Monthly Archives: May 2010

A taste of urban development

The DJC’s Urban Development special is publishing Thursday. In it you will find a few strategies developers and consultants are using or recommending to get projects moving.

Denny Onslow of Harbor Properties writes about how the recession has spurred a higher level of teamwork between project stakeholders, architect Greg Carpenter has new ideas for mixed-use projects, and preservation planner Sonja Sokol Furesz details the steps taken to preserve historic elements salvaged from the McKay buildings in Seattle.

Enjoy!

Check out “tool library” coming to West Seattle

How many times have bought a special tool, only to use it once? Or, maybe you can’t afford a garage full of tools or don’t have space for them. Well, along comes a really cool idea — a tool library.

Folks at Sustainable West Seattle have been working for months on how to pull that off. Now, with the help of a $20,000  Seattle Department of Neighborhoods’ Neighborhood Matching Fund and other donations, the West Seattle Tool Library is slated to open on June 12 at South Seattle Community College.

The library will be more than a place to check out tools, it will offer classes and provide information on tool usage.

“So far we’ve partnered with organizations such as the West Seattle Nursery and Community Harvest of South Seattle, and have gathered tools from generous donors throughout West Seattle. Our biggest tool drive was held on May 8 at the West Seattle Community Garage Sale, which put our number of tools up over 300,” said coordinator Patrick Dunn of Sustainable West Seattle in a press release. “We’d like to encourage everyone to come out and join in the effort to provide community resources for West Seattle.”

The next tool drive will be held on June 5 at the Refresh Southwest festival. Tools can also be donated at the West Seattle Farmers’ Market and at South Seattle Community College. The library will be located at the college’s Garden Center, which is on the north end of campus at 6000 16th Ave. S.W.

Organizers are still looking for more tools (not gas-powered) and have put together a “wish list” that includes clamps, a pressure washer, portable table saw, portable planer, wet vacuum, wheelbarrows and more. Check out the full list: Tool Library Wish List.

Construction Rebound Weakest in the West

Associated Builders and Contractors (ABC) has released its Construction Backlog Indicator (CBI) for the first quarter of 2010 showing a 4.5 percent increase in construction backlog orders to 6.07 months, up from 5.81 months in the fourth quarter of 2009. Over the two-month period from February to March of this year, CBI shot up 17 percent and now stands at 6.05 months.

While the CBI rose in all areas of the country except the West from February to March, the Northeastern United States is the only region to see a higher backlog when compared to March 2009. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

“The fact that the CBI is on the rise illustrates that the improvements recently seen in various other indicators, including construction spending, will continue through much of the balance of 2010,” said ABC Chief Economist Anirban Basu. “However, the overall impact of the recession may not be at an end or approaching an end. It remains too soon to tell whether the current momentum will continue through 2011.

“As an indicator, the nonresidential construction industry tends to lag the overall economy by 12 to 24 months. With the broader economy having been in recovery for the better part of a year, and with stimulus spending still having an impact, the expectation is that for now, backlog will remain stable or better in the months ahead,” Basu said. “Still, there are many forces at work that suggest that the sector’s recovery may not be sustained as stimulus monies are steadily drawn down and commercial construction remains weak due to high vacancy rates and tight credit.

In the West, backlog stands at 5.76 months in March 2010, roughly the same level as in August 2009, and has yet to demonstrate significant momentum, which may be due in part to the prevalence of serious state and local fiscal issues, as well as weak housing market performance,” said Basu.

“Construction backlog is no longer falling, and in fact, was rising during the first quarter of 2010 – a sign that nonresidential construction’s rebound is spreading beyond government-financed projects and is increasingly private-sector motivated. It is important to note that the relative flatness of construction backlog in the infrastructure category shows that much of the money associated with the stimulus package has been obligated and is already reflected in backlog,” Basu said.

Plight of Mirage Subs a “Pay if Paid” Lesson?

An article in yesterday’s DJC discussed a general contractor’s (Perini) desire to get subcontractors paid, despite a nearly $500 million dispute over the construction of the $8.5 billion Mirage City Center project in Las Vegas. I was particularly drawn to this phrase in the article: “The subcontractors have not been paid as a result of the dispute, because their contracts require them to wait until Perini and MGM Mirage settle their final bills.”

