things around wearables and the valuable data that you can get from some of these types of devices.

(DESCRIPTION)
Slide, Technology and Innovation's Role in Construction. A picture of a woman wearing a vest, hardhat, and virtual reality headset. Text, Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints.

(SPEECH)
So I think before we conclude the webinar, I'd love to get some perspectives from the folks on the panel just to talk about technology-- where they see it, where they see it going, and maybe even some things that they're hearing from their contractors. So we'll start with Stan.

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Stan appears.

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STAN HALLIDAY: Certainly, yeah. I've been fortunate. We work with some of the larger contractors in the country. So maybe they're a little more at the cutting edge.

And so you can see here, virtual reality goggles or mask or whatever you're seeing. But what's amazing there is she's looking at the room that she is going to build. And she can see it all probably in 3D right now.

And she can move around and see where things are going to go. It's pretty amazing stuff that folks are using today. And it's very helpful.

I've heard what some of our contractors think about working in an operating room. They can actually build it virtually, put a nurse or an operating room nurse in those goggles and say, where does the equipment need to go to be most effective for you to work? And she can work within there and say, no, this needs to be here, and that needs to be there.

That's just a small example of what you can do. Most of our contractors are very much involved with-- and I toured a job this week at the University of Mississippi with an older foreman who said, I used to kind of be against this BIM thing. You know, I like my old paper plans. He goes, but this stuff is great.

And what BIM is, is Building Information Modeling. And what it does is it allows the contractors to build each level of the job virtually. And what it helps do is eliminate clashes.

So if you think in the ceiling, all the electrical and the duct work now with all the technology we have in there, all the air handling systems, the hot water, everything has to go in there and fit. I think a lot of people don't realize how small a space. And if one pipe crosses another, it can undo a lot of work.

So this allows them to avoid a lot of problems because they can identify those early, redesign it, work with the architect to get that stuff right. So those are just a couple of small things that we see. But I'm sure the other guys who are working in those roles have even more knowledge on that than I do.

(DESCRIPTION)
Adam appears.

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ADAM KALLSTROM: Yeah. Tony, just kind of building upon some of the things that Stan touched on. You mentioned cranes earlier. And again, you kind of live and breathe the contractor's equipment space. What kind of things are you seeing there?

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Tony appears.

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TONY GADALETA: Yeah, so Adam, on the contractor's equipment side, looking forward, crane operations are becoming more computerized and certainly with more autonomy, even though a physical operator is in the seat. So especially with crane positioning, which a computer can certainly help gauge, I think the future's going that direction. We're going to see a lot more computer-supported heavy equipment usage in the field.

And we had started to see that a few years ago when we were putting GPS systems into land graders for efficiency of grading. It's just going to explode. And I think the duality of having technology with operators is, again, I think the near future. And I think it's going to be supportive. I think we're going that way.

(DESCRIPTION)
Adam appears.

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ADAM KALLSTROM: Thanks, Tony. And I'll get Ken in here, right? All this great technology, how do contractors-- how do they bring that all together and use it in the right way, right? This is certainly a challenge, right?

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Ken appears.

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KEN WENGERT: Yeah, absolutely. Tony and Stan both referenced the advances that we see every day with our customers. One thing that I've heard consistently is identify the problem that you're trying to solve for. Like, be really clear about what that is because there's going to continue to be new gadgets, new devices, new software that comes available.

But if you haven't identified what the problem is you're trying to solve-- in Tony's case, the training of particular operators or quality control when grading or conflict resolution in Stan's case to prevent construction defects down the road-- then it's really hard to know what that solution is going to be providing.

And at the convergence of all these different types of technology, the ability to actually have them integrated-- the APIs I believe is the phrase or acronym I've recently heard-- where the integration of all of the progress photos and change orders as well as quantities and labor needs on particular projects, how all of that comes together in a meaningful way and is able to be communicated to the field is really where it's at. That in my mind is an essential trait of the embrace of technology.

I think the other piece is it's identifying additional skills. We talk about the lack of labor and the challenges getting folks into construction. This could be another possible entry point. Some of our largest of customers have very sizable IT departments now. And before they even sit down behind a computer, they often put those technicians out in the field to actually learn the trade. Learn what an electrical contractor does. Learn what a mechanical contractor does before you get into BIM, before you get into all of these other IoT-type solutions.

So identify the problem you're trying to solve for, and have that continuous feedback loop, I think, would be the next best suggestion I've heard from our customers.

(DESCRIPTION)
Stan appears.

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ADAM KALLSTROM: Thanks, Ken. Yeah.

