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Published byGeoffrey Robbins Modified over 9 years ago
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Problem Statement High level of activity in region and state. Construction costs increased 20% to 50% over past year. Commodity price increases Commodity shortages, especially cement High level of volatility High level of uncertainty RESULT: Fewer bidders and higher bids
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Impact on Project Costs Highway Red Mountain: Power to University Program estimate: $144 million Two bids received New Estimate: $213 million (48% higher) Bids received have been 20% to 50% higher than estimates. School Housing Commercial
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Composition of the Arizona Construction Industry (2002) Source: U.S. Bureau of the Census, 2002 Economic Census for Arizona.
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Summary of Conditions All segments of construction impacted Global market competition High level of activity Pressure on commodity supplies High demand for contractors High labor demand High level of supply uncertainty Prices Shortages Challenges of expanding capacity Lead times Permitting Capital (investment dollars)
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Summary of Impacts Greater uncertainty Bids are increased to cover risk Fewer bids if risk too high Material shortages Higher prices More schedule uncertainty Reduced productivity. Liquidated damages for delays Labor shortages higher wages reduced productivity longer schedules.
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Summary of Solutions No “silver bullet” solution Contracting provisions Risk sharing for cost and schedule change Review material specifications Reduce need for “special” materials Deal with cement shortage Relief of duty on Mexican cement Negotiate supply agreements Modify liquidated damages clause in contracts Market metro and state construction activity nationally to expand pool of bidders Life Cycle Program Management
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Conclusions Situation likely to continue in near- term Tight labor market Volatile commodity markets Oil prices likely to remain high Cement supplies limited
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Impact on MAG Freeway Program
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MAG Region FY 2006 Freeway Program (millions of dollars) Program Revised Bid to Date:$ 310 $401 Remaining:$ 190 $221 Total:$ 500 $621 Program Overage: $121 million
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Criteria for Projects Project Readiness All needed studies completed. No outstanding issues. Design completed for construction. If Projects not ready: Defer project Defer other projects in priority order Maintain fiscal balance
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FY 2006 Projects Not Ready to Obligate During FY 2006
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MAG Region FY 2006 Freeway Program (millions of dollars) Program Revised Bid to Date:$ 310 $401 Remaining:$ 190 $221 Total:$ 500 $621 Program Overage: $121 million Projects Not Ready:$100 million Balance:$ 21 million
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Balance of FY 2006 MAG Program
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Construction Forum Attendance
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Cement Demand & Price
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