How Insurance Costs Make NYC Construction So Expensive

It's hard to imagine New York City becoming significantly more affordable as long as it remains so expensive to build things. Whether we're talking about new housing or transportation, the city is a famously expensive place to do construction. There are reports of subway elevators costing $100 million per station. Public bathrooms end up costing millions as well. One driver of costs is insurance, which is a major national issue, but particularly acute in NYC, with costs as a share of a given construction project having surged over the decades. So what's the story? On this episode we speak with Elizabeth Crowley, the president and CEO of the Building Trades Employers' Association, as well as Michael Capasso, the president and CEO of CAC Industries, a civil engineering firm which works on various heavy construction projects in the city. We talk about regulations that push the cost of operation higher, along with other factors such as project delays and labor availability. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:08Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:49Speaker 02

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• 2:28Speaker 03

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:44Joe Weisenthal?

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

• 2:49Tracy Alloway?

  And I'm Tracy Alloway.

• 2:51Joe Weisenthal?

  So Tracy, everyone is like very into affordability these days and 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 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 if the cost of construction is very high, it's hard to imagine affordability improving much on anything.

• 3:22Tracy Alloway?

  Right.

• 3:22Joe Weisenthal?

  Does that seem fair?

• 3:23Tracy Alloway?

  Yes, absolutely. I can't really debate that point, but it does seem like construction is this 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 has also gone up since the pandemic. You have the cost of insurance, 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 this bucket where you can throw all these different factors in and then get this kind of like reinforces itself and just makes it even more expensive.

• 4:01Joe Weisenthal?

  Yeah, totally. And then, you know, you sort of hit it with the insurance, but also just like cost of financing, right? Because like as interest rates go high, that compounds.

• 4:08Tracy Alloway?

  Yeah, I forgot financing. That too. It's a big bucket.

• 4:10Joe Weisenthal?

  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?

• 4:20Tracy Alloway?

  Yeah. There's been like no productivity growth.

• 4:23Joe Weisenthal?

  Yeah.

• 4:23Tracy Alloway?

  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 yet.

• 4:33Joe Weisenthal?

  We don't have robots building houses yet. So I don't know, you know, I think we need to learn more. You know, and sometimes you see these viral statistics. They're like, oh, the MTA spent $60 million on building an elevator or cost $3 million to build.

• 4:47Tracy Alloway?

  No, 7 million installing those plastic fins on the subway turnstiles. I'm not even sure that qualifies as construction, but 7 million.

• 4:54Joe Weisenthal?

  Millions to build a bathroom, which is not fun if like you have little kids. All, all kinds of things. Anyway, we should do more about why it costs a lot to build and maybe whether there's something that can be done about it.

• 5:05Tracy Alloway?

  Absolutely. Let's do it.

• 5:06Joe Weisenthal?

  Well, I'm very excited to say we really do have two perfect guests today. We're going to be talking about the high cost of construction, 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.

• 5:31Speaker 05

  Thank you for having us.

• 5:32Speaker 06

  Yeah, thank you, Joe and Tracy. We are grateful for the opportunity to talk today. I represent over 1,200 contractors in the BTA who are building our skyscrapers, our subways, building commercial buildings, hospitals, schools, about $65 billion worth of work annually.

• 5:52Joe Weisenthal?

  And what's, tell us about CAC Industries. What's your background, Michael?

• 5:56Speaker 05

  CAC is a public works, heavy highway contractor based in New York City and Queens. We work for the public agencies, Port Authority of New York, Department of Design and Construction, Department of Environmental Protection, MTA, Battery Park City.

• 6:12Tracy Alloway?

  Did you see the highlight as well?

• 6:14Speaker 05

  Yes.

• 6:14Tracy Alloway?

  That's amazing. Amazing.

• 6:15Speaker 05

  How'd you know that?

• 6:16Tracy Alloway?

  I do some research before I come on this podcast. I know a lot of people don't think so, but you know, a little bit. Okay, let me ask the first question. Let's just get it out of the way, but your organization represents unionized workers and I think your company is also unionized workers. A lot of people are going to hear high cost of construction in NYC and immediately go to the union factor. What is your response to that?

• 6:42Speaker 06

  Well, our members are employers, so 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 non-union contractors out there that are racing to the bottom. We're paying for benefits and wages and that's just part of the cost of construction. Really what we're looking at doing is reforming costs that are more controllable. You know, the costs, the hidden costs that go into construction, such as construction insurance.

• 7:14Joe Weisenthal?

  Definitely want to talk about construction insurance and all this stuff. But again, just on this point of like, how much is quote hidden cost versus how much is just labor? Maybe, Michael, you could like sort of break down, or either one of you, break down how we should think about like, in a given project, when people see these big numbers, how much should people think about the labor component specifically versus measuring these, these other costs?

