The Escalation Roller Coaster and What You Can Do About It

Transcription

1 Since 1972 The Escalation Roller Coaster and What You Can Do About It Richard Vermeulen, Chief Estimator, Lead Economist Vermeulens.com

2 GoToWebinar - Housekeeping: Time For Questions YOUR PARTICIPATION Please continue to submit your text questions and comments using the Questions Panel For more information, please contact Mserrao@Vermeulens.com Note: Today s presentation is being recorded and will be provided within 48 hours.

3 Agenda Concerns Your concerns will be addressed and responses sent

4 Agenda Vermeulens Index 30 year trends Selling prices and margins Economics Relating Macro to Micro Indicators and Metrics Markets and Forecast Regional activity Forecast Cost Control Forum Strategies and Process

5 Vermeulens Index

6 Structural Steel Pricing , Markup Labor Material 2,850 2,750 2,375 3, High Growth Market Adjustment Cost Recovery High Growth 6

7 Causes for The Current Construction Cost Escalation LESS WORKFORCE FEAR FACTOR PRODUCT AVAILABILITY STRICTER CODES STRONG MATERIAL MARKET HIGHER PROFITS

8 Market Watch

9 AIA Billings

10 AIA Billings

11 US Construction Volume 11

12 Assets versus Inputs

13 US Construction Employment (Thousands)

14 Construction Employment and Unemployment Rate

15 US Total Employment (Thousands)

16 US Job Growth

17 Year-Over-Year Construction Labor Growth 17

18 Forecast

19 City Construction Labor 12-Month Average (Thousands) Riverside-San Bernadino-Ontario Denver San Francisco Boston Year-Over-Year Growth High Growth Above Average Growth Average Growth Below Average Growth Contracting Market Market Expansion Riverside* (+53%) San Francisco (+52%) Denver (+49%) Boston (+44%) National (+21%) 19

20 City Construction Labor 12-Month Average (Thousands) Seattle Miami Minneapolis Los Angeles Year-Over-Year Growth High Growth Above Average Growth Average Growth Below Average Growth Contracting Market Market Expansion Seattle (+42%) Minneapolis (+41%) Miami (+41%) Los Angeles (+33%) National (+21%) 20

21 City Construction Labor 12-Month Average (Thousands) Detroit Atlanta Tampa Bay-St. Petersburg-Clearwater San Diego Year-Over-Year Growth High Growth Above Average Growth Average Growth Below Average Growth Contracting Market Market Expansion Detroit (+33%) Tampa Bay* (+33%) Atlanta (+32%) San Diego (+31%) National (+21%) 21

22 City Construction Labor 12-Month Average (Thousands) Phoenix Houston New York Dallas Year-Over-Year Growth High Growth Above Average Growth Average Growth Below Average Growth Contracting Market Market Expansion Phoenix (+30%) New York (+27%) Houston (+26%) Dallas (+26%) National (+21%) 22

23 City Construction Labor 12-Month Average (Thousands) Chicago St. Louis Philadelphia Washington DC Year-Over-Year Growth High Growth Above Average Growth Average Growth Below Average Growth Contracting Market Market Expansion Chicago (+18%) Philadelphia (+15%) St. Louis (+13%) Washington DC (+11%) National (+21%) 23

24 Forecast

25 Agenda Vermeulens Index 30 year trends Selling prices and margins Economics Relating Macro to Micro Indicators and Metrics Markets and Forecast Regional activity Forecast Cost Control Forum Strategies and Process

26 Forum Concerns: 1) How has the impact of a lack of skilled labor played on cost escalation and construction durations? 2) What does the forecast look like for 2018 and beyond? Will this have a negative effect on construction growth domestically? 3) How do we package projects to take advantage of any market downturn in order to add scope we cannot afford in the current market? Additive alternates is an expensive strategy - is it our only option? 4) We are looking at construction types with a higher materials cost but faster erection with less labor; it that a good strategy in this market? 5) Cost escalation in my local micro market does not resemble the regional or national performance. Costs continue to climb here, which makes sense with all of the construction underway and announced. But how do I know I am not overpaying? 6) How do we establish a reliable way of forecasting cost escalation one year out? Three years out?

27 Contingency Project Contingency and Escalation Recommendations Design Contingency Preliminary Design 10% to 15% Schematic Design 6% to 9% Design Development 3% to 6% Contract Documents 0% to 3% Construction Contingency 3% to 5% Escalation - based on the Market Outlook and Local index 3% to 9% Bidding Contingency 0% to 5% Project Contingency (Owner) 5% - 15%

28 Procurement Strategies 1. GMP at DD 10-15% premium End costs vary depending on completeness of documents, relationship of Owner to CM, cost control process > 15% 2. GMP at CD 5-10% premium Proponents provide estimate of costs and commit to general requirements and fee > 10% 3. Modified Bid 0-5% premium Proponents provide GMP based on completed construction documents > 5% 4. Lump-Sum Bid 6-8 pre-qualified general contractors submit lump-sum bids for complete scope of work > 0%

29 Construction Management and Project Type Fast track projects no time for 100% Contract Documents prior to starting construction Busy construction markets CM relationships required to get subcontractors to bid on your project Financing requires a GMP in order to proceed Renovations or additions interfacing with operating facilities Complex and Unique projects

30 Procurement Strategy Texas A&M Engineering Education Center 5-400,000sf Projects Over 10 years 2-500,000sf Projects Over 10 years

31 Procurement Timing Construction Trendline (3.1%) CPI Trendline (2.7%) High Low Vermeulens Index Concept Design Structure & Envelope Enabling Interiors & MEP SD DD CD 220

32 Parallel Estimating and Reconciliation

33 Procurement Strategy Texas A&M Engineering Education Center September 1, 2014 February 1, 2015 August 1, 2015 October 1, 2015 CM Draft CM Reconciled Anticipated Buyout $ Millions Budget 130m SD DD CD 100% CD

34 Fast Track Recommendations Distinct early packages (no cross pollination) Detailed concept design options to marry program and budget Timely decision making at conceptual design avoid escalation Use of bidding contingency to mitigate market risk GMP 100% Documentation = lowest cost

35 Cost Control Checklist Pre-design/Feasibility studies set expectations for budget analysis A/E/C Community Monitor bid results for local and regional projects Pay Attention to A/E and Contractor projects Consult with Contractors Pre-purchase long lead items Coordinate schedule and be realistic about it with users Continuous analysis of market costs most recent and nearby comparable projects weighted heaviest Require estimates and cross check at concept, schematic, and design development stages Clearly communicate specification levels required up front, including areas of flexibility Develop plans with good, better, and best specification options to prepare for market realities

36 Why Vermeulens Easy to Change Speed of Change in Design Hard to Change 65% 25% 10% Concept Phase Evaluate Options Together with Cost, Program, and Design visualization to Create the Foundation for the Mission, Vision and Values for your projects Success Master Planning Program Estimates Sketch Design Feasibility Studies Cost Model Narratives Design Phase Preliminary Design Schematic Design Design Development Construction Documents Construction Phase Manage the risk of Errors, and Omissions, Substitutions, Unexpected Site Conditions or Owner-initiated Changes On Time on Budget and meets the Clients expectations 5% 10% 85% Least Expensive Cost of a Change in Time and Money Most Expensive

37 Why Vermeulens Economics Databasing and Forecasting Value Process Optimization and Cost Control Green at No Cost Ecological and Economic Cost/Benefit Analysis Thank You