If the time were ripe for a career change, Peter Morris would suggest dabbling in the construction market.
Barely there:
After all, Morris, a principal cost estimator for consulting firm Davis Langdon, has seen firsthand the effects of a torrid demand for construction, particularly at UCSD.
“When the rest of the nation was in an economic recession, the construction industry was asking, ‘What recession?’” said Morris, who has worked on several UCSD projects. “It’s really been the primary engine for economic strength in California.”
But all good things come with a price, Morris said. With over _____ million worth of projects either in planning or construction phases, UCSD has hit the proverbial wall when budgeting its development.
The latest example would be of UCSD’s Rady School of Management, which in 2001 was touted as the first university project
the first university project to be fully paid for through private funds in 2001. Come September of this year, Chancellor Marye Anne Fox was requesting a budget augmentation from the UC Board of Regents to the school’s construction funding. The regents’ green light allowed UCSD to throw $12.5 million from campus funds into the project.
The Student Center expansion required similarly unorthodox funding, according to acting Assistant Vice Chancellor of Student Life and University Centers Director Gary R. Ratcliff. The expansion’s first phase, to be completed this winter, will construct two buildings containing student facilities such as a Thai restaurant and the Lesbian Gay Bisexual Transgender Queer Intersexual Association office. The $5 million project required University Centers to use its reserves to help fund the construction, Ratcliff said.
“It’s safe to say that we don’t want to pull from our reserve funds anymore for anything having to do with construction,” Ratcliff said. “That money can be used for anything, but we didn’t plan on using it to prop up construction funding. It could be going to other things for students, and if we don’t plan carefully, construction could eat up our budget for anything and everything.”
Ratcliff’s impression of the market leans toward a more uncontrollable force than an economic trend, and could very well describe the current situation accurately, according to UCSD Facilities Design and Construction Director Boone Hellmann.
“In 2002, our project budgets allowed for cost escalation in the 2.5 percent range,” he said. “Since then, the escalation has been extraordinary. Last year, construction prices shot up 10 percent and since then it’s been an average of 4.5 to 7 percent in escalation. Each year you’re short, trying to catch up with this market. Build that up, and by the time you get to 2005, you’ve effectively lost close to 30 percent of your buying power.”
Buying power has been the Achilles heel for UCSD, which no longer has the leverage it had a decade ago to attract lucrative construction bids, according to Hellmann. In a “saturated” San Diego construction market, contractors no longer need the work provided by large entities such as universities, he said.
“It’s a sellers’ market in the construction arena,” Hellmann said. “They don’t need the work that we put up for bid, so they don’t give us competitively low prices. The planets are aligned to make it very costly for us to build anything, and contractors are trying to make hay while they can.”
Even from an aesthetic standpoint, UCSD is unappealing for construction contractors, Morris said.
“In a hot market, bidders are going to go for a quick profit,” he said. “If you have difficult access, a whole campus of students walking around during construction, red tape to go through with a university system, you’re not going to be aggressive in getting that project. When bidders are hungry, they don’t make much issue of things. But now, they have other options to choose from.”
The prognosis remains costly for university construction. Among other predictions, the Associated General Contractors of America foresees a 10-percent jump in the cost of construction materials in the next year. As a whole, the construction market cool-down is still three or four years away, Morris said.
But pricey supplies are not slowing down the demand at UCSD, with almost 50 projects budgeted for FDC.
The department is spearheading the $53 million Price Center expansion, and using multiple techniques to minimize the intensity of construction costs, including design alternatives in planning phases, according to Hellmann. Those alternatives allow flexibility for the project, which is slated to be finished by summer 2008.
“With this kind of market, the trick is to build the same with the same money,” Hellmann said. “We could go into specifics with Price Center’s construction, like using a liberal amount of glass versus stone and a braced frame steel structure, which both save money and hopefully allow us to get within budget. But generally the rationale is to go with bare bones and build up from there.”
To cope with rising prices, FDC holds “value engineering sessions” to find areas of campus construction that can be exploited for cheaper costs. The luxury of hindsight was not available for such projects as the Rady School, Hellmann said.
“No, we’re not going to use campus funding for any more projects like we did with the Rady School of Management,” he said. “It was a unique circumstance. We had a class of students that were already started and a major donor that made a contribution to the campus. The obligations were significant to complete that project, since it was already designed. It’s easier to account for things from the back end, like Price Center, than from the front end, like the Rady School of Management.”
As prices rise, however, the money to fund university construction will likely come from somewhere other than the state budget, Morris said.
“There aren’t many pockets left,” he said. “With this rate of change, campuses are having to look for the short-term solutions, which usually end up being campus funds or donor funds.”
While there is the option to slow down construction — waiting for the high-cost wave to pass -— the result could prove too damaging for campuses to endure, Morris said.
“It doesn’t matter if the UC decides to stop construction, speed it up or slow it down,” he said. “This goes beyond the UC system. It’s bigger than that. Even all of the schools combined [do not make] a big enough player to distort the market the way it would like to. So sitting on the sidelines wouldn’t do you much good anyway. The choice not to build at UCSD is the choice to send students up to another school.”