• 7:38Speaker 05

  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 counter argument 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, those are 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.

• 8:20Speaker 05

  When we think about union wages and why maybe there's this misconception, yes, compared to people that are not paying union wages, these people are paying good, honest wages and benefits for the work they put in during the day. There are people who cut corners who don't pay that fair market rate, which is where that kind of concept comes from.

• 8:40Speaker 06

  And look, there's a lot of cost to the delays. The delays. Yeah, when we look at our government leaders now, we have a new mayor in the city of New York who believes that we should pay baristas $40 an hour. So when Mike talks about the cost of union labor, it's not much more an hourly rate. And these are inherently dangerous jobs. 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. You know, she has ambitious plan to build a new subway or railway from Brooklyn to Queens. We haven't built like that in like over 100 years.

• 9:25Speaker 06

  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,

• 10:09Speaker 06

  where we're spending upwards of 10, 12%.

• 10:13Tracy Alloway?

  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 says this is going to take six weeks, but then he gets caught up on another project and it ends up taking eight weeks, the cost usually doesn't go up. It's just frustrating for me because I have to live in a construction site. Also, I want to say my contractor knows I have a podcast. He's a very good contractor. Delays rarely happen, so thank you very much. But why would that cause additional expenses?

• 10:49Speaker 06

  Well, just sheer time. I mean, what can be controllable? Certainly, the land use process. Before representing the BTA, I was a New York City council member. So I served for nine years. And a quick case, by the time it goes through the local community board, the borough president's office, and then comes to the council, with the best lobbyists, happens within two years. And so if the mayor could get that narrowed down and the council speaker is also pledging to reduce the time to a window of less than six months, that's 25% of the average. And so that's significant time saved. That's something that we should be able to control. And if our government leaders want to control it, that's real reform.

• 11:29Joe Weisenthal?

  I'm not surprised at all to hear about like delays, particularly environmental review. People like talk about this. Let's actually talk about it a little bit more granularly. So like you get like some project that you want to do. I don't know, maybe something with a highway or something like that. And you have some timeframe or some window that you think like you could get this done. And then we always hear, oh, delays, right? What drives the delays? Who intervenes? And what are the processes by which like these calendars get very extended?

• 11:56Speaker 05

  There could be design errors or omissions in the bid documents. 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. So now you have to document the changes. You then, as a contractor with one of the public agencies, need to negotiate those changes, then get it approved. Depending on what the agency is, it could be with the controller's office in the city of New York, or if it's at the MTA with the board or whoever approves it at the MTA. And all those steps take time. While those delays are being incurred,

• 12:37Speaker 05

  contractors are then experiencing indirect overhead costs that are assigned to the project while no productive work.

• 12:44Joe Weisenthal?

  Explain that. What are these indirect overhead costs?

• 12:46Speaker 05

  Project managers, project supervision, safety directors, quality assurance, personnel.

• 12:52Joe Weisenthal?

  So their salaries and their fees continue to run?

• 12:56Speaker 06

  You can't reassign them to another project while they're waiting.

• 12:59Speaker 05

  Correct. They're assigned to a project. You don't know when those processes will come to an end. So it could go very expeditiously. It could be delayed longer depending on how complex the changes are. So that project staff sits there, in theory, underutilized. And then, as is our contractual right, we will file a claim with that contracting agency for those additional costs. Coupled with that, and I don't know how these costs are calculated, the agency internally also has those same costs for the people on those projects, whether in-house staff or through third-party consultants, a combination of the two. So those costs all get compounded while these changes happen.

• 13:41Speaker 06

  One of the last projects I funded as a council member was to pay for turf in a park, like just like a running athletic field, a replacement, simple replacement. It was funded fully in the budget. I left the council in 2017. They only cut the ribbon on that project being fully completed just in 2024.

• 14:01Joe Weisenthal?

  So what happened in those seven years?

• 14:02Speaker 06

  Like, what are they studying? Like, you buy the turf, you stick it on the ground, you're done, right?

• 14:06Joe Weisenthal?

  How would you describe what happened in those seven years?

• 14:08Speaker 06

  The Parks Department said it was going to be a $4 million field replacement. Then the contractor came out to the site. There was a lot of surface repair underneath that needed to happen, underlying, you know, just uneven surface or something like that. They sent it back. It had to go back before Design Review Council. I mean, it really, it's something so small and so simple that shouldn't even cost as much as it does, gets the leave a far too long. And we need real reform in city government. I believe government leaders are finally addressing this as an impediment to building abundantly, really.

• 14:44Tracy Alloway?

  Yeah, so this just reminded me, this is something else I wanted to ask, 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. Is some of Manhattan on reclaimed land? I can't remember now.

• 15:04Speaker 05

  Well, Battery Park City is all reclaimed land.