Sure sounded like those subs have “pay if paid” subcontracts. Almost every subcontract we see these days has a “pay if paid” clause in it (an option for “pay if paid” was added to the AGC of Washington 2002 subcontract edition), which if done correctly, places on the subcontractors the same risk as is placed on the general contractor for the owner’s possible non-payment. Although some jurisdictions do not allow it (California, for example), “pay if paid” is doing away with the old “payment within a reasonable time” that Washington subcontractors used to count on. And, because “pay if paid” has changed the traditional risk paradigm for them, subcontractors have begun asking for assurances of the owner’s financing before committing to a project, just the way that general contractors do.

And why not? These days, other factors are beginning to test “pay if paid” in all-new ways. Owners have projects financed by banks on the FDIC watch list, and numbers of local projects have had lost their financing during construction, leaving no way for the general to be paid, therefore precluding the subs from being paid under the “pay if paid” clauses in the subcontracts. And, in Mirage-like disputes, subs must just stand by, because the general has no obligation to pay unless it has first been paid by the owner.

Also, the ways general contractors contract with owners continues to evolve, often without enough consideration of how that evolution needs to deal with the way subs get paid. For example, the “services addendum” model of general contracting, in which the general becomes a minority member of the owner’s developing entity has gained traction in our area. There are significant tax advantages for the project owner to have the general contractor as a “partner” in the project. But, doing so makes a “pay if paid” provision in a general’s standard subcontract agreement very difficult to understand or accept. If the general is one of the project’s titular owners, and “pay if paid” is designed to shift the risk of the owner’s failure to pay to the sub….well, you get the picture.

Add to the mix the fact that many subcontracts now require subs to waive their rights to lien the project. It’s easy to understand why a sub might have difficulty giving up its statutory right to the security of a lien while also accepting the risk of the owner’s failure to pay. Not a lot of protection left after agreeing to those two terms.

In the Mirage matter, Perini and the owner both have lots of money to spend battling about who owes who what, in a process that might take years to resolve. And even though publicizing the subs’ plight may be a self-serving effort by Perini to get the owner to resolve things faster, it’s nice to see a general contractor expressing concern about getting the subs’ needs addressed, regardless of a contractual clause that says it didn’t have to.

Shortage of Paint Causing Some Road Project Delays

A shortage of material used in the production of pavement marking materials is apparently causing a delay of some road work.

In light of the shortage, which has been reported by several AGC chapters across the country, AGC of America last week contacted the Federal Highway Administration urging them to work with state DOTs to develop a contingency plan to ensure that critical highway construction projects can move forward to completion safely, including final stripping and to ensure that there are no negative ramifications for contractors, subcontractors or suppliers for events that are out of their control.

“Some of our chapters and contractors have been meeting with their DOTs to discuss a variety of remedies that may provide at least temporary relief, including extension of contract deadlines, change orders, prioritizing stripping requirements and easing up on MUTCD specifications for pavement markings, at least temporarily until this shortage is resolved,” said Brian Deery, Senior Director of AGC of America’s Highway and Transportation Division.

Dow Chemical Co., which manufacturers the feed stocks for some of the pavement marking material and several of the major paint and marking material suppliers, has taken the dramatic step of protecting their interests by claiming a “force majeur” exemption to relieve themselves of liability under their contracts for failure to meet contract requirements.

In a letter to its customers, Dow explains:  “(D)ue to circumstances beyond our reasonable control, The Dow Chemical Company has declared force majeure for Methyl Methacrylate (MMA) manufactured at Deer Park, Texas. Since January, we have experienced a number of unplanned repairs and unexpected mechanical failures, including, more recently, plugging in our crude MMA production unit. These unplanned situations have caused significant MMA production rate decreases since January. The plugging recently increased dramatically, causing us to take down the affected crude MMA units immediately for cleaning and repairs.”

In turn, Ennis Traffic Safety Solutions told its customers in a letter:  “Dow Chemical advised us in late April, right before our last price announcement, that our monthly allocation would be cut between 15% and 20%. We have been operating under that assumption here for the last couple of weeks. This morning the realities of this increased tightening has resulted in another reduced allocation of 22% less product here in the month of May. Please keep in mind this is 22% from the already reduced volume.”

