Problem Statement

High level of activity in region and state.Construction costs increased 20% to 50% over past year.Commodity price increasesCommodity shortages, especially cementHigh level of volatilityHigh level of uncertaintyRESULT: Fewer bidders and higher bids

Impact on Project Costs

Highway Red Mountain: Power to University

Program estimate: $144 million

Two bids received

New Estimate: $213 million (48% higher) Bids received have been 20% to 50% higher

than estimates.

SchoolHousingCommercial

Composition of the Arizona Construction Industry (2002)

Housing53%

Other40%

Highways & Streets

7%

Source: U.S. Bureau of the Census, 2002 Economic Census for Arizona.

Summary of ConditionsAll segments of construction impactedGlobal market competitionHigh level of activity Pressure on commodity supplies High demand for contractors High labor demand

High level of supply uncertainty Prices Shortages

Challenges of expanding capacity Lead times Permitting Capital (investment dollars)

Summary of Impacts

Greater uncertainty Bids are increased to cover risk Fewer bids if risk too highMaterial shortages Higher prices More schedule uncertainty Reduced productivity. Liquidated damages for delaysLabor shortages higher wages reduced productivity longer schedules.

Summary of SolutionsNo “silver bullet” solutionContracting provisions Risk sharing for cost and schedule change

Review material specifications Reduce need for “special” materials

Deal with cement shortage Relief of duty on Mexican cement Negotiate supply agreements Modify liquidated damages clause in contracts

Market metro and state construction activity nationally to expand pool of biddersLife Cycle Program Management

Conclusions

Situation likely to continue in near-term

Tight labor market

Volatile commodity markets

Oil prices likely to remain high

Cement supplies limited

Impact on MAG Freeway Program

MAG Region FY 2006 Freeway Program

(millions of dollars)

Program Revised Bid to Date: $ 310 $401 Remaining: $ 190 $221 Total: $ 500 $621

Program Overage: $121 million

Criteria for Projects

Project Readiness All needed studies completed. No outstanding issues. Design completed for construction.

If Projects not ready: Defer project

Defer other projects in priority order Maintain fiscal balance

FY 2006 Projects Not Ready to Obligate During FY 2006

Route Project Phase Budget Project Status

10 40th St - Baseline Rd Right of Way $5,000Environmental and design concept study will not be completed until FY 2007.

10 40th St - Baseline Rd Design $5,775Environmental and design concept study will not be completed until FY 2007.

17 Greenway Rd / Thunderbird Rd Drainage $8,000 ADOT Recommends delaying project17 Deer Valley TI Construction $1,911 Delete project - Work is not needed.85 MP 139.01 - MP 141.71 Construction

$18,878Project cannot be advertised in FY 2006 due to right of way issues.

93 Wickenburg Bypass Construction$26,800

Technical coordination is needed with Maricopa County Flood Control District before project can be advertised.

101 64th St TI Construction$23,000

Design will not be ready for bid in FY06 due to cultural resource review issue.

303 I-10 - US60, Grand Ave Design$5,000

DCR not completed in time for FY 2006 design.

SW Rubberized Asphalt Construction$5,222

Cannot obligate full amount - move balance to 2007.

$99,586Total of Projects Delayed Due to Project Readiness

MAG Region FY 2006 Freeway Program

(millions of dollars)

Program Revised Bid to Date: $ 310 $401 Remaining: $ 190 $221 Total: $ 500 $621

Program Overage: $121 million Projects Not Ready:$100 million Balance: $ 21 million

Balance of FY 2006 MAG Program

Construction Forum Attendance

Public51%

Private34%

Labor2%

Other13%

Cement Demand & Price