• 15:06Tracy Alloway?

  There we go. Reclaimed land, and 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 just the physicality of the city make it more expensive?

• 15:20Speaker 05

  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.

• 16:00Joe Weisenthal?

  By the way, Ken Burns's brother, he made a great documentary about New York. It's like a 10-hour, 11-hour documentary, and there's a whole section on the speed with which steel got from the Bethlehem Steel Mill to build the Chrysler Building or something like that. It's just unbelievable logistics. I imagine it would be a little bit slower today.

• 16:36Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee, so search Barclays Brief wherever you get your podcasts.

• 17:02Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 17:44Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 18:25Joe Weisenthal?

  Let's get to insurance and all of that stuff. You even brought us a nice report.

• 18:30Speaker 06

  Reading material.

• 18:31Joe Weisenthal?

  Scaffold law economic impact, which evidently, even though on the cover of the report has a picture of a scaffold, is not about scaffolds. Not just about scaffolds. Not about scaffolds per se.

• 18:42Speaker 06

  Per se.

• 18:43Joe Weisenthal?

  But what is the scaffold law and why is this like an important priority of yours?

• 18:47Speaker 06

  Well, look, 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, a 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 $100 million that is wasted On frivolous claims, when you look at reinvesting that into the economy, there's a hundred and forty million dollar output. And that amounts to about fifty five million dollars in wages and over six hundred jobs. And we look at big projects like the president wants to build Penn Station. That's estimated to be seven billion dollars in cost.

• 19:32Speaker 06

  If we were to put comparative negligence on that project, we can save over five hundred million dollars. It's half a billion dollars.

• 19:39Tracy Alloway?

  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'm not wearing my helmet and I fall off a sixty story building, I would be dead, but let's assume that I get injured.

• 19:55Speaker 05

  You'd probably be dead.

• 19:56Tracy Alloway?

  I would probably be dead. All right. A three story building. Yeah, OK.

• 20:00Joe Weisenthal?

  Or one story.

• 20:00Tracy Alloway?

  OK, 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 instead of being ninety percent at fault for my own injury because I wasn't wearing a helmet and I got a head injury, the company is now one hundred percent at fault.

• 20:25Speaker 06

  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.

• 20:37Speaker 05

  The market's limited.

• 20:39Joe Weisenthal?

  Yeah, tell us about the insurance market for you, because this is a good theme for us.

• 20:42Speaker 05

  So, I mean, there's zero purchasing power. Contractors make a significant investment in safety. There's, I promise you, there's nothing more important to the contracting community than for every employee to go home safe to their family, loved ones, or whoever that may be at the end of the day. I know everybody cares about that. But when we go to renew our insurance every year and the large insurance carriers look at what this market for them.

• 21:13Speaker 05

  Is considered one of the or the least favorable market to write 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 on a percentage base of revenue, we're talking about five, six, 10x other states with much higher deductibles. So now contractors carry the cost of those deductible payouts in their bids, which goes into these public work bid numbers. So that's where you exponentially see the higher cost of construction. But it actually, taking it a step further, all the subcontractors and vendors

• 21:56Speaker 05

  that are going to be working on our jobs also have the same problem. And typically, the subcontractors are smaller contractors by either volume or revenue or employees. So they're typically paying a higher premium on a percentage basis. So those numbers are also baked into our contract pricing.

• 22:16Speaker 06

  Yeah. Our report, really, when we say contractors in New York are paying 10% of total construction costs to insurance, that's 500% more than other states. Where in other states, it's only about 2%. And then, as Michael mentioned, the subcontractor, they get hit the worst. On average, if you're a concrete subcontractor or a steel painting contractor, you're paying 15 to 20% of your total volume of work, and it's unsustainable.

• 22:44Tracy Alloway?

  So New York is the only city or only state, city, state, that still has this law in place?

• 22:50Speaker 06

  Yes.

• 22:50Tracy Alloway?

  Is that right?

• 22:50Speaker 06

  Yes.

• 22:51Tracy Alloway?

  What happened in other states when we saw it go away?

• 22:54Speaker 06

  So the last state to reform the so-called scaffold law, absolute liability standard, was Illinois in 1995. So this is 140-year-old law.

• 23:07Speaker 06

  It's antiquated, it's broken policy. Even both the Democrats and the Republicans, when you speak to them one-on-one, they know this is fail policy. And the interesting thing, Illinois, the number of fatalities declined after they put a comparative negligence model in. So those that say it's a, you know, you have some trial lawyers, then they really, it is a cash count for the trial law.

• 23:34Tracy Alloway?

  That was gonna be my next question. So if everyone agrees that this is an antiquated law, who's actually standing in the way?

• 23:39Joe Weisenthal?

  We're definitely gonna get an email after this episode, and they're like, your guests are totally biased. It's gonna be from some lawyer.

