How to Navigate Contractor Shortages in the Energy and Power Industries

How to Navigate Contractor Shortages in the Energy and Power Industries
January 29, 2024 23 mins

How to Navigate Contractor Shortages in the Energy and Power Industries

How to Navigate Contractor Shortages in the Construction, Energy and Power Industries

Taking a new approach to talent management and planning for worker shortages can help businesses in the energy and power industries build greater operational resilience.

Key Takeaways
  1. A labor and skills shortage in the energy and power industries is presenting real issues to the start, completion and operation of many current and future projects.
  2. For businesses relying on contractors — and the contractors themselves — the labor shortage demands a new approach to talent hire and retention.
  3. Better workforce management and skills-based hiring are vital, as are better use of technology and more equitable risk sharing on projects.

A global shortage of talent and labor is threatening to restrict growth across a wide range of industries, particularly in energy and power. This is where the start, completion and operation of many current and future projects around the world is at risk.

The construction sector will require an extra 225,000 workers to meet demand in the UK alone.1 In the U.S., the problem is even more acute, with over 342,000 additional new workers needed in 2024 — on top of normal hiring — according to the trade association Associated Builders and Contractors.2

Much of this demand is driven by the energy transition, with the International Renewable Energy Association recently estimating that there are 12 million people employed in green jobs in the renewables sector.3 But to achieve renewable energy targets set for 2030, that figure will rise to 38 million skilled people, revealing a significant increase in contractors and talent needed. 

For businesses relying on contractors — and the contractors themselves —  the labor shortage demands a new approach to talent hire and retention, spanning areas like pay, health and benefits. This involves the development of future-proof, skills-based talent management practices, the introduction of better workforce management, a review of how technology and automation can help and the implementation of improved risk mitigation to allow for possible contractor shortages.

The Construction Industry Talent Drain

Construction has traditionally struggled to recruit talent. After the Global Financial Crisis in 2007-2008, many people left and construction firms have had a hard time bringing them back. On top of the Boomer generation (born between 1945 and 1960) retiring, today’s industry demands a whole new skillset ranging from the use of technology and robotics, to the understanding and adoption of fast-changing regulations and building practices. 

Similarly in energy and power, a rapid build out of renewables — with the world on the path to net zero by 2050 —  is stimulating huge investment in areas around renewables and technologies like green hydrogen and carbon capture. There is also continued investment going into the traditional energy sector. All this activity puts a strain on the labor market and adds significant cost to projects, especially if people are in high demand and short supply.

Turning to Technology for Long-Term Workforce Management 

While paying salary premiums, sign-on bonuses and other perks to get talent through the door may be necessary to deliver on obligations, it is not ideal. Doing so will raise the cost base of projects and spark challenges around internal pay equity and pay parity. Even further, it only serves as a short-term solution if there are simply not enough people in the market or costs become prohibitive. Businesses must look for other solutions. One way of solving the issue lies in the use of technology, which can improve productivity and performance, leading to a more effective deployment of the existing workforce.

When it comes to technology, however, the construction industry has historically not been particularly advanced in terms of data collection and management. This reality is beginning to change, as firms turn to building information software with digital data collection on site to provide businesses with the ability to analyze delays and implement efficient scheduling for better workforce management. This not only speeds up processes and helps contractors complete more projects, but it also creates availability to bid on new ones. 

Skills-Based Talent Management

There is also a need for more skills-based hiring. The construction industry has long been focused on the years of experience potential recruits have and how many projects they have worked on. However, many of the skills they now need are focused on familiarity with data, financial models and skills in the green transition. Organizations must develop alternative solutions to fill the skills gap. This could include attracting talent from different sectors or exploring their own businesses for talent or transferrable skills. A short-term solution could be to look at  existing business areas that have a high level of alignment with the areas that require talent and opt for increased internal mobility to fill these gaps.

