Monday, April 13, 2009

Construction firms desperate for work in the bad economy are submitting project bids 15% to 30% lower than anticipated

TO BE NOTED: From the WSJ:

Costs for Big Construction Projects Drop Amid Stimulus Spending

U.S. states are reporting a significant decline in the cost of building highways and bridges, a stark reversal from years of rising construction costs.

Construction firms desperate for work in the bad economy are submitting project bids 15% to 30% lower than anticipated, according to the American Association of State Highway and Transportation Officials. For instance, Missouri officials that had expected to spend $90 million on nearly three dozen construction projects have lined up firms that will do the jobs for $74 million. Oregon is reporting receiving bids in recent months nearly a third lower than expected.

The lower bids come as states are moving quickly to assign $48 billion in funds from President Barack Obama’s economic stimulus package for projects largely aimed at repairing and improving transportation networks - roads, bridges and rail. States are supposed to award half of the highway-construction funds by early summer.

“This is a new phenomenon,” John Horsley, AASHTO’S executive director, said of the lower project bids, noting that until recent months states had been struggling with rising construction expenses. “We described it as skyrocketing costs in construction costs because the economy was strong, construction was strong, commodity prices - asphalt, steel - were all going through the roof.”

Lower commodity prices and high unemployment, particularly in the construction industry, have combined to make the best pricing environment for states in at least six years, Horsley said.

Firms are scrambling to get any work they can find, said Ken Simonson, chief economist for the Associated General Contractors of America. “We are seeing pretty steep drops in privately funded and state- and local-funded projects, so stimulus is probably the only game in town for some contractors - or the only game within a hundred miles of the town they’ve been in,” Simonson said.

States began accepting bids under the stimulus plan six weeks ago, and nearly 2,000 projects have since been awarded money, according to the U.S. Department of Transportation. Obama on Monday announced funding for the latest project, a $68 million widening of Interstate 94 in Michigan that he said would support 900 jobs."

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