By Jack Stubbs
It’s a couple of months into the new year, and many firms and companies are trying to predict what the upcoming year might hold in store.
We recently spoke with Brett Earnest, vice president at Clark Construction Group, about the company’s involvement in the local and regional construction market and factors that might play a role in the broader industry over the next 12 to 18 months.
Founded in 1906, Clark Construction Group is a building and civil construction firm that provides a variety of construction services to its clients. The company sees itself as a local builder with a national reach, with 4,200 employees spread across offices and jobsites throughout the United States.
Clark Construction looks to transform the ideas and visions of its clients into award-winning projects—Clark projects have been honored with more than 1,400 local and national awards for quality, craftsmanship, sustainability, and safety.
At the turn of the year, it’s time for a look back on 2017. What were some of the broader trends that characterized the industry last year?
Looking back at 2017, there are a number of industry trends that stand out. [The first is] design-build contracting in the public sector. Looking for teams that will work towards a common goal, while reducing overall cost and schedule and minimizing risk for the client, has been a big move by UW, WSU and the Port of Seattle. The use of design-build varies by client, [with] some utilizing traditional design-build and others moving towards progressive design-build.
Some clients are looking at risk/reward sharing programs, and there are even discussions in Olympia about Public-Private Partnership opportunities on the horizon. This is a continued trend of public clients look for more collaborative delivery methods. From what was a bid-build regime, the move towards [general contractor/construction management] paved the way for new delivery methods and an emphasis on team, quality and communication in lieu of a low initial bid.[The second trend is a] continued shortage of labor. The Puget Sound region is home to a booming construction market. This provides a positive market outlook, but it comes with challenges. When thinking of cost escalation, most think of commodity pricing. But in Seattle’s case, it is largely due to labor shortages. Union halls are nearly empty, and skilled labor is spread thin. Many work crews have less experience and are working long hours on projects that are stretching their management skills.
All markets are hot. The Puget Sound construction market is well diversified. High-rise residential and office, healthcare, higher education, transportation, hospitality, and K-12 are all going strong. Local, National and foreign investors are all jumping on the Seattle bandwagon, and unlike typical markets where the general theme is cyclical change, this is not the current state in Seattle.
Firms are utilizing new technology and processes on a daily basis to provide more efficient and effective project delivery. Finding ways to operate a safer jobsite and provide higher quality and streamlined work in the field are just some of the areas where firms are turning to technology. From preconstruction and design management to turnover and close-out, firms are more efficient.
Did Clark Construction deliver any particularly noteworthy projects in 2017, and what did these reflect about the wider market? Did any trends in the market surprise you?
Clark and our civil division, Atkinson, had a great year in 2017. We recently completed The design-build Washington State University Digital Classroom under budget and ahead of schedule. We are in the midst of turning over the VA Puget Sound Mental Health and Research Building ($125 million) on Beacon Hill, and turned over other early work projects that enable the major construction to begin at the SeaTac International Arrivals Facility and the Washington State Convention Center Addition.
With the current explosion of growth in Seattle, there’s certainly no shortage of construction activity occurring. What are some of the challenges that you as an organization have faced in light of that activity?
The hot market comes inherent resource challenges. This growth expansion has come with less commodity strain, but exponentially more labor scarcity. Subcontractors are so busy that they have become more selective about opportunities [for which] they will bid. Our business is about planning and execution, and that entails having people with the right experience. We have witnessed some firms needing to supplement their workforce to keep up with their commitments, which requires us to more closely monitor and manage cost, schedule, quality and safety performance.
How geographically stratified is the industry, and where have you seen a lot of projects coming online? Do you think certain submarkets in particular will see more activity in the next 12 to 18 months?
Admittedly, my crystal ball is as foggy as anyone else’s. With that being said, it will be interesting to see how the high-rise market reacts to the density that has been put in place. There is likely still room for hospitality to continue to grow, as well as healthcare and education (both K-12 and Higher Ed) to support the growing population.
The continued infrastructure spending with WashDot and Sound Transit will continue to provide opportunities for Transit Oriented Development in the areas outside of downtown and in the greater Washington Area.
Construction costs have been steadily rising over the last few years. Do you see that as a major hurdle for the industry going forward? How have construction companies responded to the labor shortage, and how is this issue influencing the broader region?
In our minds, this is a combination of labor shortages and selectivity. Trade partners are not bidding as many projects so that they don’t take on too much work. Subcontractors have responded by turning down opportunities for other opportunities with more favorable contract terms, return on employee, and/or complexity and efficiency that works in their favor.
A high-rise project with repetitive floor plates, and a team a trade partner knows will treat them fairly, will be a project they will likely go after harder than one where the variables are unknown. The costs associated with uncertainty, or in some cases known inefficiencies, raise the costs. This in addition to the clear indication of labor shortages are both leading costs higher than typical escalation over the past decade.
Throughout the Puget Sound region, sustainability remains a key initiative. How is your company responding to that? What are some of the short- and long-term challenges to building sustainably?
Challenges always tend to live in the decision-making process and site selection of projects, as well as the tracking and documentation of material sourcing. Decision making based on first cost is rarely the best indicator when it comes to sustainability. Having life-cycle cost and sustainability review shape the path of the project can require thinking about the future impacts, which can sometimes be difficult when there are so many near-term decisions to be made when designing and constructing a project.
Are there any numbers or figures that you track, personally, that give you an idea about the current health of the market?
We look at many metrics, from vacancy rates, lengths/costs of leases, population growth, number of tower cranes, how projects are being funded, labor trends and a number of other metrics. Each market sector within our industry has different keys as to where the market is, and each firm may see those metrics a bit differently.
Are there any other sectors of the industry that you think might become more active over the next 12 to 18 months?
With the recent state budget being approved after a 6-month hiatus, there will most likely be several public projects that move forward. With spending that was approved in November 2016, Sound Transit will continue to be very active. On the private side, there are still many investors, both foreign and state-side, that are looking hard at Seattle. When the viaduct comes down, there will be several opportunities that will become viable.
Are there any potential opportunities in the year ahead that you’d like to highlight?
A number of firms such as Amazon, Boeing and Microsoft will continue to shape our region in 2018. Opportunities in healthcare, such as the continued work at Swedish/Providence, Children’s and the recent Kaiser merger, will all have opportunities play out over 2018. Private development around the viaduct will also likely continue to ramp up, as well as the redevelopment of the Key Arena area.
Are there any challenges that you think 2018 will bring?
2018 will likely have many of the same challenges of 2017, with labor being the largest contributor. In addition, with the changing political climate, the potential change in tariffs and other outside forces could impact our market.
Is there anything else we should be discussing or anything else you’d like to add?
There are a number of projects that are going to utilize alternative project deliveries, and even within those delivery methods, there are variations to how the contracts are executed. There are inherent risks that take place with taking on added scope, and greater risks when risk is shifted to general contractors and trade partners. There are a number of organizations, such as the [Design Build Institute of America], that have workshops to ensure firms are up-to-speed on what they are getting themselves into.