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Building Pressures

Contractors are suffering from a serious problem - they're just too busy. Overall, though, a hefty workload beats the alternative. "Personally, I'm glad that the economy is doing as well as it is," says Rick Machak, senior vice president of development for Fort Worth, Texas-based Woodmont Corp. "I have been on the uphill and downhill ride of the roller coaster, and I would much rather have this situation."

But compounding the dilemma of a towering workload are factors such as a lack of workers, shortage of building materials and compressed construction schedules. The result is mounting pressures in the construction industry to get jobs done on time and somewhat close to budget, while still maintaining quality work and a safe environment.

"We're just as pressured right now as we have ever been," says Steve DeLisle, president of VMS Builders Inc., Windermere, Fla.

The tension is due in part to shorter schedules. "We see a lot of owners making late decisions to go into new centers," he says. Those late decisions put added pressure on contractors to get spaces completed in time for grand openings.

In addition, retailers are trying to protect themselves from development delays. Retailers are incorporating penalties into development or lease contracts to help ensure that the contractor completes the project on time.

"On the retailers' end, they're trying to put large damages on the developer, and from our end we are just scrambling to ensure that those dates are met," says Machak

In some cases, deadlines are not being met. Construction schedules are taking about 25% to 30% longer to complete due to labor and materials shortages, says Phil Packer, co-owner and vice president of Houston-based Hale-Mills Construction Inc.

Another factor straining construction resources for commercial projects is competition from public projects such as ballparks, schools and roads. Total construction during the first eight months of 1999 was up 8% compared with the same period a year ago, according to F.W. Dodge, a New York-based construction information firm.

Labor and building material shortages also are pushing construction costs higher.

"Everybody wants it faster and cheaper, and the cheap part is going out the window," says Stacey Berthon, vice president and head of retail construction for Birmingham, Ala.-based Hoar Construction LLC.

Labor costs alone have increased 4% to 5%, while building materials and subcontractor rates are pushing total construction costs upward of 20%.

Part of the problem is the demand placed on subcontractors. A few years ago when Hoar Construction was bidding out projects, it typically received about 10 bids from electricians. These days, Hoar Construction is lucky to receive three or four bids. In addition, those subcontractor fees are up 15% to 20% simply because companies can pick and choose their projects, Berthon says.

Looking for labor Finding people to work on projects is one of the key challenges in today's market. The worker shortage includes tradesmen as well as professionals such as project managers, architects and engineers. "Everyone right now is just short of help, skilled help and good help," Machak says.

To keep projects on track, Woodmont Corp. pays overtime and runs shifts 10 hours a day, six days a week. "We're working double shifts in order to meet schedules," Machak says. So far that technique has been successful in keeping projects on schedule.

Six-day work weeks have become the norm throughout the industry. "Overtime is just a part of everyone's life now," says Scott Thomas, president of Williamsburg, Va.-based Scott Thomas Construction Inc.

Overtime used to be a nice incentive to dangle in front of workers. The higher overtime pay would often encourage a worker to get the job done outside of average working hours.

But now some of these workers have been logging overtime for the past three years, and the extra pay is losing its luster as an incentive, Thomas says.

Overtime pay has even become a double-edged sword for some contractors combating worker shortages. "Labor only wants to work on projects where a lot of overtime is being provided," says Bill Harvat, president of business development for Menasha, Wis.-based Miron Construction Co. Once that overtime disappears, employees will leave and go to companies that are offering the more lucrative pay, he says.

One strategy to boost labor retention at Miron Construction is to provide continuous rather than seasonal employment. "What we're doing is staging work so that we can get our outside work done in the fall, and then work inside through the winter so we can provide year-round employment to our regular employees," Harvat says.

Firms such as Hoar Construction are holding on to workers by relocating people to the company's job sites around the country. In the past, Hoar's relocation policy applied to upper-level managers, but now the policy also includes skilled laborers such as carpenters.

"We build all over the country, and we're having to move people from city to city," Berthon says. "Instead of saying, 'We don't have any work today so you can go home,' or keeping them on payroll, we're offering to pay for relocation and housing costs."

Material shortages The active construction cycle is putting a squeeze on available building materials. "We had several projects in Texas last year where the ready-mix companies could not get cement," Berthon says. Because cement is the key ingredient in concrete, there was no concrete to pour foundations. Mild winters during the past two years added to construction activity in what is typically a slower time for the industry. So continued demand during the off-season added to the strain on construction materials, Berthon says.