Is anybody feeling the pinch of this shortage?

DJC keeps construction workers busy

The Seattle Daily Journal of Commerce is finishing up a renovation of nearly 4,500 square feet of ground floor space in the Journal Building. Kudos to DJC publisher Phil Brown for keeping construction workers employed during these tough times!

Grevstad Construction of Seattle was in charge of the project, which included installing metal bracing and sandblasting the wooden ceiling, beams and columns for that great industrial-office look. A stairwell to the building’s basement was removed and a new stairwell connecting the mezzanine was added. New lighting, bathrooms, a kitchen and conference room were also added.

Finishing touches included new wall paint and a polished concrete floor. Lookin’ good!

The designers were Henry Walters and Carolyn Geise of Geise Architects.

Now all we need is a tenant. Starbucks? Contact Phil at (206) 622-8272 if you know someone who might be interested.

GDP Up for Third Straight Quarter, but It’s Not All Good News

To add to Jerry’s economic news, here’s some more information from ABC’s Chief Economist, Anirban Basu:

“Though the U.S. economy is out of recession, nonresidential building construction is not,” he reports.

Nonresidential fixed investment grew 4.1 percent on a seasonally adjusted annual rate basis in the first quarter of 2010 following revised 5.3 percent growth in the fourth quarter of 2009, according to the U.S Commerce Department’s April 30 gross domestic product (GDP) report. The gain in nonresidential fixed investment is largely due to a 13.4 percent increase in equipment and software spending. In contrast, fixed investment in nonresidential structures, a variable construction companies watch closely, slipped 14 percent during the first quarter.

Residential fixed investment dropped 10.9 percent during the quarter – the first drop since the second quarter of last year. Total exports grew by 5.8 percent as exports of goods increased 6.7 percent and services by 3.8 percent. Total imports were up 8.9 percent, as imports of goods were up 9 percent and imports of services were up 8.7 percent.

Personal consumption expenditures grew 3.6 percent during the first quarter as durable goods consumption jumped 11.3 percent. Nondurable goods consumption increased 3.9 percent and consumption of services increased 2.4 percent. The change in real private inventories added 1.6 percentage points to the first quarter change in real GDP, while final sales (GDP less private inventories) grew 1.6 percent. Federal government spending increased 1.4 percent while state and local spending dropped 3.8 percent in the first quarter.

Gross domestic purchases were up 3.8 percent for the quarter following a 3.8 percent increase during the fourth quarter of last year. Overall, GDP increased 3.2 percent in the first quarter following 5.6 percent growth during the fourth quarter of 2009.

“Viewed in its entirety, the April 30 GDP report is a bit of a disappointment,” said Basu. “While it is true that the economy has now expanded for three consecutive quarters – and it would be nearly impossible to locate an economist who believes the recession is ongoing – much of the improvement was driven by consumers who opened up their purse strings more than had been anticipated.

“This is also consistent with increased investment in inventories as suppliers attempted to keep up with consumption. The nation’s information technology and software industry is also clearly rebounding strongly, which has helped support solid recoveries in the nation’s regional technology centers,” Basu continued.

“Though the U.S. economy is out of recession, nonresidential building construction is not. Even casual observers are aware that commercial real estate is presently overbuilt and underperforming in general. The result is that there is little demand for new construction,” said Basu.

“Moreover, the financial crisis that deepened in September 2008 continues to have a lingering effect in the form of a still tight credit market. A rebound in commercial and other forms of nonresidential construction is not anticipated anytime soon,” Basu said. “The situation could remain problematic for quite some time as state and local governments combat fiscal issues, leading to diminished investment in school construction and other key categories in which public financing plays a major role.”

Pincer on prices?

For public and private owners, an upside to the downturn is that dollars are buying more construction.  For example, in recognition of the favorable bidding climate, on May 5 Governor Gregoire certified changes to 12 project budgets that will make nearly $900,000 available for other projects.  More projects, more work for contractors and their employees, more infrastructure built. But, are contractors headed into a “pincer movement” of lower project prices combined with higher material costs?  AGC of America thinks so.

