Construction unions pressed to cut costs

By Theresa Agovino

Published: December 19, 2008 - 2:37 pm

Contractors are negotiating with their unions in an effort to lower labor costs by up to 25% as a way to help to revive the city’s ever weakening construction industry.

There are roughly $4 billion to $5 billion worth of projects in New York that have either been stalled or haven’t started because of difficulties in obtaining financing, according to Louis Coletti, Chief Executive of the Building Trades Employers’ Association, which represents the contractors. The hope is that lower labor costs will bring down the total construction cost enough to make financing easier to obtain when banks begin lending again.

Mr. Coletti estimates that labor accounts for 50% to 60% of the cost of a job. According to the New York Building Congress, a trade group, and its philanthropic arm—the New York Building Foundation—it costs over $400 per square foot to construct a high-rise office building in the city, compared with $150 in Atlanta and $180 in Chicago.

In negotiations that have been going on since last month, union members are not being asked to outright take pay cuts. Instead, contractors are seeking productivity gains that would effectively lower their costs. For example, contractors want the unions to stagger work hours so that workers aren’t waiting around with nothing to do until their skills are needed on a project.

“Union unemployment could jump to 40% by the end of next year if something isn’t done,” said Mr. Coletti.

Ed Malloy, president of the Building and Construction Trades Council, which represents the unions, said that the unions might be willing to agree to freezing wages next year as part of the cost savings efforts. He notes that at present union workers make an average of $60 to $70 per hour.

"We in labor are cognizant of the fact that we have to make some adjustments; and we want to make sure some of these jobs get started so people can get to work," said Mr. Malloy. "We just want to do it with a scalpel and not a hatchet."

Construction costs have been falling in recent months as demand dries up. The cost of raw material such as steel has been slipped and the price of renting equipment such as cranes has dropped.

Meanwhile, contractors are lowering their fees to win work and developers are putting more equity into their projects to meet banks’ strident requirements.

“Everybody is putting something on the table,” said Steven Spinola, president of the Real Estate Board of New York. “We are saying to labor that we need your help in bring down costs.

Construction is more expensive in New York than elsewhere in the country and that could put local developers at a disadvantage when banks starting lending again because they may choose to finance less pricey projects, Mr. Spinola said. That’s why he insists that it is critical to bring down costs here.

Andrew Singer, chairman and CEO of The Singer & Bassuk Organization, said he thinks the effort to lower labor costs is good idea but isn’t necessarily going to spur lenders to part with their money. Mr. Singer notes that certain projects in the city such as high-end condos and office buildings won’t get funding no matter how low their costs go because of the current glut of such projects on the market.

“Even if you can build them cheaply it won’t make a difference,” said Mr. Singer. “Who wants another condo or hotel or office building right now?”