Joe Weisenthal: If I'm a construction worker working on a Skyrise or something. And I am not wearing my helmet and I fall off a 60 storey building, I would be dead. But let's assume that I get injured.

Tracy Alloway: Probably be dead.

Joe Weisenthal: I would probably be dead. All right. A three storey building. Yeah. Okay. One story. Okay. But I'm not wearing my helmet. Even though my employer says I should be wearing a helmet, and then I, you know, file a claim. The absolute liability rule basically says that you can't divide blame between the company and the worker. Is that right? So I'm instead of being 90% at fault for my own injury because I wasn't wearing a helmet and I got a head injury. The company is now 100% at fault.

Tracy Alloway: That's absolutely right. And in other states, they do comparative negligence, and it's really driving up the cost of insurance. So much so that insurers don't even want to write insurance in New York anymore.

Joe Weisenthal: Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway: And I'm Tracy Alloway.

Joe Weisenthal: So Tracy, everyone just like going to affordability these days is the cost of living and all that stuff. But I think, you know, there's all kinds of things you can do and whatever. But it seems like one fundamental thing, which I think is probably true is whatever we're talking about, whether it's building infrastructure for public transportation, whether it's building offices, whether it's building houses, like there's various costs involved. But one is like just the cost of construction and the cost of construction is very high. It's hard to imagine affordability improving much on anything. Right?

Tracy Alloway: So for I yes, absolutely. I can't really debate that point. But it does seem like construction is there's like one area where so many different things come into play. So you have the cost of basic materials which have gone up, especially since the pandemic. You have the cost of labor, which is also gone up since the pandemic. You have the cost of insurance. Yeah, which has also gone up since the pandemic. You have regulations which we've done many, many episodes about the added costs from the permitting process for various things. It just seems like it's a bucket where you can throw all these different factors in and then get this. I kind of like reinforces itself and just makes it even more expensive.

Joe Weisenthal: Yeah, totally. And then, you know, you got you sort of hit it with the insurance, but also just like cost of financing. Right. Because like as interest rates go high. That financing that too. That's a big bucket. It's a big bucket. And like we know that construction is an area across the economy, not just in New York City. Where we talked about it with residential housing, there hasn't been a lot of productivity growth. Right? So like there's been like no productivity growth, according to at least one paper I read, I think it was a Richmond fed paper. I will have to go back and check. But it's a really unusual industry in the sense that you haven't actually seen, you know, we don't have robots building houses. We don't have, robots building houses yet. So I don't know, you know, I think we need to learn more.

Joe Weisenthal: Well, I'm very excited to say that we really do have two perfect guests today. We're going to be talking about the high cost of construction for more infrastructure and stuff like that. In New York City, we're going to be speaking with Elizabeth Crowley. She's the president and CEO of the Building Trades Employers Association, also known as BTEA. As well as Michael Capasso. He is the president and CEO of CAC industries, Inc.. So, Elizabeth and Michael, thank you so much for coming on Odd Lots.

Elizabeth Crowley: Thank you for having us. Yeah. Thank you, Joe and Tracy. We are grateful for the opportunity to talk today. You know, I represent, over 1200 contractors in the BTA who are building our skyscrapers, our subways, building commercial buildings, hospitals, schools, about $65 billion worth of work annually.

Michael Capasso: Thank you, Joe and Tracy. She she's, public works heavy highway contractor based in New York City. In Queens. We work for the public agencies, Port Authority of New York, Department of Design and Construction, Department of Environmental protection. MTA. Amazing.

Joe Weisenthal: Okay, let me ask the first question. Let's just get it out of the way. But, you know, your organization represents unionized workers, and I think your company is also unionized workers. A lot of people are going to hear a high cost of construction in NYC and immediately go to the union factor. What is your response to that?

