Contractors finally ‘moving off the bottom’

Two of the biggest players in nonresidential construction are predicting a turnaround in the industry, despite the malaise in the general economy. “We feel that the construction market is moving off the bottom and finally showing signs of improvement,” says Nicholas Makes, Senior Vice President at the Turner Corporation. “We have been preparing for an upturn.”

Moreover, in its Spring 2012 edition of “Construction Economics – Market Conditions in Construction,” Gilbane Building Co. forecasts a 5.4% increase from 2011 in spending for all construction, a 6.2% increase for nonresidential buildings, and a 9.8% growth for private-sector work. However, spending also has a ways to go before reaching pre-recession levels: The predicted figure for private construction (including single-family homes) in 2012—$555 billion—is roughly 40% below the $912 billion mark for 2006.

Giants 300 construction firms are reporting that predominantly private institutional sectors, notably healthcare, are still seeing activity. “The intensity for jobs is great, as construction activity declines in state and local government work,” notes Dale Connor, Managing Director, Project Management and Construction (Americas) with Lend Lease. “Capital availability remains tight but is improving, and markets like healthcare and life sciences remain active.”

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Contractors are also seeing opportunities in markets outside the United States. Turner recently opened offices in Toronto and Vancouver and is partnering with Edmonton-based Clark Builders. In Mexico, the firm is currently working on several data centers as well as on a 51-story Latin America headquarters tower for Spanish banking group BBVA. Turner also opened new offices in Vietnam, Malaysia, and Turkey.

Rising costs, fewer skilled laborers

One concern contractors are bracing for is the rising cost of certain materials. “Metals are up due to increased world demand, which is affecting the MEP trades,” says Lend Lease’s Connor. Shortages of aluminum could affect the cost of building envelope materials, and rising oil prices are impacting the costs of building products such as drywall and glass.

Gilbane reports that concrete and steel are both experiencing cost increases ranging between 1.5% and 2.5% over the year. The overall Producer Price Index for February 2012 showed costs for construction materials up 4.4% in the previous 12 months.

Moreover, the Gilbane report says, while construction unemployment has dropped from 25% in February 2010 to 17% in March 2012, the actual number of construction jobs gained has remained flat, due to laborers actually dropping out of the workforce. The Gilbane study forecasts that when work volume begins to increase, labor costs will go up due to a lack of skilled workers.

Increasing efficiencies

Contractors and CM firms are reporting positive benefits from the use of BIM and lean building practices. At Barton Malow, use of the integrated project delivery model continues to expand in an effort to improve project performance. “Our use of BIM and lean construction principles and our corporate culture of collaboration have made IPD a natural extension of our services,” says Senior Vice President Alex Ivanikiw, AIA, LEED AP.

Ivanikiw says that his firm has been testing technologies for practical job site applications at its new Envisioning Center, in Southfield, Mich. “The Envisioning Center is connected to a full-scale gang box in our atrium, simulating how the use of technologies would apply on the job site and how these technologies—hardware and software—need to be adapted for use in the field,” says Ivanikiw.

Turner says it is also focused on improving construction efficiencies. “With the adoption and development of BIM tools and processes, and with widespread implementation of lean construction practices and IPD methods, Turner is performing the same work it has always performed faster and more efficiently,” says Makes.

While construction volume is expected to pick up modestly in the coming year, “The cost of buildings still lags normal labor and material inflation cost indices,” notes the Gilbane report. “It should continue to do so for some time to come, but the gap is narrowing.” +

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