States Reap Savings as Construction Firms Clamber for Jobs
Wednesday, April 8, 2009
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.
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, more than anyone could remember.
"Our bottom line is more bidders and better prices," said Maryland Transportation Secretary John Porcari. "This we like."
After years of rapidly escalating construction costs on highway and other projects due to skyrocketing prices of fuel, asphalt and steel, transportation departments are getting a break as the economy slows and construction firms that once built subdivisions and strip malls bid for government work.
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. C.J. Mahan Construction, based in Grove City, Ohio, for example, is bidding on a $100 million highway contract for the Virginia Department of Transportation.
"Anytime you have more competition, it drives prices down," Coburn said. "You can't do but so much with the cost of materials, but firms have cut their margins or found a better mousetrap, and that reflects in pricing." That could mean using new technology that would make their bids cheaper or saving on payments to subcontractors, he said.
Coburn said the falling cost of petroleum, which not only fuels large construction vehicles but is also a key ingredient in asphalt, has helped lower prices. Less competition from China and India for concrete and other materials has helped, too.
Rick Williams, chief financial officer of Beaver Excavating in Canton, Ohio, said the company is bidding on jobs in Virginia, Indiana and Pennsylvania to keep work rolling in. "We've branched out further on some jobs. And there are a lot more bidders everywhere," Williams said. He said that Beaver is bidding on jobs deeper into Pennsylvania than it has in the past and that the company had never bid a job in Indiana in the eight years he has been there.
"We're bidding a lot more work because we need the backlog to keep our people employed," Williams said. "We're probably half of where we want to be for backlog."
Construction firms' hunger for work means that the $787 billion stimulus package passed by Congress could result in more paving for the buck. The stimulus is supposed to pay for "shovel-ready" projects to stimulate the economy, put people back to work and get needed projects done.
"What it's going to do is giving us value for the dollar," said John Horsley, executive director of the American Association of State Highway and Transportation Officials. "The two winners are the public, which gets more improvements, and a net gain in jobs creation. It's a win across the board."
Virginia, Maryland and the District are using their stimulus funds for repairing and maintaining infrastructure instead of building large new projects. Metro will use its share to fix crumbling platforms and for a new railcar testing facility. Maryland is slated to receive $365 million, Metro will get $230 million and the District, $160 million. Virginia will receive $695 for statewide projects and $208 million for urban areas, including Northern Virginia.
Kenneth Simonson, chief economist for the Associated General Contractors of America, said he is seeing the bidding trend across the nation.
In Connecticut, a project on the Merritt Parkway was budgeted at $75 million. The final bid amount: $66.6 million. In North Carolina, Pennsylvania and Rhode Island, bids are coming in 19 percent, 15 percent and 10 percent lower, respectively, according to data provided by the American Association of State Highway and Transportation Officials.
"Wherever I go, I hear of projects that used to attract two to three bids just a couple of years ago, now it's 20 or 30," Simonson said. "Many [contractors] are coming down on the minimum size of projects they will bid on, and ones who didn't do schools now are bidding on schools. Others are coming from out of state to a new region just to keep busy. And they are essentially giving away their services just to keep their key employees busy."