Construction ‘Crisis’ Inflates Price Tags

By Beacon Staff

A combination of rising construction costs, unforeseen building obstacles and planning problems has led to delays and significant price increases for several major projects in Northwest Montana, including Going-to-the-Sun Road’s restoration, Kalispell’s new city hall and an assortment of school renovations.

The large jumps in price estimates for Going-to-the-Sun Road’s restoration and a downtown improvements project in Whitefish, along with other projects, have been blamed on increases in material prices. This, and higher wages, are leading to what Cary Hegreberg, executive director for the Montana Contractors Association, calls an approaching crisis in the construction industry.

“The pressures are becoming pretty ominous,” Hegreberg said.

Meanwhile, the increased price tag of Kalispell’s new city hall, located in the old Wells Fargo bank building downtown, is due more to delays and design changes than rising material costs, said Nicholas Oswood, the project manager for Oswood Construction Co. of Great Falls. While rising material and labor costs have had some impact, Oswood said he’s had more design changes on this job than on any other before.

The project’s current price tag, roughly $1.7 million, is $500,000 more than Oswood’s original contract and double the original estimate, which Oswood called “overly optimistic.” Construction will be wrapped up this week – plans initially called for the project to be finished by August, 2007.

“This project has been a struggle,” Oswood said. “It’s frustrating for us, but it’s not anyone’s fault.”

Oswood said his crew encountered several bizarre obstacles including two mysterious staircases hidden behind walls that led to nowhere. Crews also stumbled upon asbestos buildup and moldy bathroom walls, among many other things. Requests for changes from the city included a floor plan redesign, a new roof, the expansion of rooms after the frames were already in place and the construction of a spacious mezzanine.

“I don’t think they spent enough time on the front end investigating the building,” Oswood said. “I certainly appreciate the position that (City Manager Jim Patrick) is in, that he has to go back to his constituents and say this is going to cost twice as much as expected.”

Oswood commended Patrick’s dedication to making the building as nice as possible, even if it meant additional time and money. Patrick said he understands concerns about the project’s timeline and costs, but he