• 23:45Speaker 06

  Sure.

• 23:46Joe Weisenthal?

  And they're like, come on and do a follow-up. But this raises the question, okay, the law has been around for over 100 years. So why not? I mean, like, I can understand that that might raise, yes, okay, New York is gonna be a higher-cost state. That doesn't explain the surge, per se. Has something changed in the last five, 10, 20 years? I mean, New York used to do a lot more building, or used to build a lot. Has something changed such that the law has more teeth or bites more than it did? I mean, again, you talk about the disappearance of certain insurance carriers. The law existed 50 years ago, right?

• 24:20Speaker 05

  Right. When I was first started my business, a little over 30 years ago, you know, insurance was an add-on on the bid where you didn't really focus about it. We're talking about 1%, 2% of the contract price. And that held true maybe up until even 10 years ago. And in the last 10 years, we've seen a significant rise in the cost of insurance. And I think it directly correlates with frequency of claims, third-party claims, payouts of those claims, and how either a judge or jury awards damages in those cases. There's been well-documented cases of staged construction accidents on sites.

• 25:05Speaker 06

  What Michael said is absolutely true. In New York, for scaffold laws, the bodily injury claim settlements for scaffold laws, six and a half times the average of other claim settlements. The sheer volume has been increased by tenfold. But we're talking in 15 years, and that's why these insurers are leaving. You know, why now? Why do we think 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. You know, our governor and her state of the state, last month, called on insurance reform for the automobile industry. Now, half of the consumers in the state are

• 25:50Speaker 06

  car owners, right? They're driving, they could relate to us paying so much more. But we're paying 50% more in car insurance compared to every other state. But our contractors are paying 500% more. And the governor had touched upon fraud and abuse, just like Mike said. The governor says we need to address that. We need to lower litigation costs. And mind you, these are auto insurance claims that are much, much less than the scaffold law claims. And we need to fix this. We need reform. So this is a step in the right direction. And we're really focused on reform in Washington right now. There's movement there. There's a lot of support on this big federal infrastructure package. That's a part of a surface reauthorization

• 26:32Speaker 06

  transit bill that gets reauthorized every five years. It pays for big projects like a Second Avenue subway, or major roads and highways, bridges. And it's a must-pass bill. And we think that we'll see reform there first. And we're very hopeful that reform will come soon in Albany.

• 26:51Tracy Alloway?

  How would you actually go about reducing litigation costs? Because my assumption is, as long as you're doing like, a jury process, it's going to be pretty expensive unless you go to something like arbitration.

• 27:01Speaker 06

  Yeah, well, the litigated costs, one would say it goes to jury. But all of these insurance companies right now are just afraid to get that far in New York State.

• 27:10Tracy Alloway?

  So they settle pretty quickly.

• 27:12Speaker 06

  One insurance company, Traysman Insurance, they filed five different RICO cases in recent years, probably, I've heard them say that they invested over $16 million to do personal investigations to stop fraud and abuse. And they, 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. And, and the numbers keep growing. And, and one law firm, Subin Associates, that had like 300 different cases dropped, apparently, closed their doors last month. So it shouldn't get to that where insurance companies have to do the reform. This is bad public policy and we need our leaders in Washington and Albany to do reform now.

• 27:57Speaker 05

  It's, I mean, I think it's well documented. It's all public information of just one building or a couple of buildings where multiple claimants from the same building with the same law firm utilizing the same medical practices, filing these lawsuits.

• 28:13Speaker 06

  Yeah, and some of the doctors are losing their licenses and they're barred from workers' comp cases. And so that is reassuring to see action happen and we're reaching a critical mass at this point. So I think that's why now we're hopeful for reform.

• 28:31Joe Weisenthal?

  Michael, can you talk a little bit more about today versus mid 90s? You win a bid with the city or whatever, you have a project. You mentioned back then, insurance was an add-on. Okay, it was 1% or 2%, now it's 10%. But setting aside the price, going out and finding which carrier will take that. Can you just talk about what life was like, I don't know, again, 30 years ago versus today in terms of going out into the market for finding that insurance, available options, negotiations and so forth?

• 28:57Speaker 05

  Yeah, I mean, it was much easier and much more simple 20, 30 years ago than it is today.

• 29:02Joe Weisenthal?

  All right, what'd you do?

• 29:03Speaker 05

  You talked to your insurance broker. They would come back with three or four quotes, all roughly the same. What did you feel comfortable with? You would do your annual renewals. It would be incremental. To a cost of living inflationary adjustments to your annual rate, you signed on again for another year. Now it's a much more detailed thorough process thorough review. How much are you going to raise your deductibles? Where back then deductibles might have been $25,000. I mean, I think we're at 750, 500 or 750,000 now per occurrence. I mean, significant, significant changes. Where now the insurance company will dictate when you're going through your quotes. If you don't raise your deductible, we won't even write your insurance. Where that didn't happen back then.

