BusinessReport.com

Like almost everyone connected to the construction business, AEC Electrical Contractors was swamped with work after the 2005 hurricanes.

Steven Wilson, the company’s project manager and estimator, says business has slowed down a bit, but not much; he’s lucky enough to still be turning down work. But he’s noticed that bidding for projects has become more competitive.

“Last year, I might have been the only bidder, or maybe me and somebody else,” Wilson says. “This year, as the year’s progressing I’m noticing more electrical contractors bidding on the same project.”

But more competition hasn’t forced him to drop his prices.

“Right now I haven’t come down a bit,” he says. “I haven’t dropped a dime. I’m hoping I won’t have to.”

Bidding has become more competitive in various segments of the construction industry.

For example, an East Baton Rouge Parish road project that might have drawn only one or two bidders shortly after Hurricane Katrina might draw six or seven now. But construction costs have been holding steady at 20% to 30% or so above pre-Katrina rates. Project costs appear to have largely stabilized, but are not falling—at least not yet.

Some contractors are starting to field calls from subcontractors looking for work for the first time in years. Mike Polito, president of MAPP Construction, says that might be caused by a temporary lull in some segments of the building business. He says the lull won’t last because there’s plenty of work in the pipeline, including the Pinnacle casino project and nearly a half-billion dollars’ worth of school projects in New Orleans.

And those big commercial and public projects aren’t getting much cheaper to build because the primary materials aren’t any cheaper. Portland cement, the most common variety, is going for about $88.50 a yard and is expected to climb near $100 in the next 120 days, according to one source. If true, that would represent close to a 100% increase in five years.

But Ken Naquin of Louisiana Associated General Contractors, on the other hand, says the price of asphalt has jumped and steel recently shot up 40% in just a month.

Joe Didier, president of the Capital Region Builders Association, says there’s always a bit of a homebuilding slowdown in the winter, and this past winter showed a bit more of a drop than usual because of significant inventory. A typical spec house that might sit on the market for six months pre-Katrina might last eight or nine months today.

But he also says the lull won’t last, partly because of low interest rates and a labor situation for homebuilders that no doubt would make their colleagues in industrial construction jealous.

“A year ago, I couldn’t find people,” Didier says. “I would call five people to find one, maybe, and then I would get mediocre work at best. Today, I might get five phone calls a day from people looking for work.”

Many construction professionals are leaving former boom areas in other parts of the country to find work here. For residential builders at least, labor is actually getting a bit cheaper as the work force grows. But Didier says the cost of building a home has declined only slightly as downward pressures are offset by rising fuel and insurance costs, and consumer prices aren’t really falling. And when the rest of the country’s housing market turns around, that additional demand will push prices for materials up significantly, he says.

While we tend to think of everything in terms of pre- and post-Katrina, Naquin of the LAGC reminds us that many of the trends driving prices are nationwide or global and have little to do with local events. China, for example, is gobbling up vast amounts of steel as it marches toward superpower status. And while he hasn’t heard about any lull in local commercial building, the residential lull is having an impact on the commercial side.

“What I’m hearing from the commercial builders is that they’re seeing more subcontractors knock on their door looking for work, but a lot of them are coming from the residential industry,” Naquin says. On average, he says there’s been about a 20% increase in prices since the storms. That has leveled off recently, but has not declined. Bids for public projects are starting to come in at or below the estimate, but that may just mean the estimators are getting a better grip on the current market.

“Will we ever get to 2002-2003 prices?” he asks. “Probably not.”