Shaw’s CEO Delivers Keynote Address at 2011 Construction Users Roundtable Winter Meeting
Shaw Group CEO Calls for Investment in Infrastructure and Clean Energy Solutions
– Edited By Tom Lamar –
The Shaw Group’s CEO, J.M. Bernhard Jr., delivered the keynote address at the Feb. 8, 2011, Construction Users Roundtable winter membership meeting in Baton Rouge, La.
Attended by construction industry leaders, the meeting focused on the industry’s key issues, including safety, workforce development, international construction and future opportunities.
Mr. Bernhard’s keynote offered insights into the economic challenges currently facing the industry, while advocating investments in the infrastructure and power markets. Mr. Bernhard discussed economic revitalization through long-term investments in rebuilding and expanding transportation infrastructure and federal incentives for clean, reliable energy solutions.
J.M. Bernhard Jr. Keynote Speech
Thank you for the warm introduction, and good afternoon. Welcome to Louisiana! It's nice to see so many faces representing various industries here at the CURT winter meeting. And it's a pleasure to speak with you about some of the challenges facing the construction industry in 2011.
Unlike many of you, I didn't have to travel far to be here today. The Shaw Group is headquartered right down the road here in Baton Rouge. This is where I founded Shaw almost 25 years ago as a pipe fabrication company. And it's where we continue to operate today as a Fortune 500 company with 27,000 employees in nearly 150 locations around the world.
Shaw is a company that operates in multiple industries. As a result, we are less sensitive, but not immune, to the impacts of changing demand and economic conditions, with our stronger segments balancing others during market fluctuations.
But despite our makeup, our size and our solid financial results last year, we were faced with the same challenging global economic climate everyone faced. As a result, we saw our project awards and bid activity remain somewhat flat due to the economic climate and reduced client needs.
The construction industry in particular has seen some hard times throughout the last couple of years. And many challenges and hurdles continue to lie ahead for this industry. However, there are some bright spots on the horizon – like nuclear power. But only if we work together to advocate for federal investments in programs and organizations that are critical to this nation's economic wellbeing and vitality.
The bottom line is that the wellbeing of the construction industry depends not only on the overall economic health of our nation, but also on federal investments in areas such as transportation and our infrastructure.
And while we are seeing glimmers of hope pointing to a recovering economy, we still have some real challenges and hard work ahead in trying to get our legislators to fully invest federal dollars to upgrade our nation's infrastructure.
We saw the positive effects federal investments, like those in the Recovery Act, had on the construction industry throughout the last two years. Transportation and infrastructure alone created or sustained nearly 350,000 direct, on-project jobs during the first year of the law. But these are temporary programs, and stimulus money is running out…and so are the jobs.
During the past 12 months, the construction industry has lost 93,000 jobs. Numbers for December show that the overall unemployment rate in the industry increased to 20 percent, more than double the overall national unemployment rate of 9 percent. That decline leaves only 5.6 million people employed in this industry, which is 27 percent lower than the construction industry's employment peak in August 2006.
So, what needs to be done for this industry?
Part of the answer is investing in infrastructure. It is a proven economic engine. Even the President touched on it during his State of the Union speech. He called for increased federal investment in vital areas of our economy, including infrastructure and clean energy. He's right. Creating a modern, safe and efficient infrastructure is necessary to a healthy, growing economy…and more middle class jobs. According to the Department of Transportation, for every $1 billion spent on infrastructure, 30,000 jobs are created.
If this new Congress and the administration are really serious about driving true economic recovery and job creation, they should be focused on infrastructure investment. I'm talking about improving and upgrading our transportation systems; our water systems; our airports; our energy delivery systems; our military facilities; and our federal facilities. Our economy is closely connected with the reliability of all these systems.
And it doesn't stop there…the need for flood control work in the Midwest presents opportunities for improvement, as does the need for restoring and preserving our coastline, as recent hurricanes have highlighted.