• 29:47Speaker 05

  So there was much more purchasing power in the contracting community 20, 30 years ago in the marketplace than there is today.

• 29:55Tracy Alloway?

  Yeah, this is what I wanted to ask. So if the scaffolding law goes away, are you confident that new insurance actors would actually come into the market? Because it feels like part of the problem here is a lot of people have exited. So you have limited insurers to actually choose from, which means they now have all the pricing power.

• 30:12Speaker 06

  Yeah, I think the free market will work itself. It's a competitive market right now for the limited that do do business in New York. I was just on the phone earlier today with Zorick, which is a worldwide insurer. And they stopped insuring small contractors and they'll only do big wrap up projects. In New York state, our Department of Financial Services regulates the companies to make sure that they can't charge too much or too little. And again, it's the market. As long as they can prove they can make money here in New York, they'll come back.

• 30:49Speaker 05

  It just dawned on me. One other thing to consider, which sometimes is good for the local contracting community. But also not necessarily good for the overall city of New York. There are contractors based in other states that won't work here because their insurance companies will exclude their policy from working in New York. And then they would have to buy job specific or site specific policies, which are also very uncompetitive rates. So it's easier for them just to stay out of the marketplace that then in theory. Drive down competition, right, from a low cost bid analysis.

• 31:27Speaker 06

  I think, and interesting, you know, to bring it back to what the governor has taken on in her state of the state or in her budget. Auto insurance, you know, we mentioned the trial lawyers and how this is really a catch cow for them. But, you know, they like to paint the insurance companies as the bad actors. But we look in places like Florida, for example, they had a similar no fault auto insurance policy like New York currently has. And they changed the policies there and they've given rate payers double digit refunds. So there is a situation, a scenario where we could see the same for our contractors if real reform happens here in New York.

• 32:05Tracy Alloway?

  Just to be clear, does the high cost of insurance also apply to projects where heights presumably don't come into it very much? So, you know, if you're building a new subway tunnel or something like that, I assume there's probably some scaffolding involved. But like, maybe you're not falling too much.

• 32:22Speaker 05

  You could be standing on a ladder in a sewer trench, six inches up on the ladder. With the ladder secured and the bottom of the hole tied up, all in conformance with OSHA regulations. And if the employee falls six inches to the ground, which typically we all think we would be okay falling six inches. But then some injury arises months later and ends up in a lawyer's desk and the contractors then sued. There'll be some sort of payout and that would fall under the scaffold law. So even though you're not up on the heights of a building, not building a superstructure, that law still applies.

• 33:18Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports. That the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 34:01Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 34:41Joe Weisenthal?

  I find this argument to be very compelling, and the high cost of insurance on a per-project basis in New York City versus every other state, that seems like an issue unquestionably. All that being said, some of the numbers you read about construction processes, okay, let's say we take only 30% for labor, or labor is 30% of the job, and then let's say insurance is 10% of the job. So we have this other part. And when you read about the cost of an elevator in a subway, it seems like even if we knocked off a lot of it for insurance and labor, whatever, it still seems crazy expensive in New York. So can we just talk about, like, are these numbers real? Like, when we see, like, oh, it costs $60 million to build an elevator somewhere. Is that real, or is that clickbait? What's going on there?

• 35:25Speaker 05

  I mean, I don't know where it costs $60 million to build an elevator, but, look, remember, there are subsurface conditions in New York. That you have to deal with, like relocating utilities and gas mains and steam mains and electric, that all may go into the cost of that elevator, but it's really not the direct cost of the elevator. So like when the MTA goes and puts a new elevator in on a corner.

• 35:49Joe Weisenthal?

  Yeah.

• 35:50Speaker 05

  Yes, maybe the cost of that elevator project sounds enormous, and it is for the elevator project, but not all of it is directly tied to the elevator. It's clearing a lane.

• 35:58Joe Weisenthal?

  But other cities have this too, right? Like, I mean, yeah, absolutely. It's not all. There's gonna be real estate acquisition costs and all the issues of materials and everything. But I get the impression that like building an elevator in New York City, like should taxpayers be happy with like, the numbers? They seem very high and they seem out of proportion with what we see in other cities.

• 36:18Speaker 05

  Yeah, I don't know the comparative data.

• 36:20Speaker 06

  Yeah, we are most expensive to build in comparison to other cities like San Francisco.

• 36:27Joe Weisenthal?

  Yeah.

• 36:28Speaker 06

  But it's still very expensive to build there, too.

• 36:30Joe Weisenthal?

  Sure. So what are we paying for? Like, what are these numbers? I mean, again, let's go back to the turf example. Four million dollars for like turf on, let's.

