Attachment A

 

Memorandum To:  Tom Foley, Assistant County Executive

 

FROM: George Shadman, Director of General Services

 

DATE:  October 25, 2006

 

RE:  Escalating Construction Costs

 

As per our conversation, I have been doing some research on the apparent escalation of construction costs that we have been experiencing this building season.  The information that I have uncovered has verified that the past 18-24 months have been unprecedented in the cost of new and renovated work.

 

In the October 9, 2006 issue of The Wall Street Journal, the paper quoted the U. S. Commerce Department that construction spending rose 11.6% in 2004 and 10.5% in 2005, and that trend continued into the first half of 2006.  They attribute this to a strong construction market in Asia and the U.S. and the rapid rise in petroleum prices.

 

According to the Equipment World Magazine, October 19, 2006, it was the devastation of the 2005 hurricane season that resulted in over $100 billion blamed for the heightened cost of construction material.  Material such as roofing material, insulation, PVC pipe, carpeting, paint and especially asphalt are high energy intensive to produce and high oil and natural gas prices have a direct impact on those costs.

 

In the July 17, 2006 issue of Nation’s Building News, a publication of McGraw-Hill Construction, a publishing company, it stated that construction costs have risen 30% to 40% in the last 12 to 18 months.

 

We asked McDonough, Bolyard, and Peck (MBP) Construction Engineering, who have completed some recent requests for project estimating for the County (and is also used by Charlottesville and UVA), to look at the design of Fire Station 12 and give us their opinion of the bids that were received.  They stated, “MBP concludes that the bid prices, although high, appear to be appropriate for the design and location of this facility.”  They also say in the same analysis that Engineering News Record, has recently reported “it is clear that construction costs have increased significantly in the last 6 years.  Between 2003 and 2004, the BCI [Building Cost Index] is up almost 5% in the first half of 2006 making a total increase of 41% since 2003.”  MBP also anticipates that this latest gain will keep the average increase for this calendar year at 10%.

 

I have recently contacted the Town of Front Royal and talked to the Town Engineer/Director of Public Works to see what they have experience in the past two years for asphalt and concrete prices.  The cost for curb and gutter has increased from $26.00 per linear foot in FY 2005 to $42.00/LF in FY 07, a 62% increase.  The cost for paving has increased during this same period from $37.25/ton to $61.00/ton, a 61% increase.

 

The Wall Street Journal has quoted steel and iron prices rose 33.7% in 2004 alone, with lumber, gypsum, or wallboard, increasing 20% the same year.

 

With crude oil prices varying from one season to the other, future construction costs may very well be contingent on whether we have a strong or mild winter.  Contractors when submitting a bid, have to build in their best guess on what the price of materials will be six or seven months down the road from the time they submit their bids for a project to when they receive a notice to proceed and begin ordering from their supplier. They are also stipulating in their bids that their price is good for a shorter period than normal due to the market changes.

 

I hope that this information helps in your evaluation of Fire Station 12 and in explaining the increases in the proposed CIP budget.

 

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