2015 q3 beyond estimation market outlook

Beyond Estimation Market Outlook®

Construction Cost Forecasting, Procurement and Timing Decisions

For a Rising Market

Since 1972

®

Peter Lucking – Associate Chet Lockard – Project Guide Services

North America’s Construction EconomistVermeulens.com

B o s t o n w T o r o n t o w S a n A n t o n i o w D e n v e r w L o s A n g e l e s

Service Beyond Estimation

2

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This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.

N o r t h A m e r i c a ’ s C o n s t r u c ti o n E c o n o m i s t

Beyond Estimation Market Outlook

3

Learning Objectives

Cost Reconciliation Tracker Present trends in median trade costs from January 2009 – Current

Macro Economics Understand the Macro Economic impacts on Construction Volume and Cost

Forecast Forecast for Future Construction Costs

Procurement Strategy In light of current market conditions, recommendations on project procurement



2000 - Current

4

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016120

130

140

150

160

170

180

190

200

210

220

230

240

250

260

270

280

VCC Construction Cost Index

Construction Cost Trendline (3.1%)

CPI

CPI Trendline (2.7%)

Vermeulens Construction Cost Index



Jan-90Jan-92

Jan-94Jan-96

Jan-98Jan-00

Jan-02Jan-04

Jan-06Jan-08

Jan-10Jan-12

Jan-147,500

8,500

9,500

10,500

11,500

12,500

13,500

14,500

15,500

16,500

17,5002.7% Trend Line

GDP

(Bill

ions

)

