Like everyone, I have been looking for some good economic news mixed in among all the bad news we have been hearing. It’s taken a while, but I think I may have found something and I hope it gives our clients some renewed hope for better days. Ironically, those “better days” might be with us right now!
Construction costs have come down during the past six months. Actually, they have come way down, and I believe that clients should take advantage of this favorable bid market while it is here, if they are in a position to do so. Unfortunately, many clients have put their projects on hold due to the uncertain economic climate, and are waiting until the economy improves before reactivating design and committing to construction. That is understandable, certainly, but is not necessarily the most prudent course for every client to follow. Simply put, there are bargains in the construction industry today that may not be there a year or two from now.
Our firm designs hundreds of projects each year, in five different practice areas ranging from commercial to healthcare. During the past six months we have watched the competitive bid market retrench sharply in terms of both labor and materials on the order of 10% to as much as 15% in some cases, in every practice area, and in nearly every region we serve. More general contractors are showing interest in lump sum bidding than ever before, and for those projects that are delivered through the construction management process sub bid coverage has been extraordinary, with tight numbers in every trade. Material costs have also dropped, resulting in dramatic savings. For example, steel bids that were $4000/ton a year ago are now often below $3000/ton. Concrete, drywall, copper and other material costs have also declined.
Now, I realize that clients look at more than just the cost of construction when they consider a building program. But, I’d suggest that you at least ask your preferred contractor to give you a brief presentation on construction cost trends in your area. You may be pleasantly surprised to find a silver lining in the otherwise dark economic clouds hanging overhead.
Friday, February 27, 2009
Friday, February 20, 2009
Old Dogs and New Tricks
You’ve probably seen this on the news recently, but to bring you up to date…. a ten year old Sussex spaniel named Stump just won Best in Show at the Westminster Dog Show.
While watching Stump’s coronation, I was reminded of my own dog, Major, with whom I grew up as a child. He was a collie – the runt of the litter – but like Stump he seemed to improve with age. By the time he was ten (and I was twelve) Major had developed debilitating arthritis in his hind legs and no longer had that youthful spring in his step. However, like Stump, he compensated with a boundless reserve of character. One day when I took him out for a walk (these were the days before leash laws) we encountered a young German shepherd who challenged Major to a fight, charging furiously and knocking him on his back. To my surprise, Major immediately righted himself, bared his well-worn teeth, and chased the young upstart into the bushes, nipping at his heels the whole way. In an instant Major was transformed from the crippled pet I’d been coddling into a fierce and proud archetype of his breed.
Now, it seems to me that our country – crippled by recession – can learn some new tricks from these two old dogs. The United States is more than 220 years old at this point (that’s about 1540 in dog years!), and during the post World War II era, we have become an increasingly coddled society, self-indulgent and inclined to excessive spending and consumerism. Challenging all of us who run businesses is a national and global economy that is in disarray. However, America has always demonstrated fierce resolve when faced with adversity; but, to fight off this recession it will take more than reserves of pride and character, it will take the learning of some new tricks like embracing renewable energy and sustainable design; rediscovering the values of frugality and hard work; and, above all, foregoing our bad habits of excessive borrowing and spending.
Just as there are no short cuts to success in business, there are no quick fixes to this recession. But, I am an optimist at heart, and I believe that our country will reemerge stronger, and hopefully a bit wiser, once the recession is behind us. Who said old dogs can’t learn new tricks?
While watching Stump’s coronation, I was reminded of my own dog, Major, with whom I grew up as a child. He was a collie – the runt of the litter – but like Stump he seemed to improve with age. By the time he was ten (and I was twelve) Major had developed debilitating arthritis in his hind legs and no longer had that youthful spring in his step. However, like Stump, he compensated with a boundless reserve of character. One day when I took him out for a walk (these were the days before leash laws) we encountered a young German shepherd who challenged Major to a fight, charging furiously and knocking him on his back. To my surprise, Major immediately righted himself, bared his well-worn teeth, and chased the young upstart into the bushes, nipping at his heels the whole way. In an instant Major was transformed from the crippled pet I’d been coddling into a fierce and proud archetype of his breed.