STAN HALLIDAY: Adam, I'd like to add on that that I didn't touch on was how much work is being built. You hear modular construction as a term, right? You hear that a lot. But really what it means is, a lot of our contractors are constructing pieces of the project offsite in safer environments.

A good example might be a bathroom kit. You can build that in a warehouse. Let's say it's a 200-room hotel. You can build 200 bathroom kits that are almost identical in an offsite facility where it's safe and people aren't-- and they can work in a controlled weather type, weather-safe environment. And then they ship those kits together, and then they install them as one into the hotel as that space is ready. That's just a simple example.

Our mechanical and electrical contractors are fabricating more and longer runs of their material offsite and bringing them in. So there's less welding. There's less attachment points. There's less lifting. And it helps them do more with less people, so.

That also, I think it helps with safety. But it also has other challenges with insurance about who's insuring what and where. And is that a construction claim? Is that a manufacturing claim? And those types of things. But all of those things are happening today and will continue to happen to try and address these challenges.

(DESCRIPTION)
Adam appears.

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ADAM KALLSTROM: Yeah, thanks for bringing that topic up. I think you're spot on there. I think we have seen the increase of modular construction really starting to take off. And I agree with you. I think we're going to see a lot more of that going forward. It's got some pretty good positives. But again, with every good new technology or new idea out there, certainly comes some heightened risk that folks need to be aware of.

I just want to kind of button up some of the things that we've talked about and kind of bring it full circle back to just, again, a couple closing thoughts. We've touched on a few of these things around the labor shortage piece and really what contractors should be just thinking about and some things that they should be doing to help address that issue. And I'll just turn it over to Ken to lend some final perspectives on that.

(DESCRIPTION)
Slide, Attract and Retain Construction Workers. A picture of people in vests and hardhats in front of a whiteboard hanging on the wall of a construction site. Text, Create a culture that demonstrates you value your employees, Partner with trade slash vocational schools, high schools, community events, Create internships and apprenticeships, Recruit women, Offer candidates more. Don't Let Shortfalls Be Your Downfall: Navigating Construction's Labor, Equipment And Materials Constraints. Ken appears.

(SPEECH)
KEN WENGERT: We didn't get here overnight as an industry, Adam. So it's not going to be solved in a day. You've heard several examples referenced here about Travelers commitment to the industry. And I think many of our contractors are knee deep in that as well.

But it's a definite investment of time and resource, whether it's with the high schools, community colleges trying to stimulate interest, even within the communities. Having such things as construction career days as an industry locking arms and participation in associations to try to stimulate interest in the industry for the future recognizing that it's going to require a wide range of different skill sets that the folks that come into the industry.

We're pretty active with the military and veteran strategies around the country here at Travelers. And I know that that's also been found to have a lot of transferable skills for many of our contractors as either informal military mentors or in many cases, literally just going for recruiting from the talented folks that are leaving the active duty.

I think at the end of the day, continuing to communicate the culture of caring, the long-term career progression. And again, thinking through the wide range of different people out there, our folks who are involved with the National Association of Women in Construction. There are a lot of very talented female individuals in the trades. And I know that they're also looking to continue to grow and invest and identify resources to further impact the shortage that we currently have. So I'd say, continuing as a collective industry to invest in these areas will be vital.

(DESCRIPTION)
Adam appears.

(SPEECH)
ADAM KALLSTROM: Thanks, Ken. Yeah, and I'll just make one kind of point on that. And again, I think the technology piece, which we just got kind of done talking about, right, that's sort of a new avenue to attract workers into this industry that may not have otherwise really thought about this being something that they would be interested in doing, right? And I think that's, again, another opportunity that the industry's got right here and right now.

(DESCRIPTION)
Slide, Thank You.

(SPEECH)
Well, that concludes really what we wanted to talk about today. I really want to thank and it's been an honor to share the stage with the distinguished colleagues here at Travelers. I think the perspectives that they bring with decades and decades of experience in the construction industry is second to none. And I really appreciate all that you guys have brought to the table today.

I do want to just say, if you do have any questions that you want to have answered, please do enter them in the Ask Questions module. We'll do our very best to get to as many questions as we can. Even post webinar, we'll try to answer those questions as well.

Remember, at Travelers, we certainly have a lot of resources. We are solely dedicated to construction industry. And I would certainly encourage folks to visit our website Travelers.com. Under the construction or the surety sites to tap some of those resources.

And then lastly, this is an investment in time to spend the 45 minutes or an hour with us. We hope that we can spend certainly more time with you with your customers with certainly contractors in the construction industry because we see it day in and day out. We support it day in and day out. And we'll continue to do that. So thank you for your time today. And with that, this will conclude the webinar.

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