What Keeps me up at Night May/June 2009: Recovery and Reinvestment
By Gregory J. Offner, CCM (04/07/2009)

Offner

With the recent passage of the $787 billion economic stimulus package, federal, state and local agencies are scrambling to take advantage of the opportunity to move forward with critically needed infrastructure and facilities work at the earliest possible date.

However, the Recovery and Reinvestment Act has some very challenging requirements, such as a clause that requires all iron, steel and manufactured products on a funded project to be domestically sourced, which could compromise efficient project delivery to such a degree that many projects eventually grind to a halt.

Shovel-ready projects will be challenged to meet the demands of proposed project schedules and, while employment is a key focus of the stimulus package, has anyone considered what is going to happen to material availability when the raft of stimulus-funded projects get moving all at once? 

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Manufactured steel products, aggregates for concrete products, copper pipe, high-voltage cable, detention hardware and security electronic products will be in ultra-high demand in 2010 and beyond. 

In view of the anticipated amount of work, purchasing products and materials in advance will be vital to meeting construction schedules and budgets. There has never been a better time for speculation purchasing: but you’ll need to move before the actual need arises to capture flat or declining price points in the domestic market before supply tightens and inflated materials prices become the norm again. 

Leveraging Purchasing Power

With the influx of stimulus spending and construction funding, common sense tells us competition for industry specific materials and products will increase as construction market activity grows.

As industry consumers, each of us understands the fundamentals of economics: with regard to limited-supply products, price follows demand. When availability reaches a scarcity point akin to that of Phoenix snowflakes, you’ll have to wait in line to pay stratospheric prices to get your project materials. 

Are you thinking about future market conditions as you develop your projects? Personally, I haven’t slept a wink worrying about materials prices and availability for my justice projects. As projects move forward from the concept stage to the design phase, recognize the diminishing window of opportunity to acquire critical materials at the right price point and time to ensure project schedules and budgets.

My goal is to convince my clients to purchase now, cautioning that if they wait until the project is in the final construction document phase or, worse yet, under construction, they will likely find themselves in survival-purchasing mode. 

Time to Stockpile?

On the upside, some corrections industry manufacturers and materials producers are preparing to meet the anticipated uptick in demand. The downside: Not as many producers as I would like to see are in expansion mode, particularly in the area of detention and security hardware.

Placing orders ahead of time will help get manufacturing rolling. Pre-purchasing and warehousing materials will be vital to meet project milestones in the new environment fostered by the stimulus package. A design and program management professional can work with your development team during the early phases of a project to establish the type and quantities of construction materials needed. 

Due to their relatively plentiful supply, many off-the-shelf materials and some products, such as PVC piping, steel conduit, metal studs, gypsum wallboard, and copper wire and piping, are available at prices lower than a year ago. As the justice construction market grows, competition for off-the-shelf products will also be fierce.

Many construction contractors are accustomed to pre-purchasing basic materials in bulk before they are actually required on the jobsite, so even products such as paint could soon be in high demand. Depending on the size of the project, consider purchasing necessary materials well in advance of groundbreaking, long before the product will be used.

Common construction materials are not the only products that will be in short supply. In analyzing purchase opportunities for previous and existing clients, I encourage clients to consider the early purchase of several products that historically have tended to be in short supply. I also encourage clients to think beyond traditional materials and to focus on the essentials: detention equipment, hollow metal products, concrete masonry units and low-voltage electronic components such as security cameras.

Don’t forget the buy American clause: iron, steel and manufactured products must be of domestic origin. Work with program management professionals to establish a specific list of early purchase items that make economic sense. Adopting a strategic purchasing approach should allow you to get a jump on the market that ensures adherence to time and budget schedules and perhaps even the survival of the project. 

Nix Non-essentials

When it comes to pre-purchasing, I strongly suggest you forget non-essentials. Many areas in the United States don’t have enough stockpiles of raw materials or sufficient manufacturing capability to get you the best value in a nationwide competition for products.

Shop early and nationally and purchase early and locally. Consider locally procured items and the use of centrally located warehouse facilities to store project construction materials.

If you have a large project planned, you should start railing materials, such as PVC piping, steel conduit, gypsum wallboard and copper wire, into a local warehouse. Also, consider materials and products, such as cement, structural steel shapes, reinforcing steel, welded wire fabric, brick, polycarbonate, insulation, roofing materials and stainless-steel products. Big-ticket, long-lead purchases, such as emergency generators, switchgear and boilers, are also finding their way into early purchase and warehousing strategies. 

Implementing a standardization initiative for certain types of mechanical and electrical equipment used at other facilities within a system can make an early purchase strategy more justifiable.

Chances are there is a considerable amount of product purchasing history that precedes the current project that can be used as a baseline to judge availability, quantity and delivery factors in the selection of project materials. Maximize the use of these types of materials in constructing your new project and take advantage of existing purchasing power by utilizing existing negotiated contracts for materials and services. 

In the final analysis, the critical success factor is schedule. Calibrate your project to leverage the economics of supply and demand, to accommodate the changing facts on the ground and benefit from the federal stimulus package. Predetermine types and quantities of materials needed and seriously consider early procurement of certain products and warehouse as much as possible. Even if you don’t use all of the materials, there will certainly be a secondary market for re-sale. Knowing I have the right types and quantities of necessary materials and products in place to meet construction schedules and budgets helps me get a good night’s sleep. 

Gregory J. Offner, CCM, is vice president of AECOM Design in Arlington, Va. He is a member of the Correctional News Editorial Advisory Board.

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