Now, it seems to me that our country – crippled by recession – can learn some new tricks from these two old dogs. The United States is more than 220 years old at this point (that’s about 1540 in dog years!), and during the post World War II era, we have become an increasingly coddled society, self-indulgent and inclined to excessive spending and consumerism. Challenging all of us who run businesses is a national and global economy that is in disarray. However, America has always demonstrated fierce resolve when faced with adversity; but, to fight off this recession it will take more than reserves of pride and character, it will take the learning of some new tricks like embracing renewable energy and sustainable design; rediscovering the values of frugality and hard work; and, above all, foregoing our bad habits of excessive borrowing and spending.
Just as there are no short cuts to success in business, there are no quick fixes to this recession. But, I am an optimist at heart, and I believe that our country will reemerge stronger, and hopefully a bit wiser, once the recession is behind us. Who said old dogs can’t learn new tricks?
Tuesday, February 10, 2009
Economic Stimulus
Today the Senate is debating the merits of the Economic Stimulus Package.
That the US economy is in peril is no longer a matter of debate. What is also clear is that the design and construction industry plays a vital role in this country’s economy, and that without the industry’s recovery, the recession will persist and perhaps deepen. Roughly one out of every ten dollars of our economy is invested in design and construction. The housing industry is the largest component of this expenditure and has received the most press because of its precipitous decline and palpable impact on Main Street America. However, a review of the latest McGraw Hill Construction Report reveals that all market sectors, including institutional, hospitality, and commercial, are sagging as well. The Stimulus Package affords Congress the opportunity to not only reinvigorate our economy through much needed construction projects; but, it is also an opportunity to build a better country through sustainable design.
The American Institute of Architects has outlined a plan for restoring our economy and greening our communities. It’s called Rebuild and Renew America, and I strongly endorse it. The plan calls for the prioritization of funding for projects which can commence within 24 months; for projects that rebuild and improve the safety of our infrastructure; and, for projects that create energy efficient, sustainable, and healthy communities. The AIA does not advocate only for projects that are “shovel-ready”, but rather for investment in the planning and design process itself.
Specifically, the plan calls for an investment of nearly $100B in our industry. Among the targeted expenditures are:$25B to help our schools repair and modernize their facilities and invest in green design initiatives, and $700M to create a pilot program to develop model school campuses; $10B for energy efficient upgrades of federal buildings; $10B for energy efficient upgrades of state and local residential, commercial, industrial and healthcare facilities; $30B for the Community Development Block Grant program; $10B for energy efficiency and green design investment in projects such as affordable housing; $12B for transit facilities; $130M in funding and grants for historic and tribal preservation; and, finally tax relief for businesses, including the acceleration of the depreciation of energy efficient HVAC installations on certain properties.
It remains to be seen how many of these provisions will survive the Senate version of the bill, but the time for debate is past.
That the US economy is in peril is no longer a matter of debate. What is also clear is that the design and construction industry plays a vital role in this country’s economy, and that without the industry’s recovery, the recession will persist and perhaps deepen. Roughly one out of every ten dollars of our economy is invested in design and construction. The housing industry is the largest component of this expenditure and has received the most press because of its precipitous decline and palpable impact on Main Street America. However, a review of the latest McGraw Hill Construction Report reveals that all market sectors, including institutional, hospitality, and commercial, are sagging as well. The Stimulus Package affords Congress the opportunity to not only reinvigorate our economy through much needed construction projects; but, it is also an opportunity to build a better country through sustainable design.
The American Institute of Architects has outlined a plan for restoring our economy and greening our communities. It’s called Rebuild and Renew America, and I strongly endorse it. The plan calls for the prioritization of funding for projects which can commence within 24 months; for projects that rebuild and improve the safety of our infrastructure; and, for projects that create energy efficient, sustainable, and healthy communities. The AIA does not advocate only for projects that are “shovel-ready”, but rather for investment in the planning and design process itself.
Specifically, the plan calls for an investment of nearly $100B in our industry. Among the targeted expenditures are:$25B to help our schools repair and modernize their facilities and invest in green design initiatives, and $700M to create a pilot program to develop model school campuses; $10B for energy efficient upgrades of federal buildings; $10B for energy efficient upgrades of state and local residential, commercial, industrial and healthcare facilities; $30B for the Community Development Block Grant program; $10B for energy efficiency and green design investment in projects such as affordable housing; $12B for transit facilities; $130M in funding and grants for historic and tribal preservation; and, finally tax relief for businesses, including the acceleration of the depreciation of energy efficient HVAC installations on certain properties.
It remains to be seen how many of these provisions will survive the Senate version of the bill, but the time for debate is past.
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