With construction firms scrambling for work, state and local governments are stretching stimulus dollars as bids come in lower than anticipated
By Ken Simonson
The value of nonresidential building starts plunged 23 percent in March, while civil works starts jumped 15 percent, Reed Construction Data reports, based on data it compiled. Comparing the first quarters of 2009 and 2008, building starts fell 8 percent in value but 18 percent in square footage, reflecting a large drop in building costs this year.
The value of the largest building category, schools/colleges, was unchanged, but retail fell -16 percent, hospitals/clinics, -1 percent; and office, -25 percent. Civil works rose 28 percent in value, with gains of two percent for roads/highways, 11 percent for water/sewage, 96 percent for miscellaneous (including power projects), and even larger jumps for the small airport and dams/marine categories.
“Construction firms are so eager for work in the sagging economy that project bids are coming in much lower than expected, allowing state and local governments to stretch their federal stimulus dollars further,” the Washington Post reported. “At Baltimore-Washington International Marshall Airport, a recent project to reconstruct the area around Piers C and D received six bids instead of the usual two or three. The result: The estimated $50 million project will be built for $8 million less than was budgeted, and the savings will be allocated to other projects. There were 21 bidders for a $200,000 drainage project in Carroll County [Maryland], more than anyone could remember….In Virginia, state officials are receiving bids from companies as far away as the Ohio Valley. Projects that typically would have drawn four or five bids are receiving 10, said Byron Coburn, state construction engineer.”
The Arkansas Democrat-Gazette reported, “Bids…were tentatively accepted on 27 highway-resurfacing projects tagged as the first state road jobs to be funded under the American Recovery and Reinvestment Act of 2009. [Bids] came in under forecast Wednesday. The latest cost estimates from the state Highway and Transportation Department said the projects would cost $23.75 million. The apparent low bids totaled $21.2 million, nearly 11 percent under the original estimate.”
One factor contributing to lower construction costs is lower trucking rates. “Two regional less-than-truckload carriers announced across-the-board pay cuts because of deteriorating freight volumes and prices, Saia Inc. by 5 percent for salaried employees and drivers, and Ward Trucking Corp. by 8.9 percent,” TTnews.com, the online version of the trucking newspaper Transport Topics reported. Both companies said executives’ pay was cut even more.
The Energy Information Administration reported that the national average retail price of on-highway diesel fuel was $2.23 per gallon. That was an increase of 18 cents from the low point four weeks ago but was $1.73 (44 percent) less than a year ago and $2.54 (53 percent) less than the record set on July 14. Last year, contractors were paying stiff diesel fuel surcharges on trucking deliveries, as well as high prices for the diesel fuel they used in their own trucks and offroad equipment.
“Home builders are reporting a substantial, unambiguous rebound in demand for new homes in March–the first such glimpse of light in more than three years,” www.econoplay.com reported, summarizing conversations with builders in several regions. “And with land, labor and materials costs so cheap right now, builders are regrouping and appear more willing to ramp up new construction.”
Robert McLeod, CEO of Newland Communities, the largest privately held residential property builder in the nation, [said], “A lot of projects for new single-family homes are being built in Virginia, North Carolina and Texas, although Texas always did well for us.” An upper Midwest builder said the rush is toward a ‘narrow category’ of homes priced from $175,000 to $225,000. ‘That’s a very low price for our area,’ the source said. ‘It means that the only people in our market are first-time buyers and divorcees.’” However, developers in New York and metropolitan Washington report no uptick yet.
Edited by Kevin Doyle
The Data DIGest is a weekly summary of economic news compiled by Ken Simonson, the Chief Economist of The Associated General Contractors of America (AGA).