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No matter what happens, we're all in this together.
That's the theme of our fourth annual survey on the use of architecture, engineering, and construction (AEC) firms.
When we e-mailed our questionnaire to readers in March, housing starts were at a 17-year low, down nearly 12% from February. Traditionally, the public market feels the affects of economic slowdowns several years after the fact; and, true to form, property and sales tax revenues are falling.
“This hasn't happened in more than 15 years,” says Michael Pagano, interim dean of the college of urban planning and public affairs at the University of Illinois at Chicago. “Revenues are beginning to slow very rapidly, and all of these bills are starting to pile up.”
And this recession comes with a twist: a dramatic increase in the price of construction materials.
“Beginning with the steel price spike in 2004, costs have been rising at twice the rate of the consumer price index (CPI),” says Ken Simonson, chief economist for the Associated General Contractors of America. From December 2003 to March 2008, the CPI went up 16%, but the producer price index (PPI) for input to construction industries rose 34%, the highway and street PPI jumped to 56%, and the heavy construction index increased to 49%.
“The economy is gradually going to pick up over the next several quarters, but we won't see that in public works construction because of the lag in revenues and contract awarding,” Simonson says. “Higher materials costs will be the order of the day for the next several years.”
The decrease in demand and the increase in prices explain why fewer contracts for new infrastructure are being let.
Simonson also theorizes that bids came in above anticipated levels, “so by the fourth year of a plan or bond issue, the money isn't there. We've seen many projects scaled back, deferred, or canceled because of that.”
These dynamics are changing both the types of projects managers are letting and how those projects are managed.NEW PROJECTS, NEW PRIORITIES
Although our surveys have always shown how much public works relies on AEC firms for design, departments are increasingly using the firms for planning and building as well.
“In the past, agencies might have hired these firms simply for one purpose,” says Mark Bridgers, a consultant with management consulting firm FMI Corp. “But now there's more design-construct and plan-construct.”
What's driving that change is lack of resources: Firms are looking for ways to collapse planning and construction into a single contract to more easily manage projects, and their public clients—relying more on outside sources because the average project has grown in size and complexity and has to be built faster—are accepting that change because they're dealing with fewer resources themselves.