• 36:38Speaker 06

  And you did. And I laughed before when you mentioned the skyscraper, the Chrysler Building and the Bethlehem Steel and how that was probably put together in less than a year, the Empire State Building. And today we're building mega towers that are taking three, four years. And while they're important projects and they're very expensive projects, we were able to do it in such a short timeframe back then. Of course, you save money when you reduce the time. Back to that track, it was in Tunica Park. And it's funny that you mentioned that. But actually, I realized after you spoke about Battery Park and how, you know, that was water before we expanded. That was a swamp land once in Queens, that particular park. And so those are the constraints that we don't think about when we're building

• 37:23Speaker 06

  in New York. It's so hard to find schools, you know, places to build schools. I remember as a council member, just having the most overcrowded school district. And so many sites were contaminated and we couldn't find a good site. It's just these difficult things that happen in such a dense city. And part of the reason it's so expensive to build here.

• 37:43Tracy Alloway?

  Does anyone have any good examples of building like efficiently at not so much cost relatively in New York City or New York State speak, but still to a high standard? Like, an example of a project that was done really well? Michael, surely you should be naming some of your own.

• 38:00Speaker 05

  Yeah, no, we don't have, unless there are major design flaws or errors, I feel like almost all of our projects do go extremely well, right? It's a competitive marketplace. We're the low bidder, right? Typically, when you get the job, which means we're the cheapest priced, the lowest responsible bidder. And more often than not, we don't have these major overruns or changes. They seem to go fairly well.

• 38:29Speaker 06

  And Michael introduced himself as the president of the company, but me and Michael worked together on the mayor's task force for capital reform. And we went up to Albany as part of the reforms two years ago and pushed for progressive design bills or different ways of building projects that New York didn't use and other states used. And that actually decreased the timeline. And you were able to build for less by using these delivery methods. And I think that Shirley Chisholm Park, they just, Mayor Mamdammi cut the ribbon, but DDC is pointing to that project as coming in under budget in a short amount of time that was estimated that it would take to build. So there are ways we could work together, putting our minds together to bring about real reform.

• 39:14Speaker 05

  I think one area that we didn't touch on, which I think is important, I know you probably know the statistics, right? If you look at the counterargument, like if you said the trial lawyers

• 39:23Speaker 06

  Sure.

• 39:24Speaker 05

  to what's driving these insurance costs, you would think if these stricter rules and laws are in place, it would make everything much safer or safer for the worker or less injuries. And do you want to touch on those?

• 39:40Speaker 06

  There's nothing more important than safety. That's a cornerstone of the work that our contractors do. You know, they want their workers to go home as safe as they were when they came to work that day. We're, you know, even focusing on culture on the job site and total wellness. That's important. So we need to continue to be forward thinking and, you know, work together.

• 40:03Speaker 05

  The data, the data set, the results in New York are equal. To other states.

• 40:08Speaker 06

  Oh, on in terms of our rate of fatalities. In fact, New York has a higher rate of fatalities despite this law in comparison to a state like New Jersey or the average in the country. You know, when we have nearly 12 fatalities per 100,000 workers, whereas the national average is under 10. And so we're 20% higher in New York despite having such a strict liability on contractors.

• 40:33Joe Weisenthal?

  Can we talk a little bit about current conditions? So one of the things that we heard a lot in like 2021, 2022, 23, this like intense scarcity of skilled tradesmen and various things, electrical, et cetera. How is that? Is that still a big, is that a big issue, still a major constraint right now, finding available labor?

• 40:53Speaker 05

  I, I think an aging workforce, at least, I mean, without me having any demographic data, just like visual context and we do have an aging workforce. I don't think the younger generations are so inclined to either go to a vocational school or some type of trade school. I would sit here and I, I would tell anyone, I think it would be a great industry with the disruption going on in the world right now.

• 41:20Joe Weisenthal?

  Yeah.

• 41:20Speaker 05

  With, you know, the advent of AI and, and all these jobs.

• 41:23Joe Weisenthal?

  But like for you, like right now, is this, like, what do you think of the various headaches that you have in your life? Is keeping a sort of steady, the available flow of labor that knows how to build things like one of the things that keeps you up at night?

• 41:36Speaker 05

  Yeah, I mean, available flow of labor is one of the things that's kept me up at night since I started my business.

• 41:41Joe Weisenthal?

  Okay.

• 41:41Speaker 05

  We converted to a 100% employee owned company a couple of years ago, so much so that I included the tradespeople, so the collectively bargained employees through the different unions in the city are part of that ESOP.

