Wake County’s expansive school-construction program is costing more than expected, raising fears that its nearly $1 billion budget will run out before some projects can be completed.
School administrators say the first group of projects largely funded by the 2013 school construction bond issue cost more than anticipated. The trend is accelerating to the point that some school leaders say the district should prepare a “worst-case scenario” if the original plan for 16 new schools and six major renovations can’t be completed.
School board member Kevin Hill said the district should begin developing a “Plan B” and discuss the situation soon with the Wake County Board of Commissioners.
“I’m just concerned that we’re going to run out of money before we run out of schools to build,” Hill, chairman of the board’s facilities committee, said at an update on the building program this week.
Administrators will ask county commissioners for an advance of $53 million – planned for next year’s spending – in hopes of getting ahead of further increases in land costs and other work.
Voters approved an $810 million school construction bond issue in October 2013, paving the way for $990 million in projects. But during the past few months, bids have come in progressively higher than projections.
Last week, school administrators told the board that they expect to need $9.5 million from an $18.7 million contingency fund to cover higher costs. But since then, bids came in $6 million higher than expected for the new Green Level High School in Cary. Administrators said Wednesday that contracts at that level would leave the contingency fund with $3.3 million.
Administrators cited various factors such as higher costs for structural steel and receiving fewer bids than expected. Officials say they’ve also seen higher costs for site work, which includes retaining walls and athletic fields, and for public infrastructure, which includes extending water lines and road improvements.
“The bid market is so vulnerable right now,” said Joe Desormeaux, the school system’s assistant superintendent for facilities. Fewer contractors are bidding for the work, Desormeaux said, adding that “the ones that are out there are really busy.”
With the majority of the projects still to be bid, Desormeaux said it’s a “crystal-ball thing trying to guess what will happen.”
“The bottom line is we don’t know very much right now,” he said. “It’s still too early. What we’ve done is see what we can figure out.”
This isn’t a new issue for school construction programs.
Higher-than-expected costs after voters approved a $450 million school construction bond issue in 2003 caused some projects to be delayed. But better-than-expected costs after voters approved a $970 million bond issue in 2006 came during the economic downturn and allowed the district to fund more projects than planned.
The higher prices shouldn’t be a surprise, according to Dave Simpson, interim president of Carolinas AGC, a trade group for associated general contractors.
Work, prices increase
“Since 2008, anyone doing construction projects has been used to bargain-basement prices,” he said. “Work is starting to pick up. There is starting to be a major labor shortage, and when demand and cost go up, so do prices. It’s basic economics.”
The higher costs are also raising questions about the way the state’s largest school system handles construction projects. School leaders have said that the “construction manager at risk” method they use for major projects ensures quality and better control of the work. The method, in which a company is hired to manage but not do the actual construction, led to some subcontractors complaining to commissioners last year that it was cutting them out of projects.
Simpson said it might be worthwhile for Wake to consider diversifying the way it awards construction projects. Simpson said the members of his trade group are divided on which method should be used.
Before 2007, the school system used the single-prime construction method, in which all the work is bid out in a single package. The contractor could do the work or have some of it done by subcontractors.
Desormeaux said there’s no reason to believe the financial situation would be better if they hadn’t used the construction manager approach.
Asking for advance
In a move aimed at cutting down on some future costs, school administrators say they want to take advantage of an option mentioned by county staff in which the district could get an advance on money scheduled to be provided in 2016.
The school district has identified $53.3 million in projects that can be accelerated if the county provides the money this year. The list includes items such as $12.7 million for buying land for schools, $12 million for buying technology and $10 million for life-cycle projects such as replacing roofs and air-conditioning units.
“If you can buy land sooner … you want to get it before the developers,” Desormeaux said.