What are the ramifications of “competitive pricing”

I don’t normally report press releases from architects or contractors who are starting new projects. It seems counterproductive to rub it in the face of the firm’s competitors and of no interest to those at the other end of the country. But an exception with this one as it raises an interesting question.
   The announcement is that R.D. Olson Construction, Irvine, CA, has started building the 129-suite Homewood Suites in Oxnard, CA. Olson is on the fast-track to complete the project by early 2010 after offering its client, T.M. Mian & Associates, Dallas, exceptionally competitive pricing. “Customers are expecting competitive pricing in order to justify building in today’s tough market,” said Joseph Cervantes, Olson’s senior executive vice president operations. “We provide that without compromising quality and schedule.”
   The all-suite extended stay hotel, part of the Hilton brand, features a number of in-room amenities geared for vacationers and businesspeople. Those include kitchens, refrigerators, cook-tops, and microwaves. The approximately $10.5 million project was designed by RYS Architects of San Francisco.
   The question this announcement raises is in the two statements from Cervantes. Just how much are architects and contractors having to discount their work to get jobs and what is the breaking point? Cervantes claims that they are cutting pricing “without compromising quality and schedule.” Assuming that their work was competitively priced to begin with, and I’m confident it was, something has to give if the project cost is reduced and quality and scheduling maintained. Are the suppliers taking the hit? Are architects and contractors simply working on smaller margins? What is this recession doing to the overall cost structure of commercial construction and will those changes remain in play as the economy recovers? It’s an interesting dynamic and it will be more interesting to see what ramifications result.—Gary L. Parr

Construction spending headed north?

These days we are seeing all kinds of signs that the economy has found a solid bottom and might be headed for improvement. Those of us in the commercial construction world got some very encouraging news this past Tuesday when the U.S. Dept. of Commerce, Washington, reported that U.S. construction spending rose 0.8% in April, the largest one-month increase since August 2008. According to CNN and others, the experts were expecting a drop of at least 0.8%. Even more encouraging is that the Dept. of Commerce report tells us that nonresidential construction rose 1.8% in April, putting the annual spending level at $408.2 billion. This news bodes well for the remainder of 2009 and certainly for 2010.—Gary L. Parr

H.R. 2187 a drop in the bucket?

In a May 14 blog item, I discussed legislation H.R. 2187, the 21st Century Green High-Performing Public School Facilities Act, which, that day, was passed by the House of Representatives. The bill, should it be enacted, would authorize $6.4 billion for school districts to do green-oriented renovation work in 2010. To me, $6.4 billion seemed like a ton of money that would make a significant difference.
   It became obvious to me that I have absolutely no concept of how far a billion dollars will go when I received a press release a few days ago for the Green California Schools Summit (Dec. 9 to 11, Pasadena). That release refers to H.R. 2187 and then states, “There’s lots of work to be done. The American Federation of Teachers estimates it would cost just short of $225 billion to fully renovate and repair schools across the country.”
   If my calculator is accurate, that puts us $218.6 billion short of the needed funds! H.R. 2187 doesn’t even get us in the parking lot with the heavy equipment.
   Who is going to provide the rest of the funding? I’ve not recently heard of any states being flush with cash, particularly California, so that’s not a source. I don’t know of one U.S. citizen who will vote for anything that resembles a tax increase and any legislator who supports a tax increase is likely signing his/her own political death warrant.
   I still hope that H.R. 2187 gets enacted, but it’s going to take a few more of those $6.4-million payouts to truly make a difference.—Gary L. Parr

Another hint of recovery?

The Architecture Billings Index, a monthly market-status indicator produced by the American Institute of Architects, Washington, has now given us consecutive months of positive news. The index increased eight points in March, the first increase since August 2008. The April index fell less than a point and, for the first time since August and September 2008, the index has consecutive months higher than 40. Any score of 50 or more indicates an increase in billings. While this still has the market in a declining state, the good news is that the new projects inquiry score for April was 56.8. “The most encouraging part of this news is that this is the second month with very strong inquiries for new projects. A growing number of architecture firms report potential projects arising from federal stimulus funds,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Still, too many architects are continuing to report difficult conditions to feel confident that the economic landscape for the construction industry will improve very quickly. What these figures mean is that we could be seeing things turn around over a period of several months.”
   While we are all cautious, the construction news these days has a much more positive flavor to it than it did a couple of months ago.—Gary L. Parr

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“Green” facts from the “green” leader

Tweeter Heather West of Heather West Public Relations, Minneapolis, and, quite frankly, one of the better PR people I know, provided a link to remarks made by Rick Fedrizzi, president and CEO of the U.S. Green Building Council, at the Federal Summit 2009, held May 14 in Washington. You can download a pdf file of all of his remarks here, but I’ll give you what I view to be the highlights:

  • We know the economy has caused a slowdown in new building, but the better news is that it has invigorated the retrofitting of our existing building stock, and that’s a huge boon to our efforts to reduce our energy dependence on fossil fuels and to slow the pace of climate change.
  • There are 5.1 million commercial buildings in America, and almost all could benefit from significant operational upgrades and improvements. McKinsey estimates there’s a $160 billion upside in savings from energy retrofits. And we know that green buildings also mean green jobs, a critically important consideration as we work to get the economy back into gear.
  • Recently GSA ran a detailed evaluation of 12 of its sustainably designed buildings, post-occupancy, and discovered that these 12, when considered jointly, and compared to the national average
    –Produced 33% lower carbon emissions
    –Used 26% less energy
    –Used 3% less domestic water
    –Had occupants that were 27% more satisfied.
  • However, within the group of 12, two of the buildings were LEED Gold, and those buildings:
    –Consumed 34% less energy
    –Used 54% less domestic water than the national average
    –And their occupants reported 34% greater satisfaction.
  • And yet I’m sure you get the same question I do: In this time of profound economic stress, people always ask: Is green so important now when the times are so dire? In effect, they are asking, is the green building movement over?
  • And I respond with a resounding NO. In fact, I think we’ve only just begun to hit our stride on transforming our built environment.
  • In the last 6 months, we saw the passage of $17 billion in renewable energy and energy efficiency tax credits in last year’s bank bailout; and it was the only money in the bailout that wasn’t going to the banks.
  • And, as part of the economic stimulus bill, we saw about $30 billion in green building related provisions. And that was just in congressional intent and there is much more in indirect provisions as you follow the money from the Federal Agencies to state houses across the country. Whether it was the:
    –$9 billion that was made available to green school modernization and renovation
    –$3.2 billion to the State Energy Programs
    –$3.1 billion to the Energy Efficiency and Conservation Block Grant program
    –$5 billion to GSA to green federal facilities
    –$5 billion to the weatherization assistance program, which will get us on the way to weatherizing 1 million homes.
  • There is simply no doubt that green building is at the nexus of creating jobs, saving energy, and saving money. And your leadership across the breadth and depth of the federal government is how we will deliver on that equation.

Of course, the head guy at USGBC is going to tell us that the green movement is going strong, even when money is tight. But he speaks the truth. Many discussions I’ve had at trade shows this spring have all carried the common thread of sustainable construction and energy savings. It’s here, it’s real, and will be for a long time.—Gary L. Parr