Friday, November 16, 2007

Construction Costs in Lafayette

This week's Ind carries a story on the shockingly high bids that came in for the Acadiana Center for the Arts building--and mentioned the Fiber project headend building, the Lafayette Public Library's South Branch, and high-priced roads, in supporting roles. All of the bids on these projects came in way over-budget and the public bodies are scrambling to make ends meet.

As the Independent tells the story what is going on is a combination of Rita/Katrina demand soaking up contractor time, a dislike among contractors for working with government (and especially with Lafayette's government), and skyrocketing global demand for steel and copper. (I'm confident that ridiculous overpricing on Federal projects — many on a cost-plus basis — has also distorted the local market, especially among contractors specializing in governmental projects.)

Readers of this blog will likely be most interested in the tidbits about our fiber project:

Lafayette Utilities System Director Terry Huval experienced similar sticker shock when LUS went to bid the headend facility of its new fiber-to-the-home telecommunications business. “We were very surprised,” Huval says. “Our instructions to our architect were that we had a $1.4 million budget for this facility and that we needed to stay within that budget. We relied on the architect’s best advice during the design process and we were all surprised with the high bids.” Huval says cost-estimating was done by LUS’ fiber consultant, CCG Consulting out of Georgia. He says the firm based its estimate on costs it experienced in other places and escalated those by 30 percent to account for the high construction costs in post-Katrina south Louisiana. They were still off by 93 percent.
That makes sense, LUS relied on their hired construction experts, like any business would, and the local situation just didn't match their experts' expectations. Huval presents a rationally balanced analysis that discretely points out that the onus isn't all on government. Sometimes what is at the core of contractor dislike is that such bids are transparently competitive:

LUS’ Huval says that while he has heard several contractors comment on the city not being a preferred client, he doesn’t believe that is necessarily attributable to any city policy that is not required by law. “I think the reason we are receiving less bids for government work,” he says, “is the contractors are simply making more money in the private sector as opposed to competing on the strict governmental lowest qualified bid requirement. Any time the contractor supply-to-project demand curve shifts to the advantage of the contractors, governmental projects awarded based on the lowest qualified bid will be less attractive to contractors.”

I'd add that the good-buddy system of duck blinds and favors doesn't work with governmental contracts and that some of the complaints of contractors about insuring their work and getting paid out before the work is complete is just responsible business practice that the good ole boy system works around.

Still, extremely high bids have consequences:
Because costs came in so high, LUS has now scaled down to a pre-fabricated building, 1,500 square feet smaller than what it originally planned to build. “The pre-fab building will have all the critical elements we need for the first several years of the fiber-to-the-home business,” Huval says. “We can always expand the building at the time we need to do so. The customized building would have served us for more years without an expansion.”

That may be penny-wise and pound-foolish. I'm not at all sure that it wouldn't be wiser to bite the bullet on the front end and get a building that didn't require you to add on new expenses in that dimension when you want to expand your network to cover new areas. Of course, no one is talking about expanding LUS' footprint except in the above very indirect ways. Yet. But I'd hate see a new headend expense counted against an expansion to Broussard or supplying New Orleans with VOIP services.

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