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Published in Print: September 1, 2004, as Costs Climb on Materials For Schools

Costs Climb on Materials For Schools

Construction Projects Delayed, Scrapped

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The rapidly rising cost of steel and other construction materials is forcing some districts that are building new schools to scramble for more money, delay work, or redesign projects.

Nationwide, contractors and architects are finding it harder to give accurate estimates on projects, and some have even had to renegotiate contracts with districts.

The prices for nearly every construction material, particularly steel and concrete, have been rising at double-digit percentages in recent months, reminiscent of inflation levels in the 1970s. Even the costs of asphalt, plywood, and paint have been rising, according to data from McGraw-Hill Construction, a New York City-based research group for industry professionals.

The increases may put a dent in the school construction industry, which grew to $29 billion last year. Many of the fastest-growing districts are juggling multiple projects and have seen the greatest impact.

"It has had a dramatic effect in terms of projects coming in over budget, or projects not being bid on at all," Michael Garretson, the deputy superintendent for facilities in the 271,000-student Broward County, Fla., school district, said of the spike in costs.

This summer, bids for a new middle school that had been budgeted at $20 million came in at between $26 and $30 million, he said. Meanwhile, nobody bid at all on a dozen projects budgeted at $1 million or less, possibly because contractors did not see enough potential for profit.

"In the last 12 months, we’ve seen an increase between 15 and 20 percent" on the cost of completed projects, said Dale Scheideman, the director of new schools and facility planning for the 270,000-student Clark County, Nev., district. His district is building 99 schools as part of a 10-year construction plan. If the inflation continues at its current rate, the district could run out of money for one of the schools, Mr. Scheideman said.

Shared Pain

Plenty of school construction contractors have felt the pinch as well. Some say that the bidding process forces them to choose between factoring in cost increases for materials, thus creating a higher bid that might cost them the job, or gamble on a lower bid based on current prices.

"This absolutely has had a very negative affect on contractors’ profits," said Ken Simonson, the chief economist for the Associated General Contractors of America, a national group located in Alexandria, Va.

Because contractors submit bids based on current prices for materials, any price increases between the bid and actual construction, which can take place months or years later, usually must be absorbed by the contractor.

Nationally, steel prices have risen more than 30 percent in the past year. In some cases, Mr. Simonson said, "the steel-price run-up has been sufficient to wipe out contractors’ profits."

Lin Redden, the vice president of the Atlanta-based construction and design firm Heery International, said: "Costs [for steel] have gone up 30 to 40 percent in some areas, and that has definitely caused an impact because a lot of budgets were put together before the spike."

Shortages of materials pose another problem, Mr. Redden and others said. In one case, Mr. Redden said, a school project was under way when his builders discovered they could not get steel joists delivered on time. That delay put the project several weeks behind schedule. Now, most of Heery’s contractors order those materials well ahead of the time they will need them, he said.

Mr. Redden said he had seen some contractors go out of business because of the higher costs.

Demand in Asia

Analysts say several factors are driving up the costs of materials. Mainly, though, the explanation lies in Asia, where countries such as China, Japan, and India have been undergoing massive building booms in recent years, thus increasing demand. That surge overseas has been matched by a robust construction market in the United States, fueled by low interest rates.

"We gained ground because interest rates were so low, but may lose ground because steel prices and concrete prices are going up," said David A. Sneed, the chief of architectural services for the New Jersey Building Authority. The state agency oversees the Garden State’s $8-billion, multiyear school renovation and construction project.

Further, many U.S. steel mills shut down earlier this decade during a market slump. The closures have added to significant supply shortages.

The rising costs of steel and oil have also created a ripple effect as builders have tried to find substitute construction materials to cut costs.

How a district handles cost increases often depends on timing: If construction has begun, it could be more expensive to make changes than to absorb extra costs.

"If it’s been on the board for a couple of years, then they may have to go back and make cuts in the project," said Judy Marks, the associate director of the National Clearinghouse for Educational Facilities, located in Washington. "Some districts are just delaying their projects, hoping the costs will go down."

"Most people have found ways to work around it," Leslie Loudon, an architect, said of the rise in costs. Most often, architects respond by finding ways to downsize projects or by asking districts to come up with more money, said Ms. Loudon, who is with Little Diversified Architectural Consulting, an Arlington, Va.-based firm that specializes in K-12 and higher education facilities.

For example, Ms. Loudon is revamping a current project, a dormitory for Shepherd University in Shepherdstown, W.Va. The project ran over budget in part because of rising materials costs, so Ms. Loudon is simplifying the floor plan and looking for more cost-effective materials.

Break Ahead?

So far, Nevada’s Clark County district, which includes Las Vegas, hasn’t had to make drastic changes, mostly because the district factors in potential price increases when it draws up budgets for its projects, Mr. Scheideman said. As a result, Clark County has actually saved money on construction costs in the past two years.

Florida’s Broward County, which includes Fort Lauderdale, has seen some delays on its projects, particularly when there have been no bids, Mr. Garretson said. The delays are complicating efforts to build more classrooms to meet a state class-size-reduction mandate. The district will lose state aid if it doesn’t comply with the law.

"Therefore, we can’t delay some of these new schools," Mr. Garretson said. "You pay one way or another."

School officials and construction experts are hopeful that the inflation in construction costs will soon ease, or at least become more predictable.

Mr. Garretson, for one, believes a rise in interest rates will dampen the home-building market and lessen demand for materials.

Mr. Redden, though, believes districts’ budgets simply must figure on cost increases. "I’m not an economist," the Atlanta construction executive said, "but my gut tells me we’re still going to have high commodity prices."

Vol. 24, Issue 1, Pages 1,24

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