1. Rising Construction Costs presented by: Kevin Cobb AIA/ARA, the Addington Partnership William Duncan IV, Taft College December 2004

2. Overview Construction Economy has become known as the ‘Dismal Science’ Construction Economy has become known as the ‘Dismal Science’ Third quarter impacts known now, large increase, but looking stable forward Third quarter impacts known now, large increase, but looking stable forward ENR 12/04, “After a tumultuous year, price increases for construction products appear to be settling down. But while escalation is slowing, prices will remain stuck at historically high levels.” ENR 12/04, “After a tumultuous year, price increases for construction products appear to be settling down. But while escalation is slowing, prices will remain stuck at historically high levels.”

3. Industry Index Trends BCI – Building Cost Index CCI - Construction Cost Index MPI – Materials Price Index 41% 18% 10% 0.9% 3.1%

4. Basic Reasons Material prices rising at unprecedented rates Material prices rising at unprecedented rates Steel, re-bar, copper, concrete, piping, lumber Steel, re-bar, copper, concrete, piping, lumber Petroleum Petroleum Shipping, used in numerous products Shipping, used in numerous products Overhead increases Overhead increases Healthcare, Worker’s Comp., Liability Healthcare, Worker’s Comp., Liability Labor market weak, less skilled workers available Labor market weak, less skilled workers available High demand and material shortages High demand and material shortages World market is now larger consumer World market is now larger consumer

5. Effects Public construction forecasted to pass residential market in 2005 (first time since early 80’s) Public construction forecasted to pass residential market in 2005 (first time since early 80’s) Housing market increases projected to stall next year Housing market increases projected to stall next year Rising interest rates 5.5% up to 7.5% Rising interest rates 5.5% up to 7.5% Trip point generally thought to be 6.5% Trip point generally thought to be 6.5% Could free up both supply and demand Could free up both supply and demand

6. Reactions Value Engineering in each project Value Engineering in each project Not at expense of future cost Not at expense of future cost Aggressive bidding contacts Aggressive bidding contacts Shorten bid proposal windows where possible Shorten bid proposal windows where possible Chancellor’s Office has recognized the problem and quickly reacted Chancellor’s Office has recognized the problem and quickly reacted However no augmentation for Prop. 47/55 projects However no augmentation for Prop. 47/55 projects

7. Measure A Implications Budgets impacted in first batches of projects Budgets impacted in first batches of projects Adjustments made to out-year projects to compensate Adjustments made to out-year projects to compensate Contingency funds were used to augment increases and Value Engineering was done to reduce cost Contingency funds were used to augment increases and Value Engineering was done to reduce cost Contingency remains above $7M Contingency remains above $7M

8. Looking at the Future Construction increases happened in time to be included in future projects Construction increases happened in time to be included in future projects Chancellor’s Office has increased funding for future projects Chancellor’s Office has increased funding for future projects Example, Science Laboratory allowance was $235.56, is it now $401.30 per square foot Example, Science Laboratory allowance was $235.56, is it now $401.30 per square foot Costs are projected to remain at or near this level for 24-36 months then climb at historic rates Costs are projected to remain at or near this level for 24-36 months then climb at historic rates

9. Questions? Sources: Engineering News Record COM Construction COM Construction Guide COM California Construction COM SC Anderson ACBO Presentation Building Journal COM American Institute of Architects ORG Society of American Registered Architects ORG Associated Builders and Contractors COM