5

High/Low-4.3%

Low/Current+13.8%

Growth Rate of 2.2% for the last 6 Years

US Real GDP



6

Code Group VCC CM CM-VCC VCC CM CM-VCC

01 Allowances $1,156,805 $2,422,380 $1,265,575 $2,651,790 $2,672,730 $20,940

02 Site Work $2,636,810 $3,773,428 $1,136,618 $2,918,155 $2,882,279 ($35,876)

03 Concrete $5,840,270 $5,065,081 ($775,190) $5,065,361 $5,065,081 ($280)

04 Masonry $1,547,241 $1,767,385 $220,144 $1,615,526 $1,609,395 ($6,130)

05 Metals $17,945,452 $17,804,383 ($141,069) $15,675,089 $15,577,004 ($98,085)

06 Wood/Plastic $3,172,732 $3,831,671 $658,939 $3,694,276 $3,600,999 ($93,277)

07 Thermal/Moisture Protection $2,903,951 $3,046,873 $142,922 $3,099,398 $3,086,080 ($13,319)

08 Doors/Windows $17,219,666 $15,756,579 ($1,463,087) $15,214,307 $15,299,926 $85,619

09 Finishes $9,635,770 $9,399,224 ($236,546) $10,135,975 $10,137,758 $1,782

10 Specialties $1,335,983 $1,163,012 ($172,971) $1,410,825 $1,418,709 $7,884

11 Equipment $1,127,700 $1,852,358 $724,658 $1,692,000 $1,693,414 $1,414

12 Furnishings $784,846 $302,393 ($482,453) $559,342 $573,596 $14,255

13 Special Construction $300,000 $148,575 ($151,425) $150,000 $148,575 ($1,425)

14 Conveying Systems $4,858,875 $7,212,645 $2,353,770 $5,963,888 $5,993,138 $29,250

15 Mechanical $28,949,381 $35,232,816 $6,283,436 $29,127,187 $29,493,221 $366,034

16 Electrical $15,451,608 $16,700,277 $1,248,669 $16,476,313 $16,451,613 ($24,700)

17 Permits & Fees $19,075,543 $20,452,111 $1,376,568 $20,043,336 $20,051,467 $8,130

18 Contingencies $16,841,472 $14,102,030 ($2,739,443) $15,684,472 $15,697,176 $12,704

19 Enabling $22,704,456 $22,704,458 $2 $22,704,458 $22,704,458 $0

20 Total Construction Costs $173,488,558 $182,737,674 $9,249,116 $173,881,696 $174,156,616 $274,920


Beyond Estimation Market OutlookCost Reconciliation Tracker®

7

Cost Reconciliation Tracker®



Typical Institutional Project – Direct Trade Cost

Recession Decline -14.0%2011 +2.0%2012 +4.0%2013 +5.0%2014 +6.0%

Assumes trade-weighted average of individual percentage trade reduction

8

Construction Cost Impact



9

http://www.turnerconstruction.com/cost-index

Recession Decline-13.2%

2011 + 2.1%2012 + 2.6%2013 + 4.7%2014 + 4.4%

YTD +3.5%

-14%

+2.0%

+4.0%+5.0%+6.0%

Turner Construction Cost Index

Turner Construction Cost Index

+5.3%



High Growth Market Adjustment Cost Recovery High Growth0

250

500

750

1000

1250

1500

1750

2000

2250

2500

2750

3000

3250

3500

3750

950675 675 750 750

1150

1075 10501150 1250

1300

1000650

9501300

MarkupLaborMaterial

3,400

2,750

2,375

2,850

3,300

10

Structural Steel Pricing



11

Contingency



Project Contingency and Escalation Recommendations

Design Contingency

Preliminary Design 10% to 15%

Schematic Design 6% to 9%

Design Development 3% to 6%

Contract Documents 0% to 3%

Construction Contingency 3% to 5%

Escalation - based on the Market Outlook and Local index

3% to 9%

Bidding Contingency 0% to 5%

Project Contingency (Owner) 5% - 15%

12

What’s Next?

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016100

120

140

160

180

200

220

240

260

280

Vermeulens Turner ENR



13

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

201680

90

100

110

120

130

140

150

160

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

US Dollar and NYSE

US Dollar and NYSE



20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

201680

90

100

110

120

130

140

150

160

0

5

10

15

20

25

30

35

40

45

50

14

US Dollar Impact on Commodities



15

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

16,000

16,500

17,000

0

2,000

4,000

6,000

8,000

10,000

12,000

GDP (Billions) and NYSE



16

128,000

129,000

130,000

131,000

132,000

133,000

134,000

135,000

136,000

137,000

138,000

139,000

140,000

141,000

142,000

143,000

0

2,000

4,000

6,000

8,000

10,000

12,000

8.7 M Jobs12.7M

Jobs

183,0

00 /

mth

212,0

00 /

mth

3.0% G

DP G

rowth

2.2%

GDP

Gro

wth

229,000 / month

US Employment (Thousands) and NYSE



17

12/31/85 06/23/91 12/13/96 06/05/02 11/26/07 05/18/13

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

3.7% GDP Growth Rate

US Total Employment (Thousands)



18

01/01/01 09/28/03 06/24/06 03/20/09 12/15/11 09/10/14 06/06/17

100,000

105,000

110,000

115,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

160,000

100,000

105,000

110,000

115,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

160,000

6.2M

6.2M

229,000 / month


Beyond Estimation Market OutlookUS Total Employment (Thousands)

19

20112012

20132014

20152016

0

50

100

150

200

250

300

350

400

450

204K AVG


Beyond Estimation Market OutlookUS Total Employment (Thousands)

20

20022003

20042005

20062007

20082009

20102011

20122013

20142015

20160

1

2

3

4

5

6

7

8

9

10

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Reserve Assets (trillion) Unemployment Rate (%)

Federal Asset Monthly Purchase



21

US Job Growth

0 2 -Jan -8 7 2 4 -Ju n -9 2 1 5 -Dec-9 7 0 7 -Ju n -0 3 2 7 -N o v-0 8 2 0 -May-1 4

-200

-100

0

100

200

300

400

500

600

0

2,000

4,000

6,000

8,000

10,000

12,000

6 Month Average Job Growth NYSE Vermeulens



19861988

19901992

19941996

19982000

20022004

20062008

20102012

20142016

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

0

50

100

150

200

250

300

High/LowTotal

-8.7M (-6%)

Construction-2.3M (-30%)

Low/CurrentTotal

+12.2M (+9%)

Construction+964K (+18%)

22

US Construction Employment (Thousands)



19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

20164,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

23

Construction Employment and Percent of Total



24

Construction Labor Utilization Rate



25N o r t h A m e r i c a ’ s C o n s t r u c ti o n E c o n o m i s t


<70%

70% to 79%

80% to 89%

90% to 105%

>105%

Top Cities by GDP

Construction Labor Utilization Rate

Regional Construction Labor (Thousands)

National(-30% + 18%)

Denver(-26% + 45%)

Houston(-16% + 16%)

Dallas(-19% + 19%)

Boston(-25% + 26%)

26

140

150

160

170

180

190

200

210

220 Dallas

140

150

160

170

180

190

200

210

220 Houston

60

70

80

90

100

110

120 Boston

60

70

80

90

100

110

120 Denver



<70%

70% to 79%

80% to 89%

90% to 105%

>105%



San Jose(-33% + 37%)

New York(-19% + 19%)

Seattle(-37% + 36%)

San Francisco(-32% + 33%)

