Through the Roof

Steve Knight, vice president of estimating for Weis Builders, a general contractor based in Minneapolis, says he spends more time today educating executive teams about rising costs and tapping his creative powers to make project expenses fit clients’ construction budgets. “There is far more legwork involved on all sides to get building projects off the ground these days,” Knight says. “We spend more time on the front end establishing and massaging budgets to meet building owners’ requirements, and in some cases, we’ve had to scale back projects to make that happen.”

John Wood, senior vice president at M.A. Mortensen Company, a Minneapolis-based general contractor, says he often faces a similar budgetary juggling act. “We have had several instances where we established project budgets a year or so ago, and costs have risen so quickly in the interim that designs had to be modified or new economies found in the design to make them financially workable,” he says. He points to the Minnesota Twins’ proposed new stadium in downtown Minneapolis. “The estimated building costs have gone up about $30 million between discussions in the legislature last year and this year, which is the kind of situation many of our customers are experiencing.”

Dick Strassburg, a partner at the Tegra Group, a real estate consultancy in Minneapolis, says rising materials costs now often have him counseling clients to look harder at retrofitting existing buildings for their needs rather than constructing new ones. “It’s become a bigger factor in our decision making,” Strassburg says. “Five years ago when we would look ahead at construction projects, we wouldn’t have to build in as large an inflation factor. Now each analysis we do, we wrestle with how much inflation to anticipate.”

Building contractors also face the additional problem of material shortages—especially scarcity of steel or cement—that disrupt construction schedules. Shortages may be caused by growing international demand for materials and redirecting of supplies from some parts of the country to areas devastated by Hurricane Katrina.

“I have been on jobs where there weren’t enough steel studs, which affected our project scheduling since, as electrical contractors, we have to wait for everything else to be in place before completing our work,” Nielsen says.

Panek says gypsum for drywall—produced by a plant in Iowa for use in the Upper Midwest—was rerouted to the Gulf Coast, where suppliers could get substantially more money for it. “That created something of a shortage in the Twin Cities, driving prices up as well,” he says.