Survey: Material Shortages Driving Price Increase in Project Bidding

According to a study by the Phoenix-based construction consulting firm PinnacleOne, 89 percent of industry professionals have witnessed a significant price increase in project bidding during the past year. The average price increase was estimated to be 10 percent or greater by more than two thirds of respondents and at more than 15 percent by greater than one third of the participants. Cost of materials (68 percent) was identified as the clear driver of this alarming trend.

The survey also identified a growing concern with the issue of false claims and a lack of understanding on energy and environmental issues among the construction executives.

The PinnacleOne Pulse of U.S. Construction 2004 survey examined the opinions of 136 construction industry executives (owners, architects, engineers, contractors and developers) on issues related to project management, energy/environment and claim resolution.

Other major results of the survey found that during the past year, almost three quarters (74 percent) of industry executives had projects adversely affected by the steel shortage and the associated price increase, and a majority (57 percent) of these professionals believe this obstacle will become greater in the coming year. And, although more than three quarters (77 percent) of respondents have initiated energy efficient plans in new projects and 93 percent anticipate rising demand for energy solutions, a significant number (39 percent) of these professionals fail to use LEED green building standards when designing projects. Moreover, almost half (44 percent) of the respondents were unaware of promotions/incentives offered by the Dept. of Energy or local utilities to assist in the procurement of energy efficient solutions.

"The survey clearly identified a lack of understanding among many of the construction professionals regarding the effectiveness of the latest energy efficient technologies," said Darr Hashempour, vice president of Energy Solutions at PinnacleOne. "By dedicating between two percent to five percent of project budgets to meeting LEED standards, facilities can generate annual operational savings ranging from 30 percent to 50 percent and achieve a complete return on investment within three to five years." Yet a quarter of the respondents mistakenly felt they would need to dedicate more than five percent of their project budget to meet LEED standards and 20 percent were unwilling to dedicate any amount of their project budget to meeting green building standards.

More than three quarters (77 percent) of construction executives are concerned with the issue of false claims. Of the respondents that have been involved in the review and analysis of false claims, inflated pricing (45 percent) and subcontractor claims (25 percent) are the issues they identify as accounting for the greatest number of claims.

Respondents were far more likely to utilize mediation (34 percent) as a means to resolve disputes, compared to arbitration (14 percent) or litigation (12 percent). Dispute Review Boards (5 percent) were the least popular resolution vehicle. Of the 31 percent of respondents that have ever used a DRB to resolve a construction dispute, a majority (55 percent) described them as satisfactory and just under a third (31 percent) called them ineffective.

Meanwhile, when asked which alternative procurement method (other than traditional design, bid, build) they see gaining popularity over the next two years, almost one third (32 percent) of respondents chose construction management at risk and more than a quarter (28 percent) chose design build. Task order contracting (14 percent), design-build-operate-maintain (13 percent), public finance-lease back (7 percent) and construction management multi-prime (6 percent) were chosen by a smaller percentage of the construction executives.

PinnacleOne said the material shortages and an imbalance in sub-contractor supply and demand that led to a marked increase in the bid climate on construction projects in 2004 is not expected to subside any time soon and this places even greater emphasis on the value of planning and project management in 2005.

The firm projects that in 2005 in an effort to attract in-demand subcontractors to their projects, some owners will bypass the general contractors and deal directly with the subs themselves through multiple-prime contracts and specialty bid packages; with subcontractors at a premium, look for owners to bundle multiple smaller projects to create larger dollar value -- and hopefully more attractive -- bid packages for both subcontractors and general contractors; and given the drastic impact of material shortages, some of the largest owners are considering such maneuvers as starting their own material plants (i.e. batch plants to mix their own concrete) and bulk purchasing of common building materials and systems. This will likely be a consideration for only the biggest players, such as major school districts or DOTs.

Also, with the rapidly escalating bid climate making it difficult to accurately estimate bid prices and nearly impossible to allow for adequate contingencies, owners will increasingly find themselves at odds with their designers and contractors. This will lead to more owners demanding that their designers re-design to get costs realigned with budgets, and to more disputes between owners and contractors as they look to recoup their losses through construction claims in 2005. This volatile environment will likely yield business failures, with smaller contractors especially vulnerable.
And, with bids continuing to rise month by month, many owners will be phasing their projects using fast-track construction techniques to lock in their construction costs as soon as possible.

ASLA: It's a Good Time to be a Landscape Architect

The latest American Society of Landscape Architects Business Indicators Survey shows that landscape architecture firms are growing in size, billing rates are increasing dramatically, and the client base for the profession continues to expand, most significantly in the public sector.

The ASLA commissioned the first business indicators survey in 1997 and repeated it in 1999. This latest survey is based on information gathered in 2004 from more than 1,000 private sector landscape architecture firms.

Indicators include market sectors, project types, client types, billing rates, contract types, design competition participation, marketing, spending and construction cost ratios, and profit margins.

"This survey confirms what we've been hearing from our members: that it's a very good time to be a landscape architect," said Nancy C. Somerville, executive vice president of ASLA. "Since it takes three data points to establish a trend line, the latest survey definitively indicates that the profession is growing rapidly in terms of impact and prosperity."

Among the findings in the survey:

• Residential work continues to dominate the landscape architecture market as it did in both 1997 and 1999. In 2004, commercial/industrial development was second and parks/recreation third, keeping pace with the two previous surveys.
  
  
• Landscape architecture firms with 50 or more employees now account for 16.5 percent of landscape architecture businesses, up from only 9 percent in 1999.
  
  
• The private sector constitutes 60 percent of the client base for all firms with 49 employees or fewer, although it is notable that in 2004 public sector work outpaced private sector work for large firms (50 or more employees).
  
  
• Since 1999, billing rates for firm principals for firms with more than five employees rose 28 percent, a dramatic increase over the 5 percent growth measured between 1997 and 1999. For firms with one to four employees, billing rates increased 14 percent from 1999 to 2004, up from just 5 percent between 1997 and 1999.
  
  
• Private developers continue to be the largest client group for the profession, with cities/municipalities ranking second, followed very closely by architecture firms. For small firms (four employees or fewer), private homeowners continue to make up the largest clientele.