Cost of inflation hits construction business
September 29, 2014
EAGLE COUNTY — After a pause, the cost of building in the Vail Valley is rising again.
Town of Vail officials recently were hit with a roughly 50 percent jump in the estimated cost of rebuilding the clubhouse at the town's golf course. In Avon, the price of a stage at Nottingham Park has more than doubled. The situations are different for the public projects, but private projects are seeing cost increases, too.
In Vail, a recent report to the town by NV5, a consulting company with offices in Denver and Centennial, detailed the roughly $3.8 million rise in the cost estimate for the clubhouse project. Of that amount, $1.2 million was due to changes in the project. A similar amount, $1.17 million, was due to cost increases.
The report notes that 2012, when the project budget was first approved, was the bottom of the local construction market. The report estimates another 8 percent increase in costs. That delay, in large part, was due to homeowners near the golf course suing the town over the clubhouse project. While the town prevailed in district court in Eagle, the homeowners appealed the rulings to the Colorado Court of Appeals. One case has already been presented; the other will be heard later this year. Now, the projected start date for the project is fall of 2015.
In Avon, town officials were hit with increased costs on a project expected to be finished in time for the 2015 FIS Alpine World Ski Championships. To do that, the Avon Town Council approved a "fast-track" schedule in which the second phase of the project would be designed while the first phase was under construction.
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While the two public projects are the most visible, a local architect and contractor said costs are rising for all construction. The prime driver of the increases seems to be a shortage of qualified subcontractors, who themselves are short on skilled labor.
Tab Bonidy, owner of TAB Associates, an Edwards-based architecture company, said subcontractors are "all very busy" these days.
Eagle County building permit numbers seem to confirm that opinion. Through Aug. 31, the county's building department had issued 344 building permits. There were 430 permits issued for the entire year in 2013. More telling is the value of those permits.
The 2013 valuation of new construction was $69.2 million. The value of permits issued so far this year is $73.6 million, which indicates more complex projects are being built. That means more labor.
In addition, after the valley's construction business hit a deep slump in 2009 or so, many of the smaller companies weren't able to stay in business. Companies that did stay in business often had to make deep cuts in staff to keep their doors open.
With more work to be done, Bonidy said subcontractors will take more lucrative jobs first.
Keeping costs controlled
Travis Bossow is president of R.A. Nelson & Associates, one of the valley's oldest construction companies. Bossow agreed that prices have gone up but said people designing and bidding out work can still keep costs under control — if they plan ahead. Bossow likened the current construction climate to booking a vacation at the last minute or planning months in advance. People who make those advance plans are usually in better shape.
"If you just drive down to (Denver International Airport) to catch a flight, you're going to pay more," he said.
That's true in the construction business, Bossow said. The base of subcontractors has thinned out, and many of those companies are running at, or past, full capacity. That means increased costs, especially for last-minute projects.
"If you can get (subcontractors) on your team early, you can control those costs," Bossow said.
While labor costs are going up quickly, Bossow said prices for materials are also increasing, but not as rapidly. He said he expected costs for materials to rise 5 to 7 percent in the next year or so. But prices can change quickly. Greg Hall is the project manager for the town of Vail's construction projects. Hall said the NV5 report accurately represents the reasons for the big increase in the clubhouse cost estimates. But, he added, prices can change as projects are in the design process.
"That can cause some issues with development," Hall said.
While smaller companies seem to be bearing the brunt of criticism at the moment, Bossow said those firms are doing what they need to do to get work done.
"They're good people," Bossow said.