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FEATURE ARTICLE, APRIL 2009
BUILDING FOR THE FUTURE
Construction firms are leveraging design/build expertise, innovative partnerships and the currently low prices on construction materials to offer clients the most cost-efficient building options possible.
Kevin Jeselnik
How is a company expected to grow and thrive when the services their industry provides are not in high demand? That is the question that is burning through the boardrooms and corner offices of every general contracting firm in the country. St. Louis-based ARCO Construction is grappling with these issues alongside their industry bedfellows, and has been touting its history as a relationship-based design/build firm as a potentially valuable asset to any client looking to launch a construction endeavor in the current market.
Design/Build Efficiencies
“We started ARCO 17 years ago strictly committed to design/build,” says Hank Bellina, director of major accounts for the. “We look at everything on a design/build basis. This is the best, safest process for the customer, and it throws the risk back on the general contractor while delivering a great product at a great price.”
Because the architect and engineering teams on a design/build project work contractually under the general contractor, once construction is underway it is on the contractor if any issues or overages arise due to errors in the planning stages.
“In the design/bid/build mode, the architect has a contract with the owner, and at the end of the day, the general contractor is really only in charge of the subcontractors,” Bellina explains. “In the design/build mode, the general contractor is in control of and responsible for the architectural drawings, civil and structural drawings, etc. If there are any mistakes, a seasoned design/build professional will find those early in the process and eliminate them. But if something should get through, it is the general contractor’s responsibility.”
In the current economy, with capital increasingly difficult to obtain and companies monitoring their bottom line closer than ever, the streamlined approach of a design/build contractor can maximize efficiencies in the design and construction of a property by controlling virtually all aspects of the process. Design/build companies can use their relationships in the industry to identify designers and engineers that can most cost-effectively manage and meet the specific needs of a particular project, and find the best pricing on construction materials and labor.
The cost of materials and labor has decreased significantly since early 2008, which may enable some prospective developers to launch projects that were too expensive to consider last year.
“Prices are lower on everything from steel to concrete to drywall,” says Bellina. “If you gave an owner a price in September of last year, you can now return to that client and take as much as 10 percent or more off of the contracts now.”
Adaptation
Even though construction costs have dropped this year, it is still incredibly difficult to launch a new project in this market. Construction firms such as ARCO have had to re-think how they do business, and consider the potential of a wide spectrum of new growth opportunities.
“Good people are still a companies’ most valuable resource,” Bellina says. “We look at our staffing side, who we have and what we have them doing, on a weekly basis right now. The way we are dealing with the recession is that we are adapting our business model at all levels of the company.”
One way ARCO is adapting is to consider entering into the market to build new project types, primarily the still-hot healthcare, education and public sectors.
“We know that the stimulus packages are going to be related to highway and bridge, military, biotechnology and laboratory work,” Bellina notes. “We are putting our foot into the waters of those disciplines. The government and military sectors haven’t been big design/build purchasers. We are trying to take the design/build model and help these public entities understand what we do and how it benefits them. There is still a learning curve on the part of the public sector and the design/build companies that go into these engagements. We want to show them that we offer the benefit of value-engineering very early in the design process.”
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ARCO Construction and The Bick Group have formed a partnership that has allowed the two companies to leverage their complementary areas of expertise to build next-generation data centers, like the one above, for clients across the United States.
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Another way that ARCO is expanding its reach in order to offset the economic climate is through a partnership with The Bick Group, a St. Louis-based developer and operator of mission critical data centers. ARCO has joined forces with The Bick Group to offer design/build services to companies seeking to construct energy-efficient, next-generation data centers.
The Bick Group has 45 years of experience engineering data centers, spanning the full evolution of the industry from punch-card storage to mainframe computers to personal computers and onto high-density rack storage set-up.
“ARCO has specialized in design/build projects for companies large and small, and together we are able to bring a level of skill, sophistication and project management on a national scale to our clients that we think very few companies can match,” says Andy Parham, CEO of The Bick Group.
The two companies have a unique relationship, in which the client decides which company will be the point-of-contact for the project, with both ARCO and Bick providing a project manager to run their portion of the process.
“The most important thing is trust, and having an attitude of abundance,” Parham explains. “We are not going to allow ourselves to get into this game of worrying about how we are going to split up the pie.”
That attitude — valuing teamwork and trust above the bottom line — coupled with loyalty to employees and a willingness to adapt, may be the key for general contractors seeking to weather the current storm and prime themselves to take advantage of the new boom when it surely comes.
Construction Costs Forecasted to Decrease
According to a recent report from Turner Construction Company’s First Quarter 2009 Turner Building Cost Index, which reflects national trends in construction pricing, construction costs in the first quarter of the year are projected to decrease 5.77 percent from fourth-quarter 2008. Since the beginning of 2008, construction costs have decreased by 2.59 percent.
The decline in material and labor costs has been spurred by the decreased amount of construction spending and the increased amount of competition for the few available jobs. According to Turner’s report, material costs are stabilizing due to production cutbacks, while labor costs are countering the recent downward trend through labor wage settlement increases in 2008, which reflects the demand that existed before the industry contracted in the second half of last year.
Though activity is well off the levels experienced during the past few years, construction activity in the education, healthcare and public sectors has continued to show strength across the country. There is also optimism stemming from the continued investment in green building endeavors across all property types. It remains to be seen if the economic stimulus packages from the Federal government will benefit the construction of these project types over the coming months. |
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