Construction’s Lack Of Diversity In Leadership Is Stark. It's Also Holding The Industry Back

Like others under the commercial real estate umbrella, the construction industry has a diversity problem, with people of color and women underrepresented. But beyond rank-and-file workers, the leadership ranks of construction and contracting reflect the broader lack of diversity, exacerbating other barriers to success.

A significant impediment to addressing the problem is the stark lack of data on the percentage of firms that are Black- or women-led. What statistics are available suggest women and/or people of color who are business owners and executives in construction and contracting are likely as underrepresented as they are in the industry as a whole.

Stats from Associated Builders and Contractors suggest the number of women in management and supervisory roles dropped from 19% in 2021 to 18% in 2022, and the organization’s contractor database suggests roughly 10% of firms are designated as being led by women, minorities or veterans.

The lack of diversity in leadership is especially problematic because without a more diverse class of small-business owners and leaders within construction and contracting, many believe it will be that much more challenging for the industry to recruit more workers and solve its overall workforce shortage.

“There's no way that we're ever going to solve workforce shortages in this industry if we don't find a way to successfully recruit a large chunk of the workforce that is not currently involved in construction,” Associated General Contractors Vice President of Public Affairs Brian Turmail said. “And that includes having leadership that reflects the diversity of that population.”

In 2021, only 9.9% of construction professionals were women, 6.2% were Black and 2% were Asian, according to Bureau of Labor Statistics data. 

The formation of a new architecture, engineering and construction industry group, AEC Unites, aims in part to rectify this issue by promoting and assisting Black-led businesses and helping them get a fair shot at business opportunities.  

“We’re not using the word set-aside, and we’re not asking clients to do set-asides,” said AEC Unites Board Chair and President Deryl McKissack, president and CEO of Washington, D.C.-based AEC firm McKissack & McKissack, referring to contracts that reserve a specific percentage of work for underrepresented businesses. “What we’re saying is, the country and industry has a huge labor gap. We’re trying to fill those needs with people who are needed and have been historically left out.”

New contractors and their firms have always faced an uphill climb to become established and successful. Developers tend to work with firms they know, so making connections and earning new business can be daunting. Being a good contractor or even site manager doesn’t always translate to good business sense. 

That struggle becomes exacerbated by the capital-intensive nature of the job. Insurance costs, gear, materials, labor and heavy equipment are expensive, especially when you are waiting on payments. Startups need to constantly manage labor, cost flow and inventories and stay current with regulations across numerous jurisdictions, all while competing for new business. 

“A lot of people in our industry end up betting their own personal balance sheet,” ABC President and CEO Mike Bellaman said. “They'll mortgage whatever equity they have in their home. They'll make tremendous sacrifices.”

Materials costs alone have shot up 41% since February 2020. And most companies, especially at the outset, are small. Roughly 96% of construction and contracting firms nationwide employ fewer than 100 people, Bellaman said.

In addition, the Department of Labor found that less than 10% of federal agency contracting dollars go to minority- or women-owned businesses, and federal contractors have a poor record of executive diversity, according to a USA Today analysis. 

“Our general assumption is that there is a lot of room for improvement in terms of diversifying the leadership and leadership ranks in the industry,” Turmail said. “And that's something we've been working towards.”

Now would be a particularly good time to address these issues and leverage the opportunity presented by federal infrastructure investments.

There are numerous programs and initiatives to bridge this gap. AGC chapters in Missouri have mentorship programs in place for business owners of color. The federal government has hiring rules that provide opportunities to women- and minority-owned firms. Previous quota systems were ruled illegal.

Many community benefit agreements include set-asides and goals for hiring contractors from diverse backgrounds. Joint venture arrangements can help larger firms mentor smaller businesses. 

But while those efforts have increased diversity in the industry, there is still a long way to go. When companies try to expand, it is difficult to go from subcontractor to prime, a position that is under a lot more scrutiny. Adding to the challenge, companies that see early success and growth can often become too large to benefit from set-aside programs, which tend to have revenue caps, meaning they lose some of the support mechanisms that helped them succeed just as they may need them most. 

“You don’t want to punish success,” Turmail said. 

There is also a backlash against corporate diversity, equity and inclusion initiatives. While AEC Unites’ McKissack hasn’t seen direct legal challenges yet, she said she wouldn’t be surprised to see one.

Andre Downey is the controller at SanDow Construction, a Black-owned Maryland-based contractor focused on interior renovations, workplace design, construction and abatement. Founded in 2011 by Downey’s father-in-law and wife, the 60-person firm primarily works for various governments. He said his firm’s business is 90% government-focused because it is easier to know “what the rules are” in terms of government contracting, and it is harder to break into commercial work. 

“Maybe there’s opportunities, subcontracting opportunities or different ways to work with large companies,” Downey said. “But it’s all back to the relationship.”

He said the power of mentoring as especially important. He has helped smaller firms deal with management, financing and operational questions and said it is important to use his 30 years of experience to help younger leaders move in the right direction.

McKissack said AEC Unites is encouraging firms to focus on sustainable business relationships with Black businesses, exploring their capital plans and finding good points of entry for new firms.

The coalition has started the process of providing technical assistance, bonding resources and project management assistance to support new businesses and keep them in the pipeline and engaged. Triversity Construction, a Black-owned firm in Cincinnati, focuses on midsized projects of around $25M, in part because it is an ideal size to constantly employ smaller, minority-owned firms.

“What happens with Black businesses is we're used to checking a box,” McKissack said. “Sometimes we’re invited to the party. Other times we get into the door, do one contract, get accolades, and then we never hear from them again.

“My biggest challenge when I started out was getting work, what is probably the hardest part for minority businesses because they're always second-guessed. You're always having to prove who you are over and over again.”