To develop a future-proofed, skills-based talent management process, consider the following:  

  • Benchmarking: Assess the current workforce to understand what skills are in the organization and where they sit.
  • Assessment/design: Understand the skills required now to complete projects and achieve goals. Then determine the skills needed to drive future business strategy. Use this information to create a skills taxonomy.
  • Workforce planning: Determine which skills to buy, build or borrow.
  • Reskilling: Reskill to fill pivotal, in-demand roles rather than hire skills on the open market. Deploy large-scale reskilling initiatives to build capacity across the workforce and deliver on business goals.

Attracting a more diverse pool of candidates is also important. Historically, training for the most specialized roles could take many years. And at the time, employees more frequently stayed with their employer for the long term, whether for career reasons or attractive benefit packages. In-demand sectors require wider talent pools and more transferable skills. Employers should look at the retention and career opportunities they give to staff, while still ensuring they are suitably qualified and experienced to fulfil critical infrastructure roles. If businesses cannot resource internally, they often look to contractors, but these are pulling from the same talent pool.

This means businesses need to focus on their purpose, brand, culture and the impact they can have on the world to find and compete for talent. They should also aim to remove bias and historical norms to attract more gender and ethnically diverse candidates.

Worker Shortages and Insurance

In addition to taking direct measures such as these to solve — or at least ease — the contractor shortage, the construction, power and energy sectors also need to consider other factors, such as their insurance programs and the added risks of not having sufficient human resources. For example, contractor delays may cause project delays, impact repair times and have implications on downtime and revenue, resulting in larger business interruption losses. The shortage of contractor availability is potentially pushing up prices and, in some instance, lowering the quality of repair and installation works. 

Insurers are starting to ask whether clients have enough people to deliver the project and question the experience levels of the sub-contractors they use. This can be particularly relevant when there are multiple similar projects in the same region. For example, electricity transmission projects are a key enabler for a move to increased penetration of renewables into the electricity mix. In some cases, transmission system operators will likely have to deliver multiples of what has been delivered in the recent past. This puts a huge strain on the supply chain, as well as demand for labor to construct, and ultimately operate and maintain, the assets. 

Quote icon

The lack of contractor availability could mean that green transition projects will be delayed because of cost increases making project economics less attractive.

Mark Potter
EMEA and UK Power & Renewables Industry Vertical Leader

Adopt a More Collaborative Approach

All these factors place more attention on the contract stage, namely who carries the risk of a project not being completed on time due to worker shortage. 

Increasingly, the construction sector is seeing a more collaborative type of contracting, including the alliance contract model, which shares the risks and benefits more equitably. Whatever the structure, the role of the insurance broker can help guide clients to make sure they are not taking on an unreasonable amount of risk, especially if they are being asked to cover certain areas where insurance protection might not be available. 

This is why it’s important to engage with insurance partners early during any contract negotiations to fully understand where the bottlenecks might be and determine any insurance implications. This will ensure there is adequate cover in place for potential longer lead times due to contractor shortages. 

Those businesses managing operational sites like refineries or power stations should also be factoring possible worker shortages and supply chain issues into their incident response plans. Should something go wrong, the availability of spare parts and available contractors to rectify the issue is critical. 

Reputations at Stake

While the talent market in energy, power and construction has never been more competitive, there are steps businesses can take to minimize the impact of contractor shortages in the long term. This includes developing a talent strategy around retaining and attracting talent, which in turn will support a firm’s ability to deliver on projects and energy and green transitions goals. 

Failure to do so can delay key projects, resulting in reputational risk and cost implications for years to come. 

1  https://bdcmagazine.com/2023/06/critical-skills-shortages-in-uk-construction-threaten-major-infrastructure-projects/ 
2  https://www.abc.org/About-ABC/About-ABC 
3  https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2021/Oct/IRENA_RE_Jobs_2021.pdf?rev=98960349dbab4af78777bc49f155d094 

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This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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