Construction industry officials estimate construction costs may rise by as much as 10% to 15%.
Reasons for the hike in construction costs include the price of materials such as steel on the world market and the rise in fuel costs.
Leonard K. Kaae senior vice president and general manager for Black Construction Corp. told the Journal the 10% to 15% figure is a moving target based on the future costs of materials and fuel. “Shipping costs have gone up fuel costs have gone up steel costs have gone up. Fuel costs for us alone have gone up 23% it’s gone up significantly ” he said.
Kaae said Black Construction’s new bids have accounted for increases in steel and fuel prices especially where a lot of equipment is being utilized but he said there are risks the company is taking with bids that were out months ago.
Despite a projected boom in the construction industry on Guam as a result of military buildup Kaae said the industry was looking at the opportunity with caution. “Since the ‘90s the island’s skilled workers have either left the island or have entered new careers. No. 1 you’re faced with a manpower problem; No. 2 you’ve got a situation where you can’t control the world market as far as major materials are concerned ” he said.
Kaae remained optimistic but said “We just have to make sure that we are not bidding at loss before we even get off the ground.” Kaae said Black Construction was always cautious with increases beyond its control.
Thomas E. Anderson executive vice president for Black Construction said existing contract with Black would not see price increases. “The highest costs are from transport and logistics due to the rising cost of fuel.” He said under existing contracts with the military there was no room for price increases. “You’re going to have to just absorb it. When we had gas shortages in the mid-’70s there were contractual agreements with various agencies in the case of shortage of fuel. I haven’t seen any of that ” he said.
Anderson said a rise in fuel costs could also mean an eventual rise in construction costs. “It will be a pass-on for any new contracts. For existing contracts you are swallowing it. We’re not faced with that situation at this time — most of our work is beyond that stage —we are not now heavily into the use of equipment. We buy fuel and store fuel for future operations. What we buy now at the higher cost — that’s money out of our pocket ” he said.
“If prices keep climbing everybody’s just going to scream and shout. It’s like when they raised the GRT like any situation like that when you have fixed contracts. The fuel situation is going to happen right across the U.S. It may bring some changes. We saw it happen and the federal government reacted to it. Fortunately we were relieved in that situation [GRT] ” he said.
Anderson said Black Construction is looking at another $20 million in awards for the rest of 2005.
The 2004 Guam Business/Deloitte & Touche Top 50 companies of Micronesia indicated sales for 2003 for Black Construction was $32.24 million.
Keith L. Farrell vice president of the Micronesia division of Dick Pacific Construction said the rise in fuel costs will have a minimal impact on the cost of doing business on Guam — the rise in steel and copper would have a larger impact. He said steel pricing had a far greater impact because of 2004’s huge increases in cost and in the amount of steel used in construction projects.
At one point in 2004 the industry saw a 35% jump in the standard cost of steel. “If steel and copper and different products go up in price and construction goes up 10% to 15% then obviously that has to be passed through ” he said.
Farrel said contracts bid on have already factored in the increases in steel and copper.
He said Dick Pacific has reached its target for the year. He said he is optimistic about gaining more projects for the rest of the year but did not choose to estimate how much money the company will make. Dick Pacific in 2004 Guam Business/Deloitte & Touche Top 50 companies of Micronesia showed sales for 2003 at $20.27 million. He said “The major increases in steel and copper were last year and then what we do when we’re awarded a project is we buy out and lock in the price for things like steel fairly quickly so we can mitigate the potential for increases down the road.”
When a boom does take place in the military sector of the community Farrell said he hoped the government would factor in any increases or the potential for increases. MBJ