First, regarding prices for the construction inputs:  AGC economist Ken Simonson noted that compared to March, the April data shows that diesel fuel was up 6.5 percent (not seasonally adjusted), steel mill products were up 5.2 percent, lumber and plywood were up 4.7 percent, copper and brass mill shapes were up 4.3 percent, aluminum mill shapes were up 3.6 percent and gypsum products were up 2.4 percent.  Over the past year, increases in materials costs by structure type have ranged from 3.9 percent for single-unit residential construction to 8.3 percent for inputs to highway and street construction.

Second, regarding the producer price index for finished nonresidential buildings, reflecting what contractors would bid to construct a new building:  This was little changed for the month and down significantly from a year earlier.  Prices for new office buildings fell 0.1 percent from March and 4.3 percent from April 2009.  The index for new industrial buildings was unchanged from a month ago but down 4.0 percent from the year before. The index for new warehouses was up 0.2 percent for the month but down 4.6 percent over 12 months, and the index for new schools was up 0.7 percent in one month but down 1.5 percent over 12 months.

These are national stats.  Is this what people are seeing in this region?  If nothing else, this data should encourage owners to get more work on the streets now!

The “Tower Crane Barometer” May Not Be a Good Measure of Recovery

My office window looks north from the Convention Center toward Lake Union. Just a few months ago, I could count a couple dozen tower cranes at work out there every day. Today, I can see two.

During the boom, tower cranes became an easy way to measure what a busy place we lived in. They were being scheduled years in advance, were being shipped in from around the world, and projects had to be timed just right so the specific crane that was needed would have a “just in time” delivery. I had a casual conversation with a Bellevue City Council Member not long ago, who knew precisely how many tower cranes were still at work in Bellevue today, and what a small percentage they are compared with how many had been at work at the height of the boom. When I asked a lawyer friend in Spokane last week about the construction climate there, his response was that “there were no tower cranes in town right now.”

The problem with using tower cranes as a measure of the health or activity in our construction market is that tower cranes generally speak only to how for-profit commercial construction is going. As we hopefully begin our recovery, we ought not expect that tower cranes will anytime soon be the kind of numerical barometer of our industry’s health they were earlier this decade. Rather now we need to look to a couple important indicators that might foretell that we are on the way to solid recovery in our industry, both of which have a good chance of happening quite soon: a) the real “hit” of stimulus money and the beginning of the huge public works projects that are unquestionably on the way (the waterfront tunnel, the 520 bridge work, the light rail link to the eastside, etc.); and b) Boeing being successful in both its pursuit of the Air Force tanker contract and in its delivery of the first 787s.

The stimulus-funded public works projects that are coming will put significant and high-wage construction jobs back into the economy and will keep them there for years, hopefully while the private market perks up. And, that perk-up will be greatly helped if Boeing can sell the tanker and get its newest big jet truly on line, since sales for Boeing will translate into thousands of new jobs (even if Boeing will assemble some 787s in South Carolina), both at the Lazy B and its local suppliers. In turn, those new jobs will spur a need for thousands more units of housing in South Snohomish County and North King County than are available, even with the current high inventory.

So, while the skylines of Seattle and Bellevue (and even Spokane) were added to like never before, and the tower cranes that symbolized our success dotted the horizon in every direction, the turnaround isn’t going to be able to be measured the same ways our successes were. Rather, when you see some of what may be perceived by the uninitiated to be negatives—traffic diversions and snarls along 520 and the Seattle waterfront, for instance—that may be your first clue that construction is truly picking up. And, with more jobs in the economy, and therefore more need and opportunities for businesses to expand, we might just begin to see a few more tower cranes back in our lives.

Will your business exist in 5 years?

I’m not a fan of typically just posting links in a blog post without some commentary, but we’re having a little difficulty posting videos on the Nuts & Bolts blog, so I’m throwing a link out there. This link is a 4:30 video about where the Internet is today. It currently has less than 220k views as of this post, so I am assuming many of you haven’t seen it yet.

While watching this, the one thing you should think about is: “Will my business exist in five years?”

Once you’ve watched, please come back to the site and leave a comment with your thoughts. I’m looking forward to an engaging discussion.

Link: http://vikduggal.posterous.com/internet-related-food-for-thought

Thanks for reading this post.

Note – The reason I’m not posting my thoughts is I don’t want to persuade anyone in any particular direction. I would rather engage in dialogue around your thoughts.