But there's a battle brewing in Washington over federal spending. The President, in his address to the nation, asked for a freeze on non-security discretionary spending. At the same time, the majority in the House wants to cut that same spending to 2008 levels. Although this industry might be able to weather a freeze to current levels of federal spending, cutting back to 2008 levels would be devastating.
So it's up to those of us here in this room to advocate for the construction industry. It's time to build grassroots demand for Congress to put aside political self-interest… and focus on what's in the best interest of our nation.
Allow me to highlight some areas where federal investments are critical in supporting the nation's economy and putting millions back to work.
Let me go back to infrastructure for a moment. In his State of the Union address, President Obama called for a stronger, more modern and more efficient infrastructure. In fact, he clearly said that our infrastructure used to be the best – but our lead has slipped. And our own engineers graded our nation's infrastructure a "D."
And that's just not good enough. We cannot remain complacent.
Let's look at transportation investments. The last six-year surface transportation bill expired almost 18 months ago. Congress' failure to pass a new bill has left funding stagnant, at levels well below what is needed to keep pace with the nation's infrastructure needs.
I know there are members of Congress who are committed to making significant, long-term investments in rebuilding and expanding transportation infrastructure. And the Administration is also committed. It is our responsibility to call on Congress to work in earnest to quickly pass this legislation to get our country moving again.
Here are some interesting facts – ones you should pass on to your legislators. A report released last October by the Department of Treasury, with the Council of Economic Advisers, finds four key reasons for the nation to increase investment in transportation infrastructure:
Number 1: Well-designed investments in infrastructure have long-term benefits. They can raise economic growth, productivity and land values.
Number 2: It creates middle class jobs; 61 percent of which will be in the construction sector.
Number 3: Investing in infrastructure uses idle resources, which means there are a lot of unemployed construction workers who could be put to work.
And number 4: There is a strong demand from the public and businesses for additional investments in transportation and infrastructure.
The bottom line is that Americans want additional support for our public transit and road systems. The report goes on to state that 19 out of 20 Americans are concerned about America's infrastructure, and 84 percent support greater investment to address infrastructure problems. They know these improvements can make a difference in their daily lives.
Investment in all modes of our transportation system creates jobs, reduces congestion, improves the movement of goods and creates much-needed market stability for equipment, engineering, design, materials and related firms. The Administration gets it; we get it; now we have to convince others in Washington, D.C., that passing the reauthorization bill is right for the country.
Let me move on to the U.S. Army Corps of Engineers. This is another organization that is vital to the construction industry, and another critical area in which funding should not be drastically cut. The Corps' work on water resource projects, environmental restoration, disaster relief, and the design and construction of military facilities makes it a major employer of construction workers.
The Corps of Engineers makes it possible for American businesses to transport goods by water and operate safely on land near major waterways. As the largest hydropower operator in the country, it provides clean, efficient, reliable, low-cost electricity for up to 10 percent of the country. It is responsible for numerous environmental programs, providing a full range of services from stewardship to the environmental cleanup of hazardous waste at former military facilities. And the Corps' Military Construction program contributes to our nation's defense mission and our national security.
That's why we need to advocate for maintaining or even increasing funding for Corps activities. Take military construction: its funding has not kept pace with essential facility upgrades. Training and equipment maintenance are hampered by inadequate, unsafe and unhealthy facilities. Our military requires a high level of mission readiness. This readiness must be supported by safe, healthy and modern facilities.
As with the transportation sector, investment in the Corps of Engineers allows the organization to continue its role in our nation's economic and environmental well being. It's good for this industry. And it creates and keeps middle class jobs.
Now let me focus on one more area—federal government facilities. Evidence is mounting that the physical condition, functionality and quality of federal facilities all over this country are declining. Much of the infrastructure is outdated and inefficient. Take the facilities in the nation's weapons complex, for example. They are aging and in need of upgrades.
The 2010 Nuclear Posture Review report makes the argument that, "in order to sustain a safe, secure and effective U.S. nuclear stockpile as long as nuclear weapons exist, the United States must possess a modern physical infrastructure." The report calls for much needed investments to rebuild America's aging nuclear infrastructure.