• 41:54Speaker 06

  That's very unusual and I applaud Michael and his team for doing that. But when we think about workforce needs, many of our contractors that are doing the infrastructure work, like Michael, are experiencing difficulties and often take talent from one another. So ESOP is gonna stop that for sure. But when you look at the commercial. Buildings that are going up, which is more of a private market or residential that is not happening. And we really didn't have a chance to talk much about affordable housing. But that, any of that building is much more likely to be non-union today,

• 42:33Speaker 06

  which is a real shame because a lot of times those workers are not getting paid on the books. More likely, eighty percent of the injuries that happen on job sites are happening on non-union job sites. So we really want to prevent that and help promote union employment as much as possible.

• 42:51Tracy Alloway?

  Michael, you mentioned AI. So now I have to ask, you know, 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 twenty or thirty years ago. And there happened some technological advances like the nail gun. But beyond that, we don't have actual robots that are like putting shingles on our houses and things like that. But how confident are you that it's gonna actually stay that way forever? Because, I mean, LLMs, ChatGPT.

• 43:22Joe Weisenthal?

  I like how you're looking at me like I'm gonna like vibe code. I'm gonna vibe code a robot.

• 43:26Tracy Alloway?

  It's the running joke. It's all Joe's fault. But it came out of nowhere for white collar workers. Could it come out of nowhere for a blue collar?

• 43:33Speaker 05

  I, I think so. And look, I don't think it's gonna replace the workforce. I actually was at a construction conference a couple of weeks ago. And my biggest takeaway is AI isn't replacing employees, but employees who use AI will replace the employees who aren't.

• 43:50Joe Weisenthal?

  Do you see that? Like, like, are there, in your firm, are you getting value from it? Is anyone doing anything with like tech or anything? Is anyone using it for drawing?

• 43:59Speaker 05

  We had our offsite strategy session last week and one of our quarterly priorities is all around implementing artificial intelligence in our processes and workflows.

• 44:10Speaker 05

  So really, how can we get information sooner?

• 44:12Speaker 02

  Yeah.

• 44:12Speaker 05

  So instead of relying on maybe these incumbent software models, taking the data we have and using AI to give us analysis of that data much quicker.

• 44:21Tracy Alloway?

  So not so much the physical process of like putting up drywall, but the planning and preparation.

• 44:26Speaker 05

  That's coming. I mean, I have friends who have robots that can tie rebars now with wire. Right? They've invested in these companies and I'm not utilizing those robots yet, but they're out there. Caterpillar has technology, the heavy equipment manufacturer, where someone can sit, let's call it like, we grew up with a video game, like it looks like a pole position. I don't know if I'm dating myself. And you can operate four different machines, not at the same time, but from one TV screen, four actual Caterpillar machines at four different locations, just sitting in like what I would call an arcade machine.

• 45:04Tracy Alloway?

  Wow.

• 45:04Speaker 05

  With no operator in the seat.

• 45:05Speaker 02

  Yeah.

• 45:06Speaker 06

  Interestingly enough, you know, I mentioned Zorick earlier. Zorick 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. So it's not just like people, you know, believe it's for surveillance to stop fraud and abuse from happening, but it's really to correct workers too and reduce risk. And they've seen that their incidents have gone down significantly and their job sites are much more safer.

• 45:39Speaker 05

  I'm part of a TriVenture group doing the East Coast Resiliency Project on the Lower East Side. It's 1.3 billion dollar project and we're utilizing that exact system. The cameras are located on machines, on poles, and the data gets downloaded every night, analyzed by AI. So not only do we get like near misses or data, but we also use it for training the workforce. So the videos that it captures. To make the job site safer.

• 46:10Speaker 06

  Yeah.

• 46:10Joe Weisenthal?

  What about, again, just about current conditions? What about materials costs? So we know that the cost of everything surged a lot immediately in the wake of the pandemic. You getting any relief? Have the pace of price increases gone slowed at all? Are there any parts? We've talked about like transformers, like various key electrical parts that you can't get easily at any price. What are you seeing right now on just acquisition of materials?

• 46:33Speaker 05

  Yeah, I have not seen prices come down.

• 46:35Joe Weisenthal?

  Okay.

• 46:36Speaker 05

  You know, it's no different when there was like a fuel surcharge, right? If the oil market spiked and every vendor would put a fuel surcharge on deliveries. Somehow those fuel surcharges never go away.

• 46:47Joe Weisenthal?

  What about other, like, just other raw materials? Like other things that are in scarcity that you like have a difficult time finding at all at any price?

• 46:56Speaker 05

  Right now, no. I think we're pretty much getting everything we need. I know COVID and coming out of COVID, there was big issues.

• 47:03Tracy Alloway?

  When you walk into a building like the Bloomberg offices, do you look around and you think like, what a marvel of structural engineering? Or do you think, I wonder what the insurance costs are?

• 47:11Speaker 05

  No, I think I should have done something different in my career.

• 47:16Joe Weisenthal?