27

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016200

220

240

260

280

300

320

340

360

380

400New York

60

70

80

90

100

110

120

130

140 San Francisco

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

201650

60

70

80

90

100

110

120

130

140 Seattle

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

201620

25

30

35

40

45

50

55

60 San Jose



<70%

70% to 79%

80% to 89%

90% to 105%

>105%



Philadelphia(-24% + 14%)

Portland(-31% + 23%) Minneapolis

(-37% + 32%) Baltimore

(-21% + 13%)

28

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016

20

30

40

50

60

70

80 Portland

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

201650

55

60

65

70

75

80

85

90

95

100 Baltimore

60

70

80

90

100

110

120

130

140 Philadelphia

25

35

45

55

65

75

85

95

105Minneapolis



<70%

70% to 79%

80% to 89%

90% to 105%

>105%



Detroit(-40% + 35%)Los Angeles

(-39% + 26%) Washington DC

(-26% + 5%)Atlanta

(-38% + 26%)

29

80

90

100

110

120

130

140

150Atlanta

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016100

110

120

130

140

150

160

170

180

190

200 Washington DC

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016150

170

190

210

230

250

270

290

Los Angeles

40

50

60

70

80

90

100

110

120 Detroit



<70%

70% to 79%

80% to 89%

90% to 105%

>105%


Chicago(-32% + 10%)

San Diego(-40% + 22%)

Miami(-49% + 29%)

Phoenix(-55% + 23%)

30

60

80

100

120

140

160

180

200

220 Phoenix

50

70

90

110

130

150

170

190

Miami


100

120

140

160

180

200

220

240

Chicago

50

55

60

65

70

75

80

85

90

95

100 San Diego



<70%

70% to 79%

80% to 89%

90% to 105%

>105%

31

Wyoming Regional Labor (Thousands)



32B o s t o n w T o r o n t o w S a n A n t o n i o w D e n v e r w L o s A n g e l e s


<70%

70% to 79%

80% to 89%

90% to 105%

>105%

Wyoming(-20% + 2%)

Wyoming Regional Construction Labor (Thousands)

Wyoming

33

Colorado Regional Labor (Thousands)



Colorado(-34% + 37%)

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

60

80

100

120

140

160

180

200<70%

70% to 79%

80% to 89%

90% to 105%

>105%

Colorado



5000

5500

6000

6500

7000

7500

8000

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Employment

Unemployment Rate

Construction Employment and Unemployment Rate

Construction Employment and Unemployment Rate

High/Low

Total -37%Infra -15%Res -66%Non Res -41%

Low/Current

Total +42%Infra +18%Res +67%Non Res +53%

35

Jan-02Jan-03

Jan-04Jan-05

Jan-06Jan-07

Jan-08Jan-09

Jan-10Jan-11

Jan-12Jan-13

Jan-14Jan-15

Jan-160

250

500

750

1,000

1,250

Put In Place Construction Annualized Billions)Non Residential Residential Infrastructure


Beyond Estimation Market OutlookUS Construction Volume

Jan-93Jan-95

Jan-97Jan-99

Jan-01Jan-03

Jan-05Jan-07

Jan-09Jan-11

Jan-13Jan-15

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0%

Put In Place Construction (% of GDP)Non Residential Residential Infrastructure

PeakTotal 8.2%Infra 2.0%Res 4.7%Non Res 3.0%

CurrentTotal 6.5%Infra 2.0%Res 2.3%Non Res 2.2%

36

US Construction Volume % of GDP



20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

2016

0 1 -Jan -0 0 3 1 -D ec-0 0 3 1 -D ec-0 1 3 1 -D ec-0 2 3 1 -D ec-0 3 3 0 -D ec-0 4 3 0 -D ec-0 5 3 0 -D ec-0 6 3 0 -D ec-0 7 2 9 -D ec-0 8 2 9 -D ec-0 9 2 9 -D ec-1 0 2 9 -D ec-1 1 2 8 -D ec-1 2 2 8 -D ec-1 3 2 8 -D ec-1 4 2 8 -D ec-1 5

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

0

2,000

4,000

6,000

8,000

10,000

12,000

37

Construction Volume (Millions) and NYSE



38

Indicator Bottom Increase

Equities March 2009 +143%Commodities February 2009 - 16%GDP Q2 2009 2.2% Annual Employment February 2010 12.7MNon Res Volume February 2011 + 53%

Economic Summary



39

Forecast



40

2008 Peak to Bottom 2010: - 14.0%Change in 2011: + 2.0%Change in 2012: + 4.0%Change in 2013: + 5.0%Change in 2014: + 6.0%

