Construction project bidding grows at four-times the rate of inflation
According to a new study by PinnacleOne, a construction consulting firm, an overwhelming majority (92%) of public owners have experienced a price increase in construction project bidding during the past year. The average price increase for the 167 owners interviewed was 13.2 percent, more than four times the rate of inflation. A majority (60%) of the owners reported average price increases of 10 percent or more, with better than a quarter (27%) experiencing an average increase over 15 percent and almost a fifth of respondents (18%) saw their average bid price jump by more than 20 percent. The cost of both oil/gas and steel were viewed as the primary drivers of the project price increases by the owners.
“There are many factors driving major inflation on public construction projects. The primary reason is the ever increasing spiral of crude oil costs which affect every material and trade of the construction industry," said John Dunkerley, Director of Cost Management Services at PinnacleOne." Until the price of oil is under control, inflation will be a major concern to all public owners."
These are just a few of the findings in The 2005 PinnacleOne Pulse of U.S. Public Construction survey which examined the opinions of 167 public owners involved in construction projects throughout the United States. Some of the major cost related findings:
"Black Gold, Texas Tea - Oil That Is." When asked to identify the primary cost component driving project price increases in the past year, almost half (48%) of the owners cited oil and gas, while more than a third (35%) pointed to steel prices. No other cost component generated a double digit response as the primary factor. Looking forward, almost two-thirds (64%) of the owners view oil and gas as the cost component that will increase the most in the upcoming year. While still the second greatest cost concern overall, only 15 percent of the owners see the cost of steel increasing more than other components in the next year.
Midwest Hit Hardest - No region has been hit harder by construction price increases than the Midwest. Public Owners in this part of the country reported an average price increase in project bidding of 18 percent, higher than other regions of the country. In fact, 44 percent of Midwestern owners reported an average price increase of more than 15 percent and almost a third (30%) experienced an average price increase in excess of 20 percent. The Midwest was also the only region where every owner reported an increase in the average price of project bidding.
Oil Fuels Transportation- But Steel Drives Education. A strong majority (61%) of owners in the transportation sector cited oil and gas as the primary cost component driving price increases. Public owners in the education sector were the only vertical group that identified steel (48%) as the cost component experiencing the greatest price increase in the past year. One-third of the education vertical (33%) cited oil and gas. In contrast, almost two-thirds (74%) of the owners in education cited oil and gas as the project component likely to experience the greatest price increase in the coming year.
Concrete Hardens Out West- Concrete (8%) was a distant third to oil/gas and steel as the cost component experiencing the greatest price increase in the past year, and only 7 percent of the owners see it as experiencing the greatest price increase in the coming year. Yet, 15 percent of owners in the Western region identified concrete as the primary cost component last year and almost one-fifth (19%) of the owners on the left coast see concrete experiencing the biggest price increase in the coming year.
Municipal Vertical Less Affected- The percentage of public owners in the government sector reporting no increase in the average price of project bidding (16%) was double that of all public owners (8%) experiencing no increase.
The 2005 PinnacleOne Pulse of U.S. Public Construction study was a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, that examined the attitudes of public owners on construction issues related to project management, energy/environment and claim resolution. The survey was conducted in August of this year.
Source: Building Design & Construction Magazine
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