School planners work around increasing construction costs

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By MIKE EDDLEMAN

Nostalgia is a powerful thing, and when a school district makes regular calls for more taxpayer dollars to fund new construction, it is easy for voters to recall less costly times in school construction.

Of Liberty Hill ISD’s proposed $491 million bond package on the May 1 ballot, $301 million of that is for new campus construction that would build two new elementary schools, another middle school and a second high school.

Only 10 years ago voters approved a bond for a new high school with a construction cost of $62.2 million, and six years later Rancho Sienna Elementary School at a cost of $24.8 million.

Fast forward four years and the guaranteed maximum construction cost for Santa Rita Elementary – opened in August – came in at $27.2 million, but is likely to wrap up slightly lower than budgeted.

While these numbers don’t include many of the soft costs of the projects such as land acquisition and design, they were all less expensive than the new campuses on the table.

The simplest explanation for this is inflation, but having numbers to work with – even if they are high – gives the district a solid projection for how to price new future projects.

“We worked really hard at looking at future projected costs,” said engineer Casey Sledge, who manages the district’s construction projects. “The biggest concern I have is always construction inflation.”

The boom in Central Texas has meant strong economic growth, but also that construction costs have been rising quickly over the last decade.

“It is great for the economy, but that means people doing construction are also busy and that means it costs more,” Sledge said. “It’s supply and demand. In the new bond there’s plenty of contingency for inflation and we feel pretty good about it.”

He added that a few years ago that inflation rate was three or four percent, but today is trending closer to six percent in construction.

“Years ago, construction inflation trended with regular inflation, but in our area construction inflation is much higher,” Sledge said. “It’s been harder for us to track and it is concerning.”

Robert Baughn, a construction manager, and member of Liberty Hill ISD’s Long Range Planning Committee, also sees the benefits of the local construction market, and the pitfalls.

“There is the unfortunate reality with tremendous growth that we have experienced an astronomical boom in construction,” Baughn said. “With that comes higher wages, but you get into this economic chicken and egg scenario about which comes first. Do jobs and infrastructure come first or do wage increases come first so there is disposable income for people to pay taxes to pay for those things?”

Labor might be the biggest issue in construction costs, generally representing 60 percent of project costs, but Baughn said materials costs have spiked as well, recalling costs on one recent project he was involved with.

“Wood was $300 per unit, and it is sitting at $900-plus now, having tripled in the last year,” he said. “I’ve got steel costs going up between 15 and 20 percent depending on where you look right now.”

With that kind of inflation on projects that costs tens of millions of dollars, the price tag can go up considerably in only two years between campus builds.

The new campuses planned in the current bond proposal include two elementary schools – at $42 million and $44 million respectively – $70 million for a new middle school and $145 for a second high school. And the estimated cost of each was higher based on the projected time of construction.

“It is a considerable factor in waiting,” Sledge said. “We never want to be rushed through a decision, but waiting – not that Liberty Hill has the luxury of considering waiting with their growth – a couple of years becomes a considerable financial risk.”

Baughn knows when taking on a construction project for a customer – in this case school district taxpayers – there is tremendous pressure to keep costs down and be as efficient as possible, but he also cautions people he talks to about the bond proposal over just thinking in terms of how cheap the district could build schools.

“One of the things that’s always difficult in construction with regard to government entities is the need to show transparency and proper custodianship of taxpayer dollars,” Baughn said. “What I mean is they tend to want competitive bids and lean toward the lowest price because that’s what people look at. Lowest bid is not always the best bid when you look at construction, especially when you have a very competitive market like in Central Texas.”

Lowest bid, or contractors that overpromise, can prove costly in the end.

“What you find is you will find people that can promise you a low fee up front, but they change order the heck out of the process because it was things they didn’t take into account,” Baughn said.

With projects awarded under the construction manager at risk system, much of the burden falls on the builder to make sure new schools stay in budget because it comes with a guaranteed maximum price. There is a contingency fund that, with an inefficient or over-promised project, can disappear quickly, or it can become a place to save money for the district in the overall bond program.

Sledge believes that as the architects, contractors, engineer and district work together, there is a solid opportunity to find savings through the contingency funds, and that is already showing returns as they work through the 2018 bond projects.

“After Santa Rita Elementary we’re having much fewer surprise (contingency) items on the middle school and high school,” Sledge said. “That’s not to say there aren’t some issues, every project is unique and there are always some type of issue, but there aren’t many surprises.”

There were 55 change orders on the Santa Rita Elementary School project, but five months from opening Santa Rita Middle School, there have only been six change orders so far there, and very few with the High School additions as well.

“Having 10 or 20 makes me feel a lot better, so this shows we are becoming much more efficient,” Sledge said. “As we work with these teams and get together up front as we’ve been able to do on the middle school and high school we will find more and more efficiencies.”

As new construction is estimated, there are ways planners are finding further efficiencies that will help mitigate the ever-rising price tag.

“The real key to this is the core spaces – the kitchen, gymnasiums, athletic areas – the things that are hard to add on to,” Sledge said. “It is hard to make a kitchen a little bigger, both practically and financially.”

The kitchen at Santa Rita Middle School will be slightly smaller due to data that showed fewer and fewer students purchase lunch on campus. The cafeteria space is needed for lunch, but the kitchen can be more efficient.
And building school with higher capacity in core areas and plans to easily add on classrooms makes future growth less costly as well.

“The addition (at Santa Rita Middle School) will only be a classroom wing, the cheapest part of that building,” Sledge said. “As opposed to unique spaces with a lot of plumbing like locker rooms, kitchens. Those are more expensive spaces. When this middle school expands there’s nothing in the way and it is essentially plug and play. We’ve already laid out the extension design and we know what it looks like.”

But there are always costs that can’t be avoided when addressing issues such as safety, durability and even classroom capacity, where Texas schools are under specific state standards for how many students can be in each class depending on grade level.

“If we could eliminate a third of the classrooms in the school I could dramatically reduce the size of construction, but do you want your kids in 30 to 35 student classrooms?” Baughn asked.

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