Elizabeth Crowley: Well, our, members are employers, so they're they're really businesses. We're a business association, and our members are employing over 100,000 workers. And, we're proud that we're union contractors. You know, we're the good guys. And there are a lot of nonunion contractors out there that are racing to the bottom. We're paying for benefits and wages. And, you know, that's just part of the cost of construction. And really, what we're looking at doing is reforming costs that are more control about, you know, the costs, the hidden costs that go into construction, such as construction insurance.

Michael Capasso: Yeah. I mean, I would say typically labor ranges 30 to 35% of the total construction cost. But getting back to your original statements about union, and sometimes people think that raises the cost of construction, I would actually take the counterargument to that. All the public works contracts in New York and the utility contracts are subject to the city or the state prevailing wage laws, which the unions rates are in line with, labor Law 220, which are in the city contracts, was the wages and benefits you have to pay the employees. So it's not the union wages that are, costing too much money. They're in line with all the rules and regulations of the city and state.

Elizabeth Crowley: But we have a mayor that wants to build more abundantly. Wants to cut the time it takes to build. So the land use process from two years down to under six months, and we support that. And the stars are aligning also with the governor. She's, in her budget, going after environmental review. I mean, environmental review should only take a few months. You can see that process sometimes take well over a few years. Some, bad cases, five years. And so what, we're doing here, as, an industry leader, the BTA, we're looking to reform insurance costs so that we can not only build more abundantly, build faster, but bring down the cost. And this is a substantial cost. We found out from a recent report that nearly 10% of construction costs are wasted, in New York, as opposed to any other state, even expensive states like California. The cost of insurance is only about 2% for the total project cost, where we're spending upwards of 1,012%.

Tracy Alloway: I definitely want to talk about insurance, but you said something interesting there that just reminded me you said delays add to the cost pressure. This might be a dumb question, but why is that? Because I think back to like my own home construction projects. If I have a contractor and he's, you know, he says it's going to take six weeks, but then he gets caught up on another project and ends up taking eight weeks, that the cost usually doesn't go up. It's just frustrating for me because I have to live in a construction site.

Michael Capasso: There could be design errors or omissions in the, in the bid documents. Okay. So when you actually go out to commence construction and do your preliminary work, the drawings don't match up with actual field conditions, which then result in changes to the contract. And that process can be very lengthy. While those delays are being incurred, contract or are then experiencing indirect overhead costs that are assigned to the project? Well, no productive work. Explaining that one of these indirect overhead. Costs project managers, project supervisor and safety directors, quality assurance personnel, all sorts of. So their their salaries and their fees continue to run. You can't reassign them to another project while they're waiting.

Tracy Alloway: But when you mentioned site reviews, is there something unique or sort of inherent about the way New York City is laid out and built and its geography, that also makes it more expensive? I'm thinking, like in Manhattan, obviously we have crowded buildings in some of Manhattan on reclaimed land. It's mostly an island with few ins and outs. Right? So I imagine there are some restrictions on how much material you can actually get into the city. Does it just the physicality of the city make it more expensive?

Michael Capasso: Yeah, all that's built into the contract costs. So when we're getting vendor quotes for different types of materials that will go into a construction project, most of the manufacturing base is not within the five boroughs, right? So it's coming either from upstate out on Long Island, new Jersey, maybe Pennsylvania, southern new Jersey. You have the cost of that transportation into the five boroughs. Right? So this if you're a vendor who's manufacturing somewhere in central Jersey, well, you probably can make multiple deliveries within the state of new Jersey, where maybe that same freight carrier can only make one delivery a day into the five boroughs.

Joe Weisenthal: All right, can we let's get to insurance and all of that stuff. You even brought us a nice report. Reading. Material scaffold law, economic impact, which evidently, even though on the cover of the report has a picture of a scaffold, is not about scaffold. Not just about sky. Yeah, not about scaffold per se. Per se, but. What is the scaffold law and why is this like an important priority of. Yours?

