Regular readers of the column will no doubt recall that the bids for the final phase of Downtown Links project came in way over the engineer’s estimate.
More than $16 million over for the massive project that would take drivers from Barraza-Aviation Parkway to Interstate 10 on a new four-lane road.
While the scale of the discrepancy is in a league of its own, four other major roadway projects in recent months have also come in significantly over estimates. For perspective, major projects during the first decade of the Regional Transportation Authority — which oversees a 20-year road and transit plan in Pima County — came in an average 17 percent under engineer’s estimates.
It was that trend that allayed some of the concerns about recent RTA revenue projections that showed substantially less than the originally estimated $2.1 billion in sales tax revenues rolling in over the two-decade plan.
Together, East Broadway between Camino Seco and Houghton Road, West Valencia Road between South Wade Road and the Ajo Highway, East Valencia from South Wilmot to South Kolb roads and Phase 2 of the Ajo-Interstate 19 interchange project — the only one not part of the RTA — were estimated to cost a cumulative $74 million. However, the sum of the low bids came in at nearly $85 million, for an average exceedance of 14 percent, according to online bid tabulations.
The Road Runner checked in with an RTA official and one of the contractors who submitted bids to get a sense of what may be going on.
Both the RTA’s Jim DeGrood and Borderland Construction owner Morgan North agree that part of the story traces back to the Great Recession and its ongoing consequences.
In the go-go housing boom days around 2005, construction companies like Borderlands were staffed to the gills and running full-bore. And then the bottom fell out. North said he had to lay off hundreds of workers, many of whom left the area and the industry, making for what he called the “worst year of my life.”
While the economic landscape has improved markedly since the worst economic downturn since the Great Depression, the capacity of contractors has not fully rebounded, in part due to what North described as an “acute labor shortage.”
“Frankly, the community doesn’t have the construction capacity that it had a decade ago,” DeGrood said.
That means both that labor costs are on the rise and that public projects like road widenings are competing with a growing number of private projects for contractors, who themselves have fewer workers and are competing among one another for labor.
This can be seen in the fact that two of the multi-million-dollar projects had just one bidder, and the average was just two bidders.
This contrasts sharply to the years immediately after the Great Recession, when many more contractors were competing fiercely for thin or nonexistent margins on such work. Some were bidding at cost just to keep their workers working.
“There definitely is more than enough work to keep our local contractors busy, and as such it is less-competitive,” DeGrood said.
On top of all that, some materials and equipment costs are also on the rise, according to North and DeGrood.
“Unless there’s another market collapse like ’08,” North said, “the prices probably will also likely continue to go up a little bit.”
There’s also the issue of bid compression.
Having five bids so close together — after more than a year since the last major RTA bids — essentially put them in competition with one another for contractors.
So what does all this mean for delivering on the remaining RTA projects?
DeGrood said the three RTA projects all have enough money programmed for completion and that “we’re going to get them done.”
As to the remainder of the RTA, he said there are a number of steps that can be taken to reduce project costs, including rethinking the materials used.
“The construction industry is cyclical, ups and downs, and we’re going to continue to monitor and make adjustments in the five-year program as we work through the remaining life of RTA plan,” he said.
“If we have some challenges at the end, we’ll deal with it at the end.”
While signs are pointing toward rising project costs, there’s another trend that could take the edge off: rising sales-tax proceeds, a fruit of the improving economy.
A chart provided by DeGrood shows steadily rising monthly receipts since things bottomed out in 2010.
The current fiscal year’s receipts to date were up 7 percent over the same period the year prior, and this month’s were up 14 percent over the same month last year, an enormous jump, according to DeGrood.
“It’s the second-largest amount we’ve ever collected, and that was for collections in March,” he said, adding that it’s normally around Christmas that the highest figures are seen.
DOWN THE ROAD
Construction on South Houghton Road from south of Interstate 10 to north of Sahuarita Road starts Monday and will last through late July. Crews will be adding left-turn lanes and doing shoulder work at Houghton’s intersections with East Brekke, Dawn and Andrada roads, as well as Camino del Emperador.
Work will take place between 9 a.m. and 4 p.m., during which lane restrictions and reduced speeds will be in place.
