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Tuesday, January 31, 2023

Recovery can drive up construction costs

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A look at the activity around Wilmington makes it clear the housing and commercial construction markets have recovered from the long recession. That’s great news for contractors, but it also may mean higher construction prices.

Nowhere is that trend felt more than in taxpayer-funded projects.

“Our real test will be when we get bids in for the new elementary school,” said Bill Hance, assistant superintendent for operations with the New Hanover County Schools.

In 2010, the average cost of new school construction in North Carolina was a few pennies under $141 per square foot, the N.C. Department of Instruction’s school planning unit documented. So far this year, the average cost is $195.05 per square foot.

Some of that can be attributed to inflation, but the cost of materials and hiring contractors also is tied to demand, said Eddie Anderson, director of facility planning and construction for the school system.

During the recession, many contractors were looking for work, often prompting them to bid low. As a result, the district was able to rebuild Snipes Academy in 2010 for $125 per square foot. The project came in $700,000 under budget.

That isn’t likely to be the case with the Porters Neck school. But he and the architects have been busy making cuts in the hopes of attracting the lowest possible bid. For example, several different types of roofing will meet standards, so the school system and the architect shop around.

It all boils down to “the supply-and-demand curve,” said Karen Collette, Wilmington division engineer for the N.C. Department of Transportation. As construction activity increases and contractors get busier, they are able to pick and choose their jobs -— raising prices.

The higher costs won’t affect which projects get done, Collette said, because as long as they are funded in the state transportation plan, they will be completed. But there can be some delays, especially if a project must be rebid.

This was the case with the long-awaited widening of Kerr Avenue. Bids opened in August were about 20 percent above the $18.5 million budgeted for construction, Collette said. New bids will be taken in November.

Although it will push back the start date until after the start of 2016, the three-year project still should be completed, Collette said. Construction already had to be pushed back more than one year because of utility relocations and other issues, but DOT officials have said the widening should be completed by December 2018.

In addition to increased activity by contractors, costs also reflect the lingering effects of the recession, when many contractors went out of business and their workers left town for better opportunities.

“We’re quickly getting into a labor shortage,” said Anderson, the schools’ facility planning chief. Not only that, but it also can be harder to get materials and equipment. Manufacturers who cut back production during the recession don’t have a lot of inventory on hand and are generally supplying major equipment, such as heating and air conditioning units, on a custom-order basis, he said.

Getting qualified bidders also can be difficult in a contractors’ market.

Although Wrightsville Beach isn’t expecting any big-ticket projects in the next year or so, town manager Tim Owens said sometimes the smaller jobs, such as a pending $129,000 water line project, are even more susceptible to market-related cost fluctuations.

It can be more difficult to find competitive bids, which also can drive up costs, he said.

“What we’re hearing is that people are so busy they don’t want to be bothered with small projects,” Owens said.

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