  One last thing that you mentioned, and I've read people who like talk about like, you know, abundance, et cetera. They talk about how a lot of like public projects, there's a big consultant element that many aspects of it have been outsourced from the public sector, that these third parties and that that drives up. You mentioned consultants. Does that, does that resonate with you in terms of where you see potential cost bloat and so forth?

• 47:40Speaker 05

  Yeah, I mean, I don't know the value of the consultant contracts, but I can tell you, based on my experience, we used to work on a lot more contracts that were run in-house by the agencies. And now you see a lot of third-party, like resident engineer and inspection services and other tasks that used to be performed in-house that are now performed by third-party consultants.

• 48:04Speaker 06

  And often they're called owners reps. And we'll get complaints from our contractors that owners reps are delaying the project. So they continue to get paid for the project. And that's something where we're interested in seeing some reform too. I've heard of that on more than one type of project. It could, you know, it could be a school being built or a bridge being painted.

• 48:27Joe Weisenthal?

  Michael and Elizabeth, thank you so much for coming on Odd Life. That was a lot of fun.

• 48:31Speaker 06

  Oh, great. Thanks for having us.

• 48:33Joe Weisenthal?

  That was great. Thank you so much. Thank you for having us. We appreciate it.

• 48:35Tracy Alloway?

  Thanks so much. Yeah, that was super interesting.

• 48:49Joe Weisenthal?

  Tracy, that was a fun conversation. I like, it felt like we learned about the city in some way. You know what I'm saying?

• 48:55Tracy Alloway?

  I learned a lot about absolute liability.

• 48:57Joe Weisenthal?

  Yeah, absolute liability.

• 48:58Tracy Alloway?

  That was interesting. Look, I also think the point about delays is very striking to me because again, that would seem to be an issue where you're still paying people to build something, but building it is taking 10 years instead of five years.

• 49:12Joe Weisenthal?

  Yeah, that's huge, especially at a time when interest rates are high because then they compound extra.

• 49:16Tracy Alloway?

  Right. And also, it seems like there's a potential problem of incentives here, right? Like if I am a consultant working on a project and I am still getting paid, but the project's not actually going and I can spend a lot of time, I don't know, pointing out like individual issues and potentially delaying stuff, like that's an incentive problem.

• 49:37Joe Weisenthal?

  Absolutely. I guess I would say I find the point about insurance to be compelling. And the point about like, 49 other states have gotten rid of these laws and they're not actually even making New York a safer workplace. I mean, it would be one thing, I guess, if like New York had like half the accident rate as the rest of the country. And then you say, okay, well, look, like you could point to a law like this and say, this is clearly making, causing everyone to take safety more seriously. If you can't point to that, if every other state has gotten rid of it, I mean, I don't have any opinion, but, and again, I'm sure we're going to hear from lawyers.

• 50:13Tracy Alloway?

  You're about to get, make an enemy out of the trial bar, Jim.

• 50:16Joe Weisenthal?

  We're going to get emails from lawyers saying, we want to do a rebuttal episode, but I... My gut is that there's probably so definitely something to that.

• 50:25Tracy Alloway?

  Well, the other thing I was thinking about on the insurance point is you know, I have this pet theory that like insurers basically run the world. Yeah. I mean, they control a lot of money. They set like not just safety standards, but social standards for a lot of things. It's really interesting hearing about using AI to monitor

• 50:41Joe Weisenthal?

  Yeah.

• 50:42Tracy Alloway?

  um, security camera footage, like for health and safety, because I can imagine, you know, if that helps the insurers, I can imagine them asking that to become a standard practice everywhere.

• 50:53Joe Weisenthal?

  It's super interesting to think like, okay, yeah, you want to have cameras because if there's an accident, then you could go back and review the footage. But this idea that like, oh, you could like, see if there was a near miss or something like that. And the AI can detect it directly. Potentially, that's interesting. And then, of course, there's going to be all these questions about surveillance and whether people like that. But this is going to be, uh, it's going to be a big topic.

• 51:15Tracy Alloway?

  Yeah.

• 51:15Joe Weisenthal?

  And it's all, it's going to come on very fast.

• 51:18Tracy Alloway?

  I know I keep saying this, but we really should do more on insurers. We'll figure out.

• 51:21Joe Weisenthal?

  We're starting to do more. You know, like if we keep saying it like we are, you know.

• 51:24Tracy Alloway?

  No, yes, but even more.

• 51:27Joe Weisenthal?

  But even more. I agree. I agree.

• 51:28Tracy Alloway?

  Shall we leave it there?

• 51:29Joe Weisenthal?

  Yeah, let's, let's leave it there.

• 51:30Tracy Alloway?

  Okay, this has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 51:35Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Cale Brooks at Cale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 51:56Tracy Alloway?

  And if you enjoy Odd Lots, if you want us to do even more on insurers, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 52:47Speaker 07

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