Low Growth

MarketAverage

+ 5% + 7%2015:

High Growth

Market

+ 10%+ 4% + 6%2016: + 9%

Forecast

+ 3% + 5%2017: + 8%



41

Fast track projects no time for 100% Contract Documents prior to starting construction

Busy construction markets CM relationships required to get subcontractors to bid on your project

Financing requires a GMP in order to proceed

Complicated renovations or additions interfacing with operating facilities


Beyond Estimation Market OutlookCM @ Risk

42

15%

10%

5%

0%

>>>>

1. GMP at DD • 10-15% premium• End costs vary depending on completeness of

documents, relationship of Owner to CM, cost control process

2. GMP at CD • 5-10% premium• Proponents provide estimate of costs and

commit to general requirements and fee

3. Modified Bid • 0-5% premium• Proponents provide GMP based on completed

construction documents

4. Lump-Sum Bid • 6-8 pre-qualified general contractors submit lump-sum bids for complete scope of work


Beyond Estimation Market OutlookCM @ Risk

43

What Are The Added Costs

CM @ Risk

Construction Contingency 2% to 5%

General Conditions & Requirements 2% to 5%Higher Service LevelHigher Insurance Levels

Fees 0% to 1%

Sub Contractor Selection/Pricing 2% to 5%High Level of Service & QualityHighly QualifiedScope Holds



44

Procurement Strategy Texas A&M Engineering Education Center

430,000sf Project

150,000sf Addition340,000sf Fitout90,000sf Shell

565,000sf Project

230,000sf Addition415,000sf Fitout150,000sf Shell



45


Cost Model Concept SD DD CD 100% CD80

85

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

V DraftV ReconciledCM DraftCM ReconciledBudgetAnticpated Buyout

$ M

illio

ns

Jan 2014 Jul 2014 Sep 2014 Feb 2015 Aug 2015 Oct 2015

$50M MEP

$48M MEP

$40M MEP



46


180

190

200

210

220

230

240

250

260

270

Vermeulens Index Estimates

Revised GMP

BP3 Remainder Structural

Initital GMP (DD)

BP1 Demo & Utilities

BP2 Structural

BP3 Remainder Structural



47




48


Procurement Outcome

CM @ Risk with DD GMP cost premium of 8% - 10%

CM Fee & Markup 1.5% - 2.0%CM Holds & Changes 1.5% - 2.0%Change Order Pricing: BP-3: 2.5% - 3.0% CM Contingency: 2.5% - 3.0%

8.0% - 10% GMP held no significance

Cross Pollination of Trades (Steel & Electrical) cost $3M-$4M

Early Steel Package saved the Schedule 6 months – 8 months

Owner should be able to buy +$5M of alternates



49


Mitigate market risk and scope creep with Design AlternatesTarget 10% from Program: ‘90% - 105%’

Carefully Plan and Co-ordinate Bid Packages Requires Timely input from Users

Ensure the CM has MEP preconstruction estimating talentPotential to eliminate with Bidding Contingency

Recommendations



50

Jan-03Jan-04

Jan-05Jan-06

Jan-07Jan-08

Jan-09Jan-10

150.0

160.0

170.0

180.0

190.0

200.0

210.0

220.0

230.0

240.0

250.0

Enabling Package (Slurry Wall & Excavation)

100% CD GMP

Early Steel, Elevators and Design Assist Enclosure

+0.6% +8.5% per year -14.0%

Procurement Strategy Dana Farber



51

Recommendations

Distinct early packages (no cross pollination)

Detailed concept design options to marry program and budget

Timely decision making at conceptual design – avoid escalation

Use of bidding contingency to mitigate market risk

GMP 100% Documentation = lowest cost


Beyond Estimation Market OutlookProcurement Strategy Dana Farber

20122013

20142015

20162017

220

Construction Trendline (3.1%)

CPI Trendline (2.7%)

High

Low

Vermeulens Index

52

SD DD CD

Enabling

Structure & Envelope

Interiors & MEP

Concept Design

Procurement Strategy



Strategic Early Procurement Packages

Escalation is extremely variable across the country

Plan and Program ‘90 to 105’

Watch Job Creation for Continued Growth

53

Recommendations



Track Record

Project Volume & Benchmarking

Consensus Approach in Reconciliation

Market Outlook

Conceptual Estimating

Trusted Advisor

Why Vermeulens




Service Beyond Estimation

North America’s Construction EconomistsVermeulens.com

Thank You

Since 1972

®


Peter Lucking – Associate Chet Lockard – Project Guide Services

2015 q3 beyond estimation market outlook

Data & Analytics