http://newyork.construction.com/features/2009/0901-BiddingFrenzy-1.asp

New York Construction

Bidding Frenzy

Bidding Heats Up as Economy Cools

September 2009

By Diane Greer

When the New York State Dept. of Transportation put together a needs analysis in early 2008, it based its projections on inflation rates from prior projects.

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“We had seen rapid escalations in construction costs that were averaging about 20%,” says Stanley Gee, NYS DOT acting commissioner.

But during 2008 the department started noticing a difference. “The bids were only going up 7% above our estimates last year,” Gee says. “And this year they have been averaging about 12% below our estimates.”

At the same time the number of bidders on each project is up. “There is more competition out there,” Gee says. “Contractors are hungry for work.”

Across the region, tight credit markets and the recession are delaying or stalling many projects, derailing the building boom that fueled skyrocketing construction costs. As work dries up, contractors aggressively bidding on projects are driving down construction costs.

The New Jersey Department of Transportation recently received bids on 14 stimulus projects. “The low bids were under our estimates for 11 of the 14 contracts,” says Erin Phalon, spokesperson for NJDOT. On two specific projects, the Interstate 295 roadway reconstruction and the Route 52 causeway, the low bids were 6% below NJDOT estimates, Phalon says.

Sharon Greenberger, president and CEO of the NYC School Construction Authority, says she is seeing seven to 12 bidders on projects that last year might have seen two to four. Costs and escalation rates are coming down, as well, and bid ranges are tightening, she adds. “Where the price range might have been 20%, now it’s more like 5%,” Greenberger says.

n Milford, Conn., the Perry Hill public school project received 23 bids, up from the six bids a similar project would have seen last year. The winning bid from W&M Construction, Stamford, Conn., was just 0.1% lower than the next highest bid, says.

Durels cites three factors contributing to lower bids: price drops on finished goods, contractors tightening profit margins and subcontractors trying to increase labor productivity. “Subcontractors are dropping prices by about 20% from their peak about 12 months ago,” he says.

n addition to its subcontracting business, W&M manages 20 million sq ft of commercial real estate. “As a landlord we are seeing general contractors anxious to bid our projects, particularly in Manhattan,” Durels says. “We are seeing numbers drop anywhere from 18 to 22%.”

But Durels cautions that one of the dangers in this market is that subcontractors are getting too aggressive. “We are making sure that we hire stable, quality firms,” he says. “This is something that we constantly have to monitor and control.”

The composition of firms bidding on projects is changing as well. Contractors that normally work on private-sector projects, hardest hit by the downturn, are now looking to the public sector for work, says Mike Cobelli, executive vice president of Skanska USA Civil Northeast, New York.

Tim Casey, regional manager, Rifenburg Construction, Troy, N.Y., is seeing a similar trend. “Contractors that might be strictly attached to site jobs, like housing developments or commercial work, are now looking to gain work in the heavy highway sector,” he says.

At the SCA, Greenberger used to see the same group of contractors bidding on work repeatedly. “Now we are seeing more participation and some of the larger firms coming back to bid on projects, not just at the subcontractor level but also the general contractor level,” she says.

Larger firms that typically work on new building projects are also turning up on bid sheets for interior jobs, says Mark Varian, president, John Gallin & Sons, New York. “This is what we see every time we go through a period like this. Likewise, some names we have never heard of before, whether they are new or never were in our arena, are showing up on bid lists.”

Mike Cobelli, executive vice president of Skanska USA Civil Northeast, New York

NYS DOT tracked 32 new bidders on its projects as of June. Gee attributes the increase, in part, to the stimulus program, which is focused on jobs that get people back to work quickly.

“We put out numerous jobs that we could design quickly and projects that we had in the pipeline,” he says. These tended to be smaller projects, either under $1 million or in the $1 million-$3 million range.

“I think those jobs attracted bidders that normally work on municipal contracts, not large construction projects,” Gee says. “We have not analyzed all the data yet, but we think the new bidders are probably smaller firms that are now able to bid as prime contractors.” He added that the department has made a big effort to encourage the minority community to bid on its projects.

Rifenberg, which is typically one of the lower bidders on highway projects, is now finding that it is in the back of the pack when bidding on the smaller resurfacing projects. Casey speculates that some of the smaller firms may be severely cutting their profit margins or even be working at cost in order to attain work.

“They are just trying to hold on until the times get better,” he says.

Larger and more highway jobs will appear in the pipeline as states ramp up their stimulus spending. Prior to receiving stimulus funding, NYS DOT’s budget for its core program was reduced to $1.6 billion. Now the department will receive more than $1 billion extra in stimulus funding. “We almost have an extra year of funding,” Gee says.

For owners that can obtain project funding, the recession has a silver lining. W&M was awarded a bid for a school project in Fairfield, Conn., last year. “As we purchase this job, I think they are going to see prices come down significantly from what we had budgeted earlier,” Durels says. “Now is an excellent time to be bidding work.”

Greenberger says she is pleased to see the participation rates rise and bidding become more competitive. “It means we can do more projects,” she adds.