Rising Construction Costs Have You Down?

by: Aaron B. Bopp, P.E., LEED AP BD+C and Carrie McClellan

Recent construction costs are significantly higher due to various reasons, including a rise in cost of materials and reduced workforces.  Building projects will have to be scaled way back, rebid with reduced scope and in some severe cases, the projects could be cancelled.  Reduced labor forces could mean extended project timelines.  Clients will have to reduce their expectations and live with the tightening of their wish list belts.  Design and engineering firms will have to control budgets more stringently, now more than ever, find new cost-effective materials and techniques, and help their clients work through the design and decision making process to achieve the project goals despite budget constriction.

The numbers don’t lie

According to Turner Building Cost Index’s First Quarter 2015 report, the non-residential building construction market in the United States has increased 1.09% from Fourth Quarter 2014 and 4.75% from First Quarter 2014.

Recently, Attilio Rivetti, vice president preconstruction and estimating at Turner Construction Company, noted, “While raw material prices have seen some subtle reductions in the past quarter, manufactured and engineered components continue to see increases. Additionally, material lead times have been extended due to increased demands and a reduced availability of production facilities to support these demands.”  This trend has been evident on recent projects in and around the Triad, as well.

Rider Levett Bucknall North America, international property and construction consultants, believe that rising construction costs are the result of a smaller post-recession construction industry.  Julian Anderson, president of RLB, explains that with the costs of materials and labor gradually increasing, the demand for subcontractors has led to an upward pressure on bid prices in busy areas.

According to Engineering News-Record (ENR), in the 12 months between Feb. 2014 and Feb. 2015, labor and materials prices were up.  Average wages paid to laborers was up 2.8 percent for the year. Especially busy markets are seeing even higher price increases on materials and wages. For instance, material costs such as rebar and gypsum wallboard were up 3.4 and 21 percent, respectively.

Global hospitality consulting firm HVS reported that a recent survey showed that hotel development costs in the United States were up in 2014.  The survey noted that the rise in construction costs were due to a number of reasons, one of which are nationwide construction costs trending up 2.8% to 3% higher in 2014 from the previous year, while lumber, steel and cement costs were up 5.6%, 1.4% to 2.3% and 5%, respectively.  Another factor for higher costs is that the construction labor workforce has decreased by 27% from its peak of 7.5 million workers in 2007, and this significant reduction in manpower is definitely driving labor costs up – way up.

Explore new solutions

Wake Forest student housing

Student housing at Wake Forest University

The challenges in the cost of construction materials will mean builders will have to explore new solutions to their challenges.  Some builders are turning to wood as they find that wood meets code requirements for mid-rise buildings and can be 30 percent cheaper than using concrete. PB Architects in Seattle chose the installation of pre-panelized walls to drive down construction costs on their Marselle Condominium project.  The panels are quicker to install and reduce on-site costs due to reduced shrinkage when installing in a controlled environment. Locally, Wake Forest University utilized a SIM Panelized system for a recent dorm project, saving time and money, Click here for Wake Forest case study.

Masonry is really important to the longevity of school buildings; the durability can keep schools looking good for quite a few generations of young learners.  Big masonry companies have more work than they can handle, as many small to mid-sized companies closed during the bust. A school system will have to pay to make it worth their while to take the project.  In locations where long term durability is not as critical, a switch to a metal stud wall with impact resistant sheathing can save a school system a significant amount of money.

It will be important to tap into those relationships with local suppliers, the professionals who are trusted to do all they can to keep costs down.  “In the decorative hardwood plywood market, domestic suppliers have been working every angle to keep price increases at bay… lower fuel costs have enabled us to stretch our log acquisition reach further, to source competitively-priced fiber, and our other inputs seem to be in a period of stability for now,” Brad Thompson, president of Columbia Forest Products, explains.  “The issues we might face later in the year, if demand spikes in Q2-Q3, could put dramatic pressure on the available supply of resources, resulting in the kind of short-term shortage-fed price increases that would then fade as the supply catches up.”

Construction Costs on the Rise

Tap into relationships with local suppliers, the professionals who are trusted to do all they can to keep costs down.

 

What side would you like with that?

The rise in construction costs will mean that designers working on important projects, which have been in planning for years, will have to go back to the drawing board.  Building booms in local counties are driving costs up with the inevitable reduced number of available contractors and subcontractors.  Some of our clients have been shocked to find that bids have come in 20% over the construction budget — a budget that was projected a few years ago when construction costs were really good.  We are finding ways to scale  back projects, it’s not ideal but we can look into some reductions in scale.  Clients appreciate when we give them alternates along with a scaled back project so they can pick and choose these a la carte items or plan for future upgrades.  One project that comes to mind is the recently completed renovations at the Greensboro Coliseum. The owner had an extensive wish list.  We ended up giving them a baseline design with the addition of 33 alternates that gave them options.

The waiting is the hardest part

Some projects, especially private universities with considerable endowments,  wait for downturns and benefit greatly from cost reductions. In other case where the dollar is the priority, owners will make the concession  by waiting to start the build until the winter months.

What does the future looks like?

The cost will level out, boom come down. The construction industry is very cyclic, and unfortunately, it will likely get worse before it gets better.

As they say in this business, “Budget, schedule or quality, pick two because you almost never get all three.” We lean heavily on our industry’s estimators; they are reputable, accurate, and very trustworthy, and this is a very important part of the design process. We must spend the extra time with the estimator, making sure to communicate fully. By helping to refine the project parameters, we get the most bang for the buck out of the project.

Published on August 06, 2015
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