Saturday, Mar. 14, 2009

Bidding war keeping Tri-City construction costs down

By Pratik Joshi, Herald staff writer

The recession has brought a bright side for Tri-City public agencies as construction companies hungry for work are submitting bids well under what was expected.

Sharper competition among contractors and materials suppliers has resulted in bids often coming in a third less than what project engineers estimated, officials say.

For instance, Kennewick City Engineer Dan Kaufman said a $427,944 bid that the city received earlier this week for a water line and street reconstruction project on West Seventh Avenue was 38 percent under the estimated cost.

A recent landscaping and trail project between the blue bridge and the cable bridge went to Kennewick's Vono Inc., one of eight bidders, because it submitted the lowest bid of $367,267. That was almost 25 percent under the engineer's estimate of $488,310.

The project engineers' estimates were based on last year's construction costs when fuel and metal prices were very high. Now materials like asphalt, steel and PVC cost less, Kaufman said.

But the biggest reason behind the decline in project costs is related to the construction companies' need to get work to stay in business, Kaufman said.

He added, "We're expediting our construction projects as much as we can to save taxpayers some money."

Bob Alberts, Pasco's public works director, said having a lot of bidders for city projects is good for taxpayers. He said the city recently awarded a contract for a new water pipeline that was about $200,000 less than the estimated $1 million cost.

"It's a reflection of how slow the economy is," said Alberts, who thinks the highly competitive bidding climate will help Pasco save about 30 percent on street repaving costs this year.

Last year, public agencies had the opposite problem, and bids for many projects were rejected because they came in much higher than expected, Alberts said.

As private residential and commercial projects have been put on hold, the construction industry has been looking harder for government projects, said Mike Holstein, a project manager for Kennewick's Chervenell Construction Co. He also said more west-side contractors are bidding for projects in the Tri-Cities, increasing the competition.

Chervenell is building a 12,200-square-foot, two-story building at Clover Island for the Port of Kennewick and plans to bid on some of the port's soon to be announced parking and gateway/lighthouse projects on the island.

While competition is strong now, the bidding climate may change once contractors get busy with federal stimulus money projects, said Pete Rogalsky, Richland's public works director.

But in the meantime, he's also seen highly competitive bids for city projects.

Rogalsky said contractors are willing to cut their profit margins to get work, and the number of contractors bidding on a project has almost doubled in some cases.

Over the next few months, Richland plans to solicit bids for many public works projects, including an estimated $4 million Horn Rapids water reservoir and a $1.6 million First Street reconstruction project in north Richland.

Ryan Ratchford of Apollo Sheet Metal said the construction industry will stabilize once the government-sponsored infrastructure development projects get off the ground. But he said in the meantime, his company is feeling the effects of the economic downturn.

Companies now are hungry for work and are cutting their profit margins to get work, he said.

"We can't compete on that level," added Ratchford, who's part of the company's business development team. "We haven't been bidding as much lower (as some of the other companies)."

Bidding has been so intense that Apollo even lost out last year on a project within sight of its headquarters -- the Highway 395/Highway 240 interchange project.

KLB Construction of Mukilteo submitted a bid on the work that was about $700,000 lower than Apollo's. And KLB's bid was about $1 million less than the estimated project construction budget of $12.5 million, said Moe Davari, a state Department of Transportation engineer for the project.

DOT's website says the overall cost of the Kennewick interchange project will be 29 percent less than the original budgeted cost.

Aiesh Ragih, senior project manager for KLB Construction, said lower profits mean contractors must do a better job of workload management and spending control without also cutting quality.

Jeff Carlson, a senior estimator for Apollo, said contractors also are able to offer lower prices because materials suppliers are taking a cut as well. Suppliers want to keep their inventory moving and cash flowing to stay in business, Carlson said.

Also, construction companies can't afford to lose key workers such as project managers, foremen and superintendents so they would rather take less profit than get no work at all, he said.

Bidding for work has become fierce, said Carlson, who's been in the business for 20 years. In addition to west-side contractors, there also are out-of-state companies seeking work locally, he said.

Carlson said his company recently successfully bid for the Kennewick waste water treatment plant project. Apollo's bid was about $1 million under the estimated cost of about $7 million, he said.

"We're in a position to ride it out. But some people are not going to make it," he added.