Refilling the Construction Pipeline
With major projects wrapping up in 2013, area contractors face the prospect of increased competition for smaller payouts.
Since the groundbreaking in September 2010, work on the National Nuclear Security Administration’s new complex at Missouri 150 and Botts Road has tilted the construction sector’s center of gravity in this region toward south Kansas City.
Projects the size of that one—$539.1 million—don’t fall into the sector’s lap every day. Thousands of workers have been involved in different aspects of construction there, but we’re now just six months from scheduled completion. Looking toward 2013, that’s a bit of a concern for contractors, subs and materials suppliers who have been able to take advantage of NNSA work.
The reason for that concern can be found in a quick review of other major regional projects over the past couple of years. Looking at the five biggest projects under way in both 2011 and 2012, NNSA was the 800-pound gorilla in each year. The next four tell the rest of the story: In 2011, the combined project costs for the Kauffman Center for the Performing Arts, Hollywood Casino at the Speedway, the Kit Bond Bridge and upgrades of Saint Luke’s Health System’s Wornall Road campus came to $1.8 billion.
This year, Nos. 2–5 are the Bolling federal building renovation Downtown, the Interstate 435/U.S. 69 interchange in Johnson County, the Plaza Vista project for Polsinelli Shughart’s new headquarters and a new hotel, and Phase I of Cerner Corp.’s Wyandotte County office complex. Combined costs: about $483 million—a decline of nearly 75 percent year over year.
And with the squeeze coming on federal spending after four straight years of trillion-dollar deficits, the kinds of mega-projects that have helped companies in this region endure a five-year downturn could be in peril.
It’s one reason building executives are trying to keep one eye on Washington and another fixed on Manhattan, Kan., home to the planned National Bio and Agro-Defense Facility. The cost of that research complex, dedicated to ensuring safety in the nation’s food chain and supply, has surged past the initial projection of $550 million and now stands at $1.1 billion.
That’s a lot of labor and materials. As it competes with other federal spending priorities for the 2013–14 fiscal year, one thing working in NBAF’s favor is a recent statement from research professionals around the country, supporting what they see as a critical need to move forward on the project.
“The potential costs of not building it if there’s a foreign animal disease outbreak are such that I anticipate it will go forward, but with the fiscal uncertainty, that’s a challenge,” said Ron Trewyn, vice president of research at Kansas State University, where the facility would be built.
Congress has authorized $40 million for the central utility plant, but bids for that work remain on hold, Trewyn said. Portions of an additional $50 million authorization have gone toward design work, but the vast majority of the authorization is tied up in the nation’s capital.
That has put the project off schedule somewhat, but with the 2012 elections behind us, there’s a potential for some movement. After all, Trewyn noted the GOP-controlled House last year authorized $75 million for the work, even though President Obama had omitted NBAF funding from that year’s budget.
The good news for the sector, says Ken Simonson, chief economist for the Association of General Contractors, is that construction spending is projected to rise between 6 and 10 percent a year nationwide through 2017. Simonson’s 2012 report to the annual ACG conference noted that while housing and retail spending would decline, new drivers are coming on board with continuing oil and gas exploration, ripples from the Panama Canal expansion project, and demographic trends that are producing more older Americans and fewer young adults who might want the kinds of housing we’ve seen in recent decades.
For some of those reasons, a major transformation is at work in the sector.“The industry as a whole, on the execution side and on the design and construction side, is going to look totally different in a few years; we’re going through that transition right now,” said Randy Bredar, vice president for development at J.E. Dunn Construction. “Who does what, at what point in time, the standard process that I’ve lived with 25 years—all of that is changing.”
Much of that, he said, is because contractors are moving to become leaner by reducing redundancies built in their processes. Technology, as well, will continue to drive change in construction, he said.
As for the region’s ability to fill the workload pipeline, “there are not a lot of home runs out there, the NBAFs of the world,” he said. “We have to continue to rely on singles and doubles,” but he’s hopeful that the private side will step in to offset anticipated public-spending reductions at the federal, state and local levels.
David Jahner, regional vice president for electrical contractor Faith Technologies, said the move toward streamlined processes had been a key operational change for subcontractors, as well.
“Lean construction is probably the No. 1 thing we’ve embraced and advan-ced in, unlike LEED, which didn’t drive a lot of value that many of us thought it would,” Jahner said. “Lean has been a competitive advantage, because it gives us the ability to offer a prefabricated product prior to getting on job sites, using alternative installation methods, alternative processes and alternative procedures. It’s been a big competitive advantage for us.”
Surveying the competitive landscape headed into 2013, Jahner said that a traditionally strong construction market in the decade before the downturn had weakened to where twice the number of companies, sometimes a threefold increase, was chasing the same workload.
“The market has been extremely tight over the past two, three years with the number of bidders,” he said. But with the process improvements, “there’s been a slight recovery in our ability to put some margin back into work we’re looking at. More contractors and subs are looking at opportunities they wouldn’t consider before, in some vertical markets, specifically. That drives down opportunities to increase business.”
Still, he says, with improvements in spending for projects in health care, the food sector and in wireless communications infrastructure, “I’m much more optimistic and excited about 2013 than I’ve been in the previous three years. I don’t know that I can sit here and tell you it will go on much beyond 2013, but we look to have a good, strong start, and I see that carrying into the early part of 2014.”
Return to Ingram's November 2012