SOURCEBOOK: Health Megaprojects Provide Steady Work
While many of the general building sectors remain in the doldrums, health-care projects continue to pump a steady stream of revenue for top contracting firms. Although the recession did create a pause in capital projects at many health systems, megaprojects—especially federally funded ones—are filling the pipelines of top firms. And as big-dollar projects wane, many companies hope to see a return to more traditional work in the near future.
Skanska USA, New York City, is on track for one of its “better years in health care,” says Andrew Quirk, senior vice president in the firm's Healthcare Center of Excellence. “Last fall, we saw the biggest uptick in recent memory, with inquiries on requests for proposals and interviews,” he adds. “We've seen that same trend this year, and we're starting to get ready for a very busy fall.”
In March, Skanska and joint-venture partner MAPP Construction, Baton Rouge, La., secured the preconstruction assignment for the $1.2-billion University Medical Center project in New Orleans. The project includes a 560,000-sq-ft, 424-bed replacement hospital, an adjoining 746,982-sq-ft diagnostic and treatment center, a 254,765-sq-ft ambulatory care building and a 1,346-car parking structure. “That set the tone for our year, and we've been pushing ever since,” he says.
Although megaprojects factor heavily into Skanska's recent success, Quirk says it sees significant renovation jobs on the horizon. “We've seen $20-million to $50-million necessity projects [in recent years], but we'll start seeing projects over $100 million again soon.”
Such new opportunities emerged from an uneasy market in 2009 and 2010, when Skanska and its competitors saw clients pause in the face of the recession and unease about federal health-care reform.
Walt Massey, president of the National Healthcare Group at Balfour Beatty, Dallas, says fears over health-care reform “have largely settled down,” and administrators are looking to deal with years of deferred maintenance issues. “We see a trend toward more refurbishment of existing assets over the next three to five years,” he says, noting that health-care design firms seem busy. “In many cases, when [administrators] do the cost-benefit analysis, they will see that the repair costs outweigh replacement costs.”
Balfour Beatty is among the major firms leaning on megaprojects to boost revenues in a down market. In December, Balfour Beatty and its joint-venture partner, McCarthy Building, St. Louis, broke ground on the $534-million Carl R. Darnall Army Medical Center replacement at Fort Hood, Texas.
McCarthy has partnered on several megaprojects as well. Last year, it was selected as part of a team with Clark Construction, Bethesda, Md., to build a $995-million replacement hospital for the Southeast Louisiana Veterans Healthcare System in New Orleans. Mike Bolen, chief executive officer of McCarthy Building, says health-care work continues to make up nearly half the firm's total revenues, but megaprojects are far more prominent today. “Our mix of projects leans heavier toward megaprojects than ever before by a factor of two,” he says. “The private sectors slowed down [during the recession], but the ramp up by the [Veterans Administration] and the [Dept. of Defense] will carry us through this downturn.”
Turner Construction, New York City, and Kiewit Building Group, Omaha, are teamed on an $800-million, 1.1-million-sq-ft Veteran's Administration hospital in Aurora, Colo. Michael Kuntz, senior vice president and national health-care director at Turner, says that, as the Dept. of Defense winds down its recent round of major hospital work, the VA will continue to put out projects for a few years. Still, he is hopeful the private and non-profit health systems will bring in the next wave of work. With an expected $1.8-billion of put-in-place construction, Turner, which has seen relatively flat health-care revenues, is also banking on smaller projects to help carry it through.