Maintaining our nuclear weapons fall not under the military – but under the Department of Energy.
The President agrees and has stated that "modernizing our nuclear infrastructure" is a priority, and that priority is reflected in this Administration's plan to spend $80 billion during the next decade to sustain and upgrade the U.S. nuclear weapons complex. This will not only shape the future of the complex, but also those regions of the country that host these facilities.
The same can be said for federal facilities at all levels of government and in all areas of this country. Investments in constructing new facilities and upgrading existing ones generates work for our businesses, creates jobs and improves the health of our nation's economy.
This is the time to act. We must get federal lawmakers focused on investing in our nation's infrastructure.
Let's get them to approve a new six-year transportation bill in the first six months of this year. Let's get them to invest in the Army Corps of Engineers and advocate for passage of a new Water Resources Development Act. Let’s convince them that investing in the modernization of federal facilities is good for our country and for our economy. Let’s convince them not to waste our money but to invest in much needed infrastructure that will be here for our children’s children like our grandparents did for us.
Without action in Washington, we are facing potential program funding uncertainty for some time to come. And we could again face the loss of another construction season. We can't afford that. The construction industry is already suffering from record unemployment.
I urge you to talk to your legislators.
Tell them how important infrastructure funding is to our nation.
Convince them of the need to continue and make new investments in 2011.
Another area where I see federal incentives to be critical is in the power market. New power plant construction supports local economies and could put thousands to work.
I think the power market has the potential to help restore the construction industry to near its optimum level.
Why?
Here are the statistics: the United States is the largest consumer of energy in terms of total use. According to the U.S. Energy Information Administration, Americans consume about 94 quadrillion BTUs annually. That's approximately one-fifth of the total global energy.
And our demand continues to increase. The U.S. Department of Energy forecasts that electricity consumption will increase one percent annually through 2030. To meet this demand, the United States will need to increase electricity production by 25 percent – the equivalent of adding about 260 baseload power plants to the grid.
The question is: how do we accomplish this? How does this country meet the increasing demand for electricity, while reducing our dependence on foreign oil and reducing greenhouse gas emissions? How does this nation's energy production become more sustainable?
In his address to the nation, President Obama proposed investing in tomorrow's energy through clean and renewable sources. Specifically, he called for a new goal of having 80 percent of America's electricity come from clean energy sources by 2035. This includes wind, solar, nuclear, clean coal and natural gas.
Like last year, the President highlighted clean energy near the top of his speech. He urged Congress and the nation to "reinvent our energy policy" and work together to create new jobs by establishing a market for clean energy sources.
That proposal offers perhaps the best hope for bipartisan energy legislation in a divided Congress.
So let's take a look at some of the energy sources at the forefront of the discussion and debate. First, there's renewable energy. With concerns of climate change, high oil prices and support from the previous Congress, we saw an increase in new power generation from these sources. And many construction jobs related to building wind farms and solar installations have been and will be created.
But although power from renewable energy will continue to play an important part in our clean energy future, it's only one part of a diverse energy portfolio. And it has some challenges. One of the biggest hurdles for the industry is that federal subsidies and incentives, like the Production Tax Credit and funding from the Recovery Act, will slow the growth in renewable capacity after 2014. And any proposed new subsidies will be challenged in this Congress.
The President will be asking for a substantial increase in funding and subsidies for renewable energy in his fiscal year 2012 budget, but he faces a stiff challenge from Congress.
So what about fossil fuels? Will they still be part of this nation's energy makeup in the future? I believe coal and natural gas will continue to be a major part of the mix, but renewable and nuclear energy will start to represent a much greater part of the supply as they begin to replace some of our nation's aging fossil plants.
There's also some uncertainty of the impact EPA's proposed new rules will have on this sector. As most of you probably know, in December, the EPA announced its plan to establish greenhouse gas pollution standards in 2011 under the Clean Air Act. This will affect fossil fuel power plants and petroleum refineries.
That announcement followed on the heels of the new rules that took effect on Jan. 2 of this year regulating the release of greenhouse gases by new power plants, petroleum refineries and industrial facilities and major expansions.
