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.
“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.
In 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.