RALEIGH — Nearly every time the new Wake County Justice Center comes up during a meeting of the Board of Commissioners, one member or another points out that the building – the largest single construction project the county has ever undertaken – was finished last year several months ahead of schedule and about $30 million under budget.
County officials have a right to sound so wistful; they may not see such a bargain again.
After several sluggish years, the non-residential construction business, which has been slower to recover from the recession than homebuilding, is showing signs of improvement. This spring, just as county officials launch an ambitious building program, prices for labor and materials seem poised to rise.
“I’m fairly well convinced that it’s going to happen,” said Mark Forestieri, director of the county’s Facilities Design and Construction department. “It’s already happening in dribs and drabs. The market has been down for so long, it’s bound to go up sometime, and we think it’s probably going to happen now.”
Nationwide, spending on nonresidential construction increased 6.5 percent – more than $35 billion – in January 2014 compared with the same month a year earlier, according to the U.S. Department of Commerce. Forecasters expect business for the year to be up nearly 6 percent over last year.
More building means more competition for the same workers and raw materials, which means prices for both could go up.
As the economy tumbled in 2008-09, local leaders put on hold some of the projects they had planned, including several libraries that were to be paid for from bond issues approved in previous years. The county had the money to build the facilities, but it didn’t want to take on the costs of stocking and operating them while the economy was weak.
The last new library built in the county was Leesville Community, finished in October 2009. It was already under construction when the recession hit.
The county did go forward with construction of one huge project during the downturn: the 577,000-square-foot Justice Center, which opened in downtown Raleigh last year. The $30 million in savings was attributed mostly to prices kept low by the slow economic recovery in the U.S. and slowed growth in China.
Wake County Public Schools has opened some new elementary and middle schools since the worst of the recession but put others on hold.
Now, with the county enjoying increasing sales and property tax revenues, and with voters approving $810 million in bonds for new schools last fall, Wake is ready to kick off a sort of building boom.
EMS station, library first on list
The first project to go to bid is relatively small, a new 4,084-square-foot EMS station at Brier Creek. In January, staff estimated the cost of the building to be about $1.25 million. The county will put the project out to bid in the next two to four weeks.
This summer, the county will take bids on the 22,000-square-foot Northeast Regional Library to be built near Wake Forest. In October, Forestieri told the Wake County Board of Commissioners the building likely would cost about $5.7 million. Original estimates, made before the economy faltered, were for $5.1 to $5.9 million.
The county hopes to have the EMS station finished by summer 2015 and the new library by fall 2015.
The school system has four big projects it hopes to start building this summer: two elementary schools, one middle school and one high school.
Alex Fuller, the school facilities’ director of program controls, recalls that after the 2002-03 downturn, prices soared in 2004 when the market turned around. Reports at the time cited prices for steel and copper construction products increasing by as much as 62 percent over the previous year; gypsum products by 21 percent; asphalt and lumber by 12 percent; and insulation materials by 11 percent. A 50-percent rise in the price of diesel fuel that year also hit contractors hard; they need it to run trucks and heavy equipment and to mix and transport heavy concrete.
“When you’re in a depressed market as we have been since 2009, there isn’t much of an opportunity to raise prices,” Fuller said. “Then when the floodgates open, they open big time. We’re hoping this is a different market and the gates won’t open like that again.”
System adjusts to price hikes
Fuller and Joe Desormeaux, Wake County Public Schools’ assistant superintendent for facilities, said that for government building projects, estimates must include annual increases, because it often takes multiple years to go through the process, from proposal to approval to funding to construction. The school system’s estimates include an inflation rate of 3 percent per year. Some additional money is budgeted for contingencies such as unexpectedly high bids for various parts of the job or code updates that require design changes.
If prices rise more than those cushions allow for, there are large- and small-scale ways to adjust. Entire projects can be delayed, as the county has done in the past, or designers can reduce the size of a building or change construction methods to use less costly materials.
Forestieri said the county has squeezed some savings out of the ongoing renovation of the former Coca-Cola bottling plant on South Wilmington Street in Raleigh that’s being turned into the Career and Technical Education High School. The 81,000-square-foot building will accommodate 700 high school students during the normal school week and up to 1,000 Wake Technical Community College students on evenings and weekends. Renovations began last year and should be finished this summer.
Forestieri said the estimates on steel for the building came in over budget, but the county was able to negotiate a lower price simply by taking the subcontractor to the site to show him the installation would be easier than he had anticipated.
“We had to demystify that,” Forestieri said. “We had to show him, ‘This is not as bad as you think. You don’t have to get a crane. You can erect from underneath.’ Almost immediately, we were able to get $100,000 out of that contract.”
Hints of increases to come
John Katschkowsky, director of reconstruction services for Balfour Beatty Construction in Raleigh, said he has begun to receive notices from his subcontractors that prices for steel and other commodities are going to go up. Sometimes, he said, the company gets such warnings but the increases don’t materialize. Other times they do.
Balfour Beatty was one of the lead companies on the Justice Center and is working on several Wake County schools, with one under construction and several others in the works over the next three years. The company also builds for area universities and the cities of Raleigh and Durham.
“It’s a concern,” Katschkowsky said about the prospect of rising prices. But he doesn’t expect costs to go up more than 5 percent this year.
In January, the U.S. Bureau of Labor Statistics reported that construction jobs had increased in North Carolina by 4.1 percent during the previous year, adding 7,100 jobs. Continued growth, though it would likely bring higher prices, could mean better wages and even more jobs in the industry, including for Wake County residents.
That’s the way it goes, said the school system’s Fuller.
“One time you win, next time you lose,” he said. “All in all, hopefully it comes out even.”