Elizabeth Crowley: Well, like, if, a worker was to fall off the scaffold, then the scaffold law would apply, and it's to any, height related injury. A New York contractor, New York City contractor is held 100% liable. And in 49 other states, it's comparable negligence. So what we found through that economic impact study was that every hundred million dollars that is wasted on frivolous claims, when you look at reinvesting that into the economy, there's $140 million output and that it amounts to about $55 million in wages and over 600 jobs.

Joe Weisenthal: So just so we understand the difference between comparative negligence and absolute liability. So if I'm a construction worker working on a sky rise or something, and I am not wearing my helmet and I fall off a 60 story building, I would be dead. But let's assume that I get injured. Probably be dead. If I would probably be done. All right. Three story building. Yeah, okay. One story. Okay. But I'm not wearing my helmet. Even though my employer says I should be wearing a helmet, and then I, you know, file a claim. The absolutely liability rule basically says that you can't divide blame between the company and the worker. Is that right? So instead of being 90% at fault for my own injury because I wasn't wearing a helmet and I got a head injury, the company is now 100% at fault.

Elizabeth Crowley: That's absolutely right. And in other states, they do comparative negligence. And it's really driving up the cost of insurance, so much so that insurers don't even want to write insurance in New York any more.

Michael Capasso: So I mean, there's zero purchasing power. Contractors make a significant investment in safety. But when we go to renew our insurance every year and the large insurance carriers look at what this, this market for them is considered one of the or the least favorable market to right insurance, so much so that carriers don't even want to write insurance in this market anymore. And if they do, deductibles are really high. Rates are really high. So now contractors carry the cost of those deductible payouts in their bids, which goes into these public works bid numbers.

Elizabeth Crowley: So New York is the only city or only state city state that still has this law in place. Is that right? Yes. What happened in other states when we saw it go away? So the last state to reform the so-called staff scofflaw absolute liability standard was Illinois in 1995. An interesting thing in Illinois. Their safety, the number of fatalities declined after they put a comparative negligence model. In New York for Scott, for lost, the bodily injury claim settlements for scaffolds are six and a half times the average of other claims settlements.

Joe Weisenthal: So if everyone agrees that this is an antiquated law, who's actually standing in the way.

Elizabeth Crowley: You have some, trial lawyers, and they really it is a catch count for the trial. But we have a real opportunity. Not just because we have this economic impact, report that shows us exactly how much we're spending because government leaders are finally talking about the fraud and abuse that's happening. One insurance company, Tradesman Insurance, they filed five different Rico cases in recent years. They say that because they were able to get so many claims dropped by showing the fraud that there were bad actors, they saved over 2 billion dollars.

Joe Weisenthal: Michael, you mentioned AI. So now I have to ask, you know, we we dug in a little bit into construction productivity at the beginning of this conversation. And, you know, I think construction is largely done now as it was probably like 20 or 30 years ago. But how confident are you that it's going to actually stay that way forever?

Michael Capasso: I think so. And look, I don't think it's going to replace the workforce. AI is in replacing employees. But employees who use AI will replace the employees who aren't. We at our offsite strategy session last week and one of our quarterly priorities, yeah, is all around implementing artificial intelligence in our processes and workflows. So really, how can we get information sooner. I mean, I have friends who have robots that can tie rebars now with wire, right?

Elizabeth Crowley: Interestingly enough, you know, I mentioned Zurich earlier is Zurich Insurance will only, insure a project in New York if there are cameras watching. Now, they use AI after a day's work to study any movement that was dangerous. It's for surveillance to stop fraud and abuse from happening was really to correct workers to and reduce risk.

Joe Weisenthal: Michael. Elizabeth, thank you so much for coming on. I'd love those. A lot of fun. Thank you.

Tracy Alloway: Thank you. Yeah, that was super interesting. It was great. Tracy. That was a fun conversation I like it felt like a re learned about the city in some way. You know what I'm saying? I learned a lot about absolute liability.