GMCS Editorial: There are some very interesting parallels in this
article as it relates to the Philadelphia marketplace. Regional
facility owners and developers have started to report fewer bidders on
projects and higher pricing. While some signatory Philadelphia general
contractors are openly threatening to abrogate their collective
bargaining agreements in search of greener pastures and a new skilled
workforce, contractors on both the union and merit side of the industry
are reporting a lack of available and skilled workers to meet demand.
With billions of dollars of work on the table throughout the entire
Mid-Atlantic region, this industry, union and merit, must collaborate to
address this growing concern.
IOWA CITY — You can look toward the sky at the many towering
construction cranes to gather how busy the construction scene is in the Iowa
City area. Or you can look at bid documents submitted for various projects.
Thirty-three percent, 23 percent and 6 percent — those are
how much higher the lowest bids received this spring for projects from Iowa
City, Coralville and the Iowa City Community School District, respectively,
were than the professionally calculated estimates.
A major reason, officials from public agencies and the
construction industry said, is what is believed to be an unprecedented amount
of construction occurring in Johnson County.
As much as $2 billion worth of projects are underway or
planned, and that has put labor and some materials at a premium.
“We’re hearing it and seeing it,” said Rod Lehnertz, the
director of planning, design and construction at the University of Iowa. “We
are seeing a higher percentage of bids that are seeing less competition and
thus higher totals as compared to either the architect or engineers’ estimates.
And it’s not a surprise.”
The UI alone is responsible for $1 billion worth of the
construction, including several large facilities that by themselves would be
significant. There is a new UI Children’s Hospital (cost: $357 million),
Hancher Auditorium ($176 million), School of Music ($152 million), Art Building
($77 million) and a residence hall ($53 million).
Those projects, plus other public and the private ones,
require contractors, subcontractors, workers of all trades and a variety of
material.
Higher bids mean projects either cost more or are reduced in
scope to come in on budget.
It’s happened twice in recent weeks to the Iowa City school
district for multimillion-dollar renovation projects, which are being scaled
back as a result.
Duane Van Hemert, the district’s physical plant director,
said bids for a $6.3 million upgrade to Twain Elementary School came in more
than $400,000 higher than expected last month because electrical and heating
and cooling subcontractors were busy with other jobs.
The district is rebidding the project and shifting some of
the inside work to late fall or early winter, when subcontractors said they’d
be more free, he said.
“In this particular market right now, it’s the
subcontractors that can’t keep up,” Van Hemert said.
Iowa City experienced this too when it sought bids in early
spring on what it estimated to be a $2.75 million animal shelter.
It received a healthy nine responses, but the low bid was 33
percent higher than the estimate. Public Works Director Rick Fosse said general
contractors reported having difficulty getting subcontractors.
The city cut back on the design and recently awarded a
contract for $2.8 million.
Officials said there are two major drivers of the busy local
construction market:
One is the economic rebound coming out of the Great
Recession.
The other is the recovery from the 2008 floods in Eastern
Iowa, with hundreds of millions of dollars in work occurring now.
The area has seen the other end of the spectrum, too. In
2010, as the full brunt of the recession was being felt, Iowa City’s projects
as a whole were 35 percent lower than estimates, Fosse said.
Estimates tend to lag behind market conditions because the
best guess of what something will cost is the price of the last project, he
said.
“Market factors are definitely playing a role this summer as
they did (in 2010), but it was the opposite direction” back then, he said.
Timing also matters.
“I think what we ran into is a situation, especially in the
month of May, where a large number of projects were out for bid at the same
time,” said Tim Fehr, a project manager and engineer for architecture and
engineering firm Shive-Hattery who’s working on the Twain Elementary project.
“And you couple that with contractors who were already busy,
you get a perfect storm where contractors could be very selective with the
projects they bid.”
He said while owners don’t want bids to come back over
budget, they don’t want to overcompensate and pre-emptively reduce the scope of
a project and then find the bidding climate better than anticipated.
Timing can work both ways. MidWestOne Bank benefitted from
some subcontractors being pulled off outside jobs during the extremely cold
winter to work on the interior renovation of the bank’s downtown Iowa City headquarters,
said Kent Jehle, executive vice president and chief credit officer.
A MidWestOne five-story building under construction a couple
of blocks away also has not experienced any problems, he said.
Iowa City Manager Tom Markus said that while the “extraordinary
volume of construction” is having an effect, there are a variety of factors
that go into how contractors bid on projects such as world events, oil prices,
labor strife or the availability of supplies.
“The bids I get today at noon could be entirely different
than the bids tomorrow at noon,” he said.
Scott Norvell, president and chief executive officer of the
Master Builders of Iowa, agreed with Markus that there are a combination of
variables at play.
Supply-and-demand is a big one, however, and he said Iowa is
seeing that now with major projects not just in the Iowa City area but also a
476,000-square-foot Facebook data center near Des Moines and billion-dollar
fertilizer plants in southeastern and western Iowa.
“There’s just some extraordinarily large projects that are
ongoing right now,” said Norvell, whose organization advocates for the
construction industry.
That can have an effect outside Johnson County.
Cedar Rapids is seeing fewer bidders for projects and higher
prices than normal, said Doug Wilson, the city’s capital improvements project
manager.
But it’s not a huge jump, and the city doesn’t have many
building projects in the works, he said.
With so much work throughout the state, contractors are
bidding on projects in geographic regions they normally would not, said Randy
Clarahan, construction executive for Iowa for Mortenson Construction, which is
overseeing the UI School of Music and Hancher work.
The UI’s Lehnertz said that about two years ago school
officials began touring the state to make contractors who don’t usually work in
Eastern Iowa aware of what was coming. He believes that paid off with a good
number of bids for the school’s projects.
Even with what Lehnertz said was a successful effort to
“soften the spike” of so much construction happening in this small of a market,
there are still some pending labor issues.
Most of the biggest projects in the area are in the process
of having their exteriors built. Eventually they’ll need skilled workers to do
interior work.
“I’d say late this fall and then probably a nine-month
period after this fall hits we’re going to be looking at probably the tightest
pinch point for labor for people on the job sites,” Lehnertz said.
Clarahan said labor already can be hard to come by.
Some contractors kept work forces down coming out of the
recession so they didn’t risk more layoffs, he said. At the same time, the
amount of construction has increased to what he called unprecedented levels for
the area.
A contractor may need 30 craft workers on a day but can only
get 22, Clarahan said.
“The labor shortage is real, and it’s something we’re going
to have to continue to work on over the next year,” he said.
Source: The
Gazette
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