Despite improvements, construction industry still has barriers in 2013
Where we’ve been
According to the most recent numbers from the Associated General Contractors of America, the construction industry added 5,000 jobs in September. While the increase in construction work may be a positive, the industry’s unemployment rate is still over 11 percent. Construction employment overall is also flat for the past year.
The AGC found that as numbers of residential and commercial projects grow, the public sector activity is shrinking.
“Despite the slight uptick in construction employment for (September), the industry is a bit smaller than it was one year ago,” said Stephen E. Sandherr, the association’s CEO. “It appears that for every rebounding market segment, there is one that is shrinking.”
The AGC report resonates as true for the American Society of Heating, Refrigerating and Air-Conditioning Engineers. Tom Watson, the current ASHRAE president and a chief engineer for Daikin McQuay in Staunton, Va., said that a depressed economy will continue to be a challenge for society members.
“During the past three or four years of a declining economy, there has been far less construction and many of our members have lost jobs or had to take lower paying jobs to get by,” he said.
However, Watson pointed out that construction and infrastructure investment should slowly rise in 2013, no matter who is sitting in the White House. With this in mind, those in the HVAC industry will need to be smart and proactive when it comes to securing these new jobs.
Getting the job
HVAC contractors and engineers need to re-establish the perception with customers that they are a “value-added service rather than an expense,” Watson said.
Those in the building industry need to get building owners to see the benefits that come with investing in their infrastructure. To do this, contractors need to start presenting themselves as experts, especially when developers and owners are staying cautious with their money.
“Our members’ expertise is primarily in the areas of improving building energy efficiency, occupant comfort and productivity,” Watson said. “Our members have the knowledge to advise the architects and general contractors as they make decisions on the building envelope, not just on the HVACR systems. Engineers have traditionally been happy to work in the background, but if we are to survive the sluggish economic times we must promote ourselves as the experts on the entire built environment.”
It’s not just doing what is good for your building in the long run, but what’s also good for your pocketbook. While some customers want to save money and just fix a failing system, Watson said a successful contractor or engineer can show them why the opposite is true.
Watson found that one ASHRAE member in North Carolina is still busy with chiller and boiler replacements despite the cost. The company is pointing out to customers that their HVAC system is a long-term investment, and with interest rates at an all-time low, the replacement is a better bet. For this ASHRAE member, the strategy is working.
Technology is also going to help keep HVAC and sheet metal contractors ahead in 2013. For Watson, it is BIM, or building information modeling, that is going to improve business and job performance for the construction industry. He does admit that there is a “steep and expensive learning curve” when it comes to BIM, but the benefits are worth the effort.
“BIM reduces re-work by making coordination between the disciplines easier and more automated,” he said. “By reducing re-work and improving coordination, BIM makes engineers and designers more productive. Allowing access to the BIM model by contractors makes clash detection and documentation of as-built conditions more accurate and leaves owners with a model upon which to make future decisions regarding renovations or upgrades.”
Not only does BIM save on productivity in the field, the process provides more data to clients. When it comes to energy, a designer can show the building owner how the building is using energy and where energy is being saved.
All about energy
Energy is definitely key in 2013. ASHRAE will be releasing the 2013 version of some of its major standards, such as No. 90.1, which covers most buildings, and Standard 189.1, which tackles most high-performance or “green” structures.
These standards seem to be coming at a good time, at least according to Beth Dobkin. Dobkin is a business coach for the Quality Service Contractors, a group within the Plumbing-Heating-Cooling Contractors-National Association. She was also the manager of technical services for Mr. Rooter and the Dwyer Group.
Dobkin said that the construction industry is still a bit slow, but it is picking up. And when it does start to pick up and gain steam, energy-efficient HVAC is going to be a big part of the construction industry. She cited a recent report from Pike Research, which found that the annual market for energy-efficient products is $14 billion. But by 2020, that number will skyrocket to $84 billion. This creates a challenge and a benefit for those in the HVAC and sheet metal industries.
A great deal of this influx could have something to do with new regional standards that will soon be put in place by the U.S. Department of Energy. Three zones across the country will have different efficiency standards for furnaces, air conditioners and heat pumps. By May 2013, the new standard for non-weatherized furnaces will take effect. In January 2015, weatherized furnaces, central air conditioners and heat pumps will all need to follow the new standards.
This is a mixed bag for contractors, Dobkin said. It will be a challenge for contractors to not only educate their customers on the changes, but to also educate technicians on how to install more complex systems.
“Equipment is getting more technical,” she said.
With the new federal requirements, some customers are going to be forced to install new systems — whether they want to or not. If a piece of equipment breaks down, technicians will have to explain that manufacturers are phasing out older, less efficient equipment, which will make it impossible to order replacement parts. This is where educating customers will be important.
