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Material Cost, Skilled Labor Continuing Concerns for Midsouth Contractors

In 2007, expect growth, but don't expect it to match the unprecedented growth of 2006. Though the housing market is down in the rest of the country, it goes without saying that it's still booming in areas that are rebuilding. Every other sector of construction is also booming. Contractors can expect their headaches to come from material costs and the availability of skilled labor, just as in ye...

January 01, 2007

In 2007, expect growth, but don't expect it to match the unprecedented growth of 2006. Though the housing market is down in the rest of the country, it goes without saying that it's still booming in areas that are rebuilding. Every other sector of construction is also booming. Contractors can expect their headaches to come from material costs and the availability of skilled labor, just as in years before.

Repairs to the transportation infrastructure of the Gulf South, coupled with a construction market that was already booming, have made 2006 a boon for contractors in the Construction News region. Highway and bridge projects have increased by more than 100 percent between 2005 and 2006. High material costs and a large number of projects letting in a short amount of time caused some project prices to skyrocket.

In Louisiana, the LA 1 project was broken down into stages, when the original project, which let in June 2005 at $98 million over the LA DOTD's estimation of $153 million. A number of factors contributed to the higher cost including the aggressive original completion date of 2008, high demand for certain materials and labor, and high transportation costs for equipment, material and manpower due to the project's remote location. The LA DOTD then broke the project into stages and lengthened the deadline with hopes of driving down costs. The LA DOTD accepted a $141-million bid Phase 1B of the project last January, in a post-Katrina environment of sharply escalating costs. Phase 1A of the project is scheduled to be let in December and is estimated to cost between $100 million and $125 million. The Mississippi DOT had also received bids on major replacement projects that were 80-percent higher than their estimates. These projects, combined with Louisiana bridge construction projects, resulted in nearly $2 billion in bridge lettings over a four-month period.

Despite high costs, rebuilding on the Gulf Coast is in full swing. Since September of 2005, more than 220 miles of the levees in New Orleans have been restored. In addition to repairing the levees interim gated closures were installed at three vulnerable outfall canals along with temporary pumping capacity to protect the area from future storm surge. Around $5 billion in funding has been allocated for restoring and enhancing the levee system. The goal of 100-year protection across the system will be achieved by 2010, when all authorized projects in New Orleans will have been completed, along with enhancements to the hurricane protection system.

More than 100 million cubic tons of debris has been cleared. Most of the debris has been cleared in Mississippi, and 75 percent of the debris in Louisiana has been cleared.

Gas and oil production are back to pre-Katrina levels, and late fall of 2006 was the first time we'd experienced a drop in fuel costs since before the hurricanes. The price of wood products has also dropped on a national level, but material costs overall have stayed high. Gypsum, asphalt paving mixtures, PVC, concrete, and other materials all still remain high when compared the previous years, as does fuel. The prices have been trouble for projects under way, as contractors are vulnerable to sudden spikes and inflation in the materials that are necessary to get the job done. Spiked prices have also caused bids to come in higher than their initial estimates, putting a strain on owners. Beyond the inflation that contractors are feeling in the Gulf South, it is a case of supply and demand.

Rebuilding efforts have not put additional pressure on the tight labor market in the areas surrounding the Gulf Coast, as had been originally predicted. In most areas, there has been enough construction work to keep local construction workers from migrating, and any reported worker shortages have been attributed to the busy local construction markets.

However, as work increases in the area, a shortage of workers is expected, as much of the workforce on the Gulf Coast has moved away. Some projects are already feeling a pinch for qualified workers as they reach peak employment on their projects.

"Right now we have about 150 people working on the project, including engineers, supervisors and craftspeople," a quarter shy of the number of workers they would like on-site, said Allan Nelson, Granite Archer Western's project manager on the Bay St. Louis bridge in Mississippi in October. "We're shortest of carpenters, but we could really use people who can set forms, place concrete and finish cement."

Gulf Rebuild: Education, Advancement and Training (GREAT), a recruitment effort of the Gulf Coast Workforce Development Initiative, has been launched in Louisiana and Mississippi to help meet some of the needs of the local workforce. The initiative seeks to recruit and train 20,000 new construction workers across the Gulf Coast in basic construction skills by 2009. It has been developed by a broad partnership of business groups, community organizations, educators, construction trade groups, and local, state and federal governments in response to the need to rebuild the region following the 2005 hurricanes.

Casinos on the coast of Mississippi are rebuilding inland, now, and this is sparking interest for new casinos in the area. Some casinos, including the Beau Rivage, Mississippi's only land-based gaming facility before Katrina, have reopened.

In Oklahoma, work on Oklahoma City's $360-million I-40 Crosstown Expressway project will continue into 2008. The creation of a $100-million bridge fund by the Oklahoma Legislature also made it possible to move up the replacement of weight-restricted bridges in the area.

Nucor Corporation should begin constructing a $230-million steel mill in Memphis, Tennessee, sometime next year. The new state-of-the-art facility will have an estimated annual capacity of 850,000 tons, and will produce carbon and alloy rounds and round cornered squares from 2.25 inches to 9 inches for the automotive, heavy equipment and service center markets. The mill is expected to begin operations in early 2008.

The busy construction market in Arkansas will continue to keep up its pace. Many large projects for hospitals, educational facilities, condo projects, and large hotels are under way. Little Rock and Bentonville continue to be the hottest spots.

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