While the aftermath of last month's rules and what will happen when these new rules take effect is still not clear, it is clear that we have two options – either retrofit… or build other types of power plants. We're already seeing companies follow both scenarios by either retiring their aging assets or implementing the necessary modifications and controls. Take for instance a coal plant in the Northeast, which now features pollution control upgrades through air quality control systems that Shaw installed. Our systems are helping to remove up to 97 percent of incoming sulfur dioxide at the plant. When it comes to clean air and water, we have a moral obligation to our children to have as clean water and as pure air as our grandparents left us.
On a positive note, I see the nuclear industry – which I believe is a vital part of our future energy mix – thriving in the near and long term. It's a bright spot for the power market and an even brighter spot for the construction industry.
While I also believe renewable energy sources must have a part in our energy portfolio, increasing the share of nuclear power in our nation's mix will not only provide more safe, reliable, baseload power to our energy grid, but the new construction of these plants will also energize communities with good paying jobs for Americans.
Throughout the course of a typical nuclear construction project, approximately 3,500 workers will be employed as work transitions from one phase to another. And then, once the nuclear power plant is complete, its operation will provide for about 800 more permanent jobs.
Think about that for a second. As of last month, the Nuclear Regulatory Commission was reviewing 18 applications for combined construction and operating licenses to build 28 new nuclear reactors. That translates to 63,000 workers during peak construction. And on top of that, more than 14,000 permanent positions for Americans with salaries that are generally about 36 percent higher than average salaries in the local area.
Even more, it's estimated that the average nuclear plant annually generates 430 million dollars in sales of goods and services in the local community and provides annual state and local tax revenue of more than $20 million dollars, benefiting schools, roads, and other state and local infrastructure.
If you multiply those benefits by the number of nuclear plants that will be needed to support our future energy needs, you quickly have a strong economy driven by increased jobs, increased income and increased tax revenues.
And we are beginning to see the effect of what new plant construction has on local economies with Shaw's involvement at Plant Vogtle in Georgia and V.C. Summer in South Carolina.
While the industry is off to a promising start, challenges remain. One of the biggest obstacles that could slow the current momentum is the lack of loan guarantee authority the government has for the industry.
Federal loan guarantees are a low cost federal incentive that makes it easier for private sector companies to finance clean, innovative energy technologies, like nuclear power. It develops secure domestic energy supply capacity; it develops clean energy capacity; it promotes the development of new U.S.-based manufacturing; and it provides short and long-term construction and manufacturing jobs.
A loan guarantee is not a subsidy. It is a government-backed loan that must be paid back in full with interest. There is no cost to the taxpayer.
Again, I ask you to talk to your representatives in Washington and educate them about this issue. Let them know how the construction of a new power plant – a new nuclear power plant – can stimulate investment, create jobs, and provide short and long-term economic benefits.
I believe that nuclear energy is a viable component of a total clean energy solution and will become a large driver of economic stimulation, and I am hopeful that both the House and Senate will craft legislation for the President to sign that reflects this.
In conclusion, jobs and the economy need to be on everyone's mind here and now. The construction industry faces an unemployment rate hovering around 20 percent, and it continues to suffer. As leaders in the construction industry, it is our responsibility to work together to educate our representatives in Washington and ask them to invest in infrastructure and clean energy.
Get involved.
Talk to your legislators.
Ask your employees to talk to their representatives.
It won't be easy. Committing to years of robust spending on anything is a tough sell in this new Congress. But funding for the nation's infrastructure has had a long, bipartisan history, and this bipartisanship needs to continue on this issue. The cost may seem high, but the outcome can be extraordinary.
The construction industry needs to act as one voice, and we need to act now. It is what we need and it's what Americans want. It will keep this industry working, and it will improve the lives of most Americans and American businesses.
Without the creation of jobs that the construction industry can bring, unemployment will never decrease and the deficit and budget will be impossible to balance. Only through employment of the maximum number of people can true economic recovery be sustained.
Thank you for your attention.