“It’s all about communication,” said Dobkin.
Customers will not only need to be informed on the regional standards, but they need to see the benefits, and those benefits rest in their pocketbooks. Technicians have to focus on how this new equipment will eventually save them money. Perhaps in some instances, the new equipment could pay for itself over time.
The changes in the industry and the abundance of energy-efficient products and opportunities should create opportunities for contractors.
“It’s a real advantage,” she said. “It’s really how you look at it.”
But this brings along an additional challenge — the need for more qualified technicians.
Dobkin said there will be a “ton of employment opportunities over the next five years.”
As the current work force retires, more young people will need to enter the industry. And those who are currently in the industry will need to get continuing education. With new systems coming out that are more complex and efficient, technicians and contractors will need to get educated on the proper installation and service procedures.
While there could be new business opportunities with the new regional standards, the Air Conditioning Contractors of America has lingering questions. While the Energy Department is mandating new efficiencies, the department doesn’t seem to be reaching out to help contractors understand everything that will be involved with the changes.
“New minimum efficiency standards for residential HVAC equipment are set to go into effect on May 1, 2013, but the Department of Energy has yet to announce how it plans to enforce these rules,” said Charlie McCrudden, vice president of government relations for the ACCA. “There’s a lot of confusion and uncertainty about how these rules will be implemented and the compliance date is only months away.”
In December 2011, the government announced a public comment period on the regional standards. That public comment period closed on Feb. 6, 2012, and according to McCrudden, the agency received “numerous comments from various stakeholders.” However, there has been little word back from the agency.
“The statutory deadline for DOE to complete the rulemaking on regional standards enforcement is late January 2013,” he said. “ACCA is concerned that as of mid-October, DOE has yet to release a notice of proposed rulemaking and that there is inadequate time remaining to complete all the necessary steps before the deadline. Indeed, the compliance date is May 1, 2013, so even if the DOE met its late January deadline it would leave only three months for the industry to prepare.”
As the ACCA continues working to clear up the confusion over the regional standards, the association will also be pushing for legislative reforms throughout 2013. Several of those legislative goals have to do with taxes — reducing the tax burden on contractors and providing tax credits for consumers.
Representatives in Congress introduced the Home Energy Savings Act, which ACCA is supporting. The bill would extend tax credits for homeowners who make efficiency improvements, such as installing higher-efficiency furnaces, air conditioners or heat pumps. The credit would stay at its current rate of $500, which a homeowner can claim, but would then go up to $1,000 in 2014 and become permanent.
“ACCA is supporting the passage of … the Home Energy Savings Act, to encourage job creating energy efficient retrofits that help homeowners use less energy and spend less money on their utility bills, all while reducing carbon emissions,” McCrudden said.
ACCA is also supporting tax incentives that will keep small business stay profitable.
“Critical to economic growth and job creation is the extension of nearly 100 expired and expiring tax incentives that helps small business owners invest in their companies,” McCrudden explained. “During the lame duck session or shortly after convening in 2013, Congress must pass a long-term tax extenders package to send strong signals to the business community.”
The association wants to see tax cuts signed by former President George W. Bush extended for all income levels and not just for those making less than $250,000 a year. McCrudden said this will benefit small businesses that file taxes with a 1040 tax form or as an individual.
ACCA will also continue to work on repealing the estate tax, which taxes property after a person’s death. This can be complicated when contractors try to leave their businesses to family members. In some cases, a business needs to be sold because the family members can’t afford the taxes that must be paid after the owner’s death.
“Most ACCA member companies are family-owned businesses that do not have the resources devoted to estate tax planning,” said McCrudden.
Finally, ACCA will be monitoring the new federal health care law for its members. In 2013, 15 new provisions will go into effect under the Patient Protection and Affordable Care Act, aka Obamacare. The ACCA opposed the bill when it was introduced and joined small-business coalitions urging Congress to go back and start over on health care reform.
But now that the bill is law, business owners will need to be aware of the health benefits that employers must offer. McCrudden said that states are working to finalize these benefits in time for the 2014 deadline. This is also the same year that the “individual mandate” portion of the law goes into effect. With a few exceptions, individuals must have some kind of health insurance or face a penalty. That penalty comes in the form of an extra tax.
With all of the changes quickly approaching, from regional standards to the tax uncertainty, many contractors still seem optimistic.
Each month, the ACCA takes a survey on how its members see short-term growth. This survey, called the Contractor Comfort Index, assigns a number. Any number above 50 means contractors are anticipating more business. The index has not dropped below 50 and numbers have been trending higher in 2012 than they were in 2011. If it stays on its current track, business growth could be on the way for contractors next year, the association said.
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