Predicting What Projects Should Cost Requires More Clairvoyance Than Ever

Staff
July-August
2021

There is good reason for optimism in the construction industry as the pandemic wanes in the United States. That said, restarting the economy comes with challenges, especially while significant volatility in the material supply chain is affecting all major construction, including the airport market.


Dwight H. Pullen Jr.,  
national core market leader for DPR Construction, is a thought leader in airport infrastructure development. Within DPR, he focuses on strategic growth in the airport sector, profitability, operational excellence, growing talent and maximizing customer engagement.

Consider these dynamic factors:

• Costs have surged for select materials, most notably steel and copper. For example, the price of steel rose 25% to 50% in recent months; and lumber continues to experience month-over-month increases.

• Attention has turned away from production to supply chains and, more specifically, material delivery. Recent increases in demand have led to higher prices and longer delivery times.

• Initial studies indicate prices and delivery times are being affected by the loss of skilled workers who have chosen to retire, which has put added pressure on the remaining manufacturing workforce.

• Labor markets are still under pressure. Although the overall drop in construction activity offered a respite, it is expected to be temporary. If activity returns as expected, there could be pressure in the labor market that drives up project costs. 

• There are indications that some organizations and projects are trying to get ahead of this curve, and that this trend is expected to pick up pace throughout the year. There is also the potential for difficulties in hiring across multiple disciplines, most notably within the mechanical, electrical and plumbing trades.

Despite these variables, airports expect general contractors to accurately and reliably predict what projects should cost. So we must wear many hats for our customers. We are allies who look out for them and serve as stewards of their budgets. We are also detectives who ask the right questions to uncover clues, and scientists who use data to drive key decisions. Acting as maestros, we communicate clearly and orchestrate collaboration among large project teams. Clients also rely on us to be clairvoyants who make reliable predictions based on historical data and current market conditions.

In turn, we encourage airports and their teams to consider a multitude of factors when forecasting cost escalation for projects:

• Materials: natural resources, energy costs, taxes/tariffs, demand, manufacturing capacity, competition, building code changes, natural disasters

• Labor: wage increases, prevailing wage/union agreements, labor availability, onsite/offsite contractors, complexity of the work, labor strikes, travel requirements, changing minimum wage laws

• Regional aspects: design criteria, weather and seasonal impacts, code changes, jurisdiction impacts, cost of living

• Dynamic market conditions: construction market saturation, subcontractor demand/availability, the impact of mega-projects to trades, industry investment, general economics/recessions, pandemics/wars/etc.

• Procurement: long-lead items/schedule requirements, special components, expediting/acceleration, market/sector trends, political environment

Despite this mixed gumbo of current challenges, there are several things airport project teams can do to get ahead. First, you should assume there will be a labor shortage, and plan upcoming work accordingly. When doing so, remember that mega-projects can suck up resources and complicate issues for a long time. It will also help to initiate programs for workforce development in your communities, support existing local apprenticeship programs and engage regional labor leaders.

We strongly encourage airports to establish a plan for material delays—potentially multi-month delays. It will be important to work with contractors and local trades to get ahead of the supply chain by pre-specifying materials as early as possible. Get creative about aligning on design parameters and be ready to pivot. 

To ease stress during projects, we suggest leveraging multi-trade, multi-scope prefabrication and modular construction. This is a great option because it increases efficiency and minimizes impact on everyday airport operations while enhancing safety and improving quality. It also helps keep facilities as close to fully operable as possible and allows management to quickly address growing capacity needs.

Now more than ever, planning is key to success for any project—at airports and elsewhere. Everyone is eager to get back in motion. And as we ramp up, there is an increased need for collaboration during project planning.

 

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