Some firms are ordering materials far in advance to ensure they will be available when needed.

For example, Hoar Construction is the general contractor on the 1.6 million sq. ft. Dolphin Mall in Miami, which is slated for a January 2001 completion. Although Dolphin Mall won't be ready for drywall installation for another four months, Hoar has already stockpiled 100,000 sheets of drywall so it won't be caught empty-handed when the material is needed, Berthon says.

A few years ago, drywall and metal studs were basic stock items. "Now if you want a 24-gauge stud or 20-gauge stud, there is an actual lead time of four to six weeks," says DeLisle of VMS Builders. Demand is not likely to decline anytime soon with a construction forecast for 2000 similar to levels experienced in 1999.

However, manufacturers are increasing production efforts. "I think manufacturing will definitely catch up this winter. Some companies have expanded manufacturing into other parts of the country," he continues.

In addition, the boom in entertainment center development is stretching demands for specialty subcontractors and unique materials such as fountains. Oftentimes, there are only a few subcontractors that work in those unique entertainment specialties, and their schedules are booked, DeLisle says.

Specialty subcontractors that once focused solely on the amusement park industry are now seeing rising demand for their expertise in the retail industry. "Our entertainment subs are backed up for weeks with their workload," he says.

Fast-track construction Aggressive schedules are adding to the problems contractors already face.

"Time frames are as bad as or worse than I've ever seen them," Thomas says. He notes that 10% to 15% of projects his company works on involve reasonable schedules. The remainder are driven by clients who want a project to go as fast as it can.

For example, clients building 8,000 sq. ft. to 10,000 sq. ft. stores are shortening five-to-six-week time frames to four to five weeks, which means cutting the schedule by 15% to 20%. "I think real estate is pushing a lot of it," Thomas says. "They're having a hard time finding sites. So when they do find sites, they're already behind schedule."

"More and more owners are waiting until the last minute to make decisions," echoes Harvat. "They make up their mind at the last minute and they want it tomorrow."

Meeting these tight deadlines requires efficient scheduling and close supervision. Miron Construction monitors job progress on a weekly basis, and supervisors meet with contractors and other suppliers that are next in line to provide their services or products. Advance planning helps move a job forward on a seamless basis, Harvat says.

High-tech tools are another means for increasing project efficiencies. "One thing that we have done is try to take advantage of the Internet," Berthon says.

Hoar Construction has created a project-based website for Dolphin Mall. Accessed by a password, the website contains information ranging from schedules to master drawings.

"We really are using the Internet as a way for all of the parties to communicate," he continues.

One of the biggest advantages of the website is that any one of the 10 companies working on the project can post a question, which is then answered by the appropriate person. For example, if Hoar Construction discovers that a wall won't fit as shown on the plan, the company can post the question on the website along with the drawing.

In the past, the company would have to phone the architect and fax over the drawing in question. The architect then may have had to pass it on to the engineer. Now, rather than taking several days, a solution can be returned in a matter of hours.

The website also allows the different parties to scan and post documents on the site, which enables others to print the most recent information directly from the web. The Dolphin Mall, for example, has more than 500 pages of drawings.

"It is a major undertaking to keep up with the most current documents, so we post the master documents on the website to make sure everyone is working from the most current drawing," Berthon says.

Having them posted is a significant help in preventing project errors. "Once you have a mistake," he says, "the correction of that mistake costs so much money and, more importantly, it costs so much time."

Increasing efficiencies Software programs are another resource used to manage projects more efficiently. Scott Thomas utilizes technology such as Expedition project management software.

"It allows us to manage the whole project," Thomas says, "and it interfaces nicely with scheduling, billing, accounting and estimating programs." Scott Thomas puts computers on-site at all of its larger job sites. "Every single phase of the business has to be as efficient as possible."

W. John Roberts of PMNet Inc., a full-service construction consulting firm, points to the level of detail necessary to stay on top of a job. "What we're doing is running a database to track lease requirements and commitments as well as schedules and dates," says Roberts, a senior associate with the Herndon, Va.-based firm.

"The key to keeping projects running smoothly," he says, "is to watch the dates, watch the quality in the drawings, watch quality out in the field and catch problems before they happen." Spending more time on the job site is another way to ensure that a project is making good progress.

Improving communication between the general contractor and all the subcontractors is a significant component in keeping projects on schedule. Another suggestion is to encourage teamwork and better communication between all of the different parties working on a project.

"If you see a contractor slip, you try to help them out," Roberts says. "It really starts turning into a team effort by all parties rather than an adversarial situation."

Municipalities also are stepping in to help construction projects meet deadlines. City-issued "quick-start" permits allow contractors to take a project through framing and rough-in, as long as components such as electrical wiring are still visible for inspectors.

"I think a lot of the cities are trying very desperately to catch up with their own workload," Thomas says.

During the past three years, cities have realized they need bigger staffs to copewith the construction activity. Nowadays, cities have more building inspectors on staff, and those inspectors are equipped with cell phones and pagers that make them more efficient when they are out in the field.

VMS Builders is working on building out five stores in the Florida Mall in Orlando. City officials are issuing quick-start permits, which will allow contractors to get a two- to three-week head start before the drawings are approved, DeLisle explains. "It's pretty unique for a city to do that," he says, "but it's a trend we are beginning to see in other areas."

Preventing problems Amid mounting industry pressures, contractors are struggling to maintain quality and safety standards. Companies like Hoar Construction are paying extra attention to safety with precautions such as weekly safety meetings with everyone on a job site, as well as daily safety inspections.

"It's the right thing to do, and it makes your project more efficient," Berthon says. Contractors don't want to see their people get hurt, and they also can't afford to lose people to injury or have a job site shut down for an incident investigation, he says.

Safety is getting special attention in the current market, particularly considering the tight schedules, long hours and less experienced workers. "We've got more tired guys being pushed harder than ever before," Thomas says.

Another challenge for general contractors is delivering a quality product when timetables are compressed, there are too few workers, and existing workers are overworked or inexperienced.

"Frankly, I am concerned," Thomas says. Oftentimes, newcomers to the job don't have time for adequate training, and mistakes are made or the quality of work is poor.

"There are problems in regard to quality," agrees Machak. Careless mistakes emerge when people are tired, overworked or rushing to complete a job. People working 10-hour days, six days a week make considerably more mistakes compared with those working a standard 40-hour week, he says.

Machak has encountered errors that range from drainage inlets installed crooked to guard rails constructed with the wrong dimensions.

"Trying to work these problems out causes additional delays," he says. "I spend more time supervising and monitoring the engineering and consulting firms. We also pay more money for inspections on a project to ensure we are getting the best quality and work for our dollar."

Miron Construction's Harvat agrees that more supervision is critical. "We have confident superintendents and foremen watching the work," he says. "We do it right the first time because there isn't time to do it over."

The Washington Monument isn't the only towering structure in the nation's capital. "There are sky cranes everywhere," says W. John Roberts, senior associate with PMNet Inc., a Herndon, Va.-based construction consulting firm. "Washington, D.C., is experiencing more development than any area I've ever seen."

Such a fast-growing market brings both opportunities and challenges for developers. For example, the labor shortage is acute in Washington. But so is demand for shopping, dining and new modes of urban living.

That's a familiar situation for Rockville, Md.-based Federal Realty Investment Trust and Atlanta-based Post Properties. The two companies have collaborated for more than a year on urban residential developments that incorporate Main Street retail.

Their latest collaboration, Pentagon Row in Arlington County, Va., is located on 18.5 acres across from the Potomac River in one of the region's fastest-growing residential areas. Designed to offer urban living without the hassles of the city, the project targets professionals and empty-nesters. It will include a vibrant central square with a fountain, an ice skating rink, lush landscaping and outdoor cafe-style seating. The 500 residential properties will be integrated with 300,000 sq. ft. of specialty and service retail.

Construction began in summer 1999, with the final phase slated to open in late 2001. To meet that schedule, the two companies stay in constant communication with contractors, engineers and designers. Other strategies include assigning jobs to multiple parties (making it easier to recover if a firm abandons the project) and building stronger bonds with reliable help. Federal Realty and Post recently took all parties working on Pentagon Row on a cruise down the Potomac River, Roberts says.

"The smart people in the industry are drawing from their resources to develop key long-term relationships."

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