An interesting year lies ahead for contractors. While it is not entirely clear which way the wind will blow once the new president takes office on Jan. 20, most construction trends in 2017 are likely to continue along their current trajectory, and planned legislative and regulatory changes will roll out.
Regulatory trends and changes for contractors in 2017
In terms of regulations, the end of the current presidential term is seeing some significant changes.
OSHA’s Maximum Penalties Increase
In August 2016, OSHA introduced adjustments to its maximum penalties, which had not been changed since 1990. The 78 percent increase was intended to make up for the gap that existed in the penalty system between 1990 financial standards and contractor capabilities and those in 2016. The adjustment was further intended to have a deterrent effect on contractors and urge them to increase compliance with OSHA standards and guidelines. Along with the penalties adjustment, OSHA recently updated its Recommended Practices for Safety and Health Programs, which had not been changed significantly since 1989.
OSHA Walking-Working Surfaces Final Rule
On Nov. 18, 2016, OSHA issued its final rule concerning Walking-Working Surfaces standards, which takes effect Jan. 17, 2017, although some provisions have delayed effective dates. The rule includes a Personal Protective Equipment section that requires employers to use personal fall protection systems that comply with the standards specified in the rule.
Establishing a minimum wage for federal contractors
On Sept. 20, 2016, the Secretary of Labor gave notice to federal contractors that beginning Jan. 1, 2017, covered workers working on federal contracts are to receive a minimum hourly wage of $10.20. At the same time, covered tipped employees performing work on or in connection with covered contracts are to receive a minimum hourly cash wage of $6.80.
Both of these changes are in line with Executive Order 13658, which took effect Jan. 1, 2015. The executive order gives the Secretary of Labor the right to adjust the minimum hourly wage of federal contractors on a yearly basis.
Paid sick leave to Laborers
In addition to paying a slightly higher minimum wage to covered employees, federal contractors will need to provide employees with paid sick leave for solicitations on or after Jan. 1, 2017. On Sept. 29, 2016, the Department of Labor (DOL) issued its final rule on Executive Order 13706 (Establishing Paid Sick Leave for Federal Contractors). The final rule specifies the conditions under which federal contractors must provide their employees with paid sick leave on an annual basis.
According to the final rule, contractors must provide one hour of paid sick leave for every 30 hours of work completed by employees. They must provide up to 56 hours of paid sick leave annually to employees working on or in connection with covered federal contracts.
Further stipulations of the rule include the ability to accrue paid sick leave and a carryover option for leave that has not been used. The rule specifies when and how employees may use sick leave and also has a number of anti-retaliation provisions in place to protect employees from discrimination on behalf of employers.
Fair pay and safe workplaces regulations
In an unexpected turn of events, the U.S. District Court for the Eastern District of Texas issued an injunction against the Fair Pay and Safe Workplaces regulations on Oct. 24, 2016, stopping them from being implemented. This injunction came just one day before the regulations were to take effect on Oct. 25. It is unknown at this time whether the U.S. government plans to appeal the district court’s decision.
The Fair Pay and Safe Workplaces regulation (dubbed “blacklisting”) was designed to apply to contractors seeking to win contracts exceeding $500,000. Under it, contractors would have been required to disclose to the DOL any “administrative merits determination, arbitral award or decision, or civil judgment” made against them during the previous three years for having violated federal labor laws and their equivalents in each state.
Along with the above requirement, the regulation prohibited federal contractors and subcontractors from entering into pre-dispute arbitration agreements with their employees or independent contractors for claims under Title VII or sexual assault or sexual harassment claims.
One clause of the regulation did make it past the injunction, though, with an effective date to new solicitations for federal contracts on or after Jan. 1, 2017, for prime contracts and subcontracts of $500,000 or more (other than subcontracts that are for “Commercial Off-The-Shelf items”). The paycheck transparency clause will require federal contractors and subcontractors to provide their workers with detailed wage statements for each pay period. Under that clause, contractors also must provide workers whom they consider independent contractors with a notice informing them that they are considered and treated as such.
Construction trends 2017
Apart from preparing to meet the requirements of all the above rules and regulations, contractors are adjusting to the trends that will dominate construction in the coming year.
According to JLL’s Q3 U.S. Construction Outlook the three main themes that will continue to concern contractors in 2017 are risk, labor and technology.
With the slowing of the economy, JLL expects the construction market to also slow down. In turn, this is expected to make contractors and financiers assess the risks involved in each project more carefully and opt for markets that have strong fundamentals.
Risk in construction also has increased because of the growing complexity of construction, as shown by a risk survey conducted by the Associated General Contractors of America (AGC) and FMI. As the study shows, this has made the need for surety bonds for contractors more explicit.
Labor remains a key issue in the construction industry because of the lack skilled workers, despite unemployment being at near-record lows. Labor costs are thus expected to rise further in the coming year, along with demand, and stretch the industry even more.
Finally, technology is having an increasingly profound effect on how construction is executed, with software and hardware improvements changing the face of construction. This includes increased mobility and cloud access for teams that are in the field, productivity, resource and time management apps, as well as the growing use of drones and virtual reality devices.
The sharing economy also has made its way into construction, allowing contractors to rent construction equipment when it’s not being used elsewhere. While many are still hesitant to try such practices, this opens the door to smaller contractors to rent equipment when it is needed.
Construction still growing
Despite the slowing market and the careful vetting of projects, construction is still expected to grow. According the semi-annual Consensus Construction Forecast of the American Institute of Architects published in July 2016, the outlook for 2017 is generally positive in spite of a number of hurdles for the economy. Though dropping significantly from this year’s gains, nonresidential construction is expected to grow 5.6 percent and commercial/industrial is positioned to increase 6.5 percent in 2017.
Associated Builders and Contractors (ABC) forecasts modest growth in the commercial and industrial sectors. ABC Chief Economist Anirban Basu says contractors should be prepared for increases in commodity prices, which could result in stagnation in construction spending volumes, and rising hourly wages for construction workers, which will increase already significant wage pressures. On a positive note, Basu cites Bureau of Economic Analysis data that shows the average age of all fixed assets is 23 years, which could result in replacement of capital stock in future years. Rising energy prices could produce more investment and rising earnings—potentially translating into better support for asset prices, ongoing hiring and consumer spending.