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Tiltwall Construction Costs |  |
Construction Cost Fluctuations Make Tilt-up Construction
a Better Choice Than EverGeneral contractors will be happy
to hear that America's demand for new commercial and residential building has
been on the increase in 2005. According to the U.S. Census Bureau of the Department
of Commerce, as of August 2005 construction spending was estimated at a seasonally
adjusted annual rate of $1,108.5 billion, 6.1 percent above August 2004. During
the first eight months of 2005, construction spending amounted to $723.7 billion,
9.0 percent above the same period in 2004. From July to August 2005, the fastest
growing segments of the construction industry were highways and nonresidential
private construction, outpacing the rate of growth in residential and all other
facets of public construction. Although demand for new construction
is growing at a healthy, but not excessive rate, construction costs have not demonstrated
the same measured stability. External forces have resulted in phenomenal rate
increases for a wide range of integral construction supplies, raw materials and
services. This fact has made the process for long term cost projections more difficult
now than it's ever been. External Forces Drive Cost Fluctuations
in Construction Supplies and MaterialsIn 2004, Steel was
the primary culprit for increased construction supply costs. The largest factor
influencing this was China's burgeoning economy, which has driven phenomenal growth
in their construction and manufacturing needs. China's demand for steel in 2004
increased by 38 million tons; just their demand increase was as much as the total
annual steel usage for Mexico and Canada . . . combined. This massive increase
in demand, coupled with reduced supplies of raw materials and a weaker American
dollar, drove the price for steel up 66% in one six-month period in 2004 and made
long-term cost estimating for a wide range of construction projects virtually
impossible. Even tilt-up concrete construction projects were significantly affected
by steel's inflation as these buildings normally use steel joists, beams, roof
systems, etc. As a result, in 2004 steel producers added
surcharges or renegotiated contracts to raise prices and help offset their higher
costs, or simply canceled orders they couldn't fill. Steel's spiraling prices
finally peaked and started to reverse themselves in 2005, although they remain
20 - 30% higher now (mid- to late-2005) than their January 2004 levels. Concrete
also was in high demand in 2004 and 2005, driving up prices and lead times for
this raw material as well. While concrete prices have not inflated as dramatically
as steel's, they have increased 10 - 12% between January 2004 and mid-2005. The
availability and price for concrete have long been significant advantages of tilt-up
construction, but both price and availability have presented significant challenges
to cost estimators and general contractors in recent months. Consumer
demand and finite supplies also played a major role in the cost of gasoline and
petroleum products over the past 12 - 24 months. In December 2004 oil sold for
$37 per barrel. In September 2005 oil cost more than $63 per barrel, following
temporary spikes in August that exceeded $70 per barrel. This resulted in price
jumps of 50% for gas and diesel fuels, as well as significantly increased manufacturing
and delivery prices for virtually every product and process in construction. Hurricanes
Create Construction Cost Instability for 2006For the remainder
of 2005 and into 2006, the greatest affect on construction costs may well be the
result of natural - and not man-made - forces. This year Hurricane Katrina caused
at least $125 billion in economic damage and could cost the insurance industry
up to $60 billion in claims. Estimates for damage to infrastructure such as roads,
bridges and the utility system in New Orleans alone exceed $10 billion. Thousands
of businesses and more than 300,000 homes were damaged by Katrina, most of them
beyond repair. Following Katrina was Hurricane Rita, which caused an additional
$10 - 15 billion in damages in Texas and Louisiana. In the
short term, the repair process will place heavy demands on a wide range of building
materials like lumber, steel, plywood, electrical components, glass, roofing materials,
asphalt, carpeting, drywall and PVC piping, so costs and delivery times for these
items are likely to increase nationwide. Skilled construction labor, particularly
framers and drywall installers, will also be at a premium as far away as north
Texas. Katrina will result in a temporarily reduced demand for concrete in the
region as workers focus on repairs rather than new construction. This reduced
demand may or may not translate into price reductions, however; New Orleans is
the country's largest port of entry for imported concrete, and with that city's
diminished functionality, available supplies will be reduced as well as local
demand. For the long term, Katrina's impact on our nation's
oil supplies and continually increasing demand may have the greatest affect on
construction costs. Several American refineries and oil delivery mechanisms were
affected by Katrina; as a result, already-tight oil supplies were further diminished
by the hurricane and the cost to manufacture and deliver products or operate construction
equipment is likely to continue its rise. Adding refinery capacity in our country
would take at least a decade so we have no short term solution to this problem.
Construction Costs SummaryWhen fundamental
raw materials like steel, concrete and petroleum experience double-digit inflation
rates, the amount of time for which material suppliers, tilt-up contractors, general
contractors and cost estimators can commit to pricing grows shorter and shorter.
Established commercial construction companies have outstanding relationships with
major subcontractors and suppliers, as well as the expertise to provide as much
pricing information and commitment as possible. But the fiscal reality of the
global economy and the ramifications of natural disasters shackle all participants
in the building process when it comes to projecting construction costs, long term.
When prices for core raw materials are increasing at eight to ten times the economy's
inflation rate, it is very difficult to commit to pricing several months in the
future that is still cost-competitive. Given that the
costs of raw materials and supplies will not be stabilized in the near future,
the key to controlling the budget is to control and reduce the schedule. Tilt-up
construction allows for a compressed schedule that is extremely reliable, due
to the availability of locally created raw materials and the ability to overlap
skills. As construction costs continue to remain volatile tilt-up construction
will become an even better choice for delivering quality construction projects
that stay in budget. Other things developers can do
to compress the construction schedule and work with leading industry partners
to increase the viability of their project budget include: - Approaches
like Fast Track construction have reduced the timetable for delivering a construction
project considerably.
- Engaging a general contractor or
construction manager earlier in the process is a good way to control time in the
initial planning phases, as these experts understand permitting and other legal
requirements and can ensure all documentation is filed thoroughly and in a timely
manner, reducing schedule delays early on.
- Some building
owners are taking a more active role in the design/bid/build process and are functioning
as a team member to streamline communications and drive faster completion of projects
as well.
Developers and business owners should leverage
these approaches and work with general contractors who have relationships with
established suppliers to maximize their ability to project and budget construction
costs accurately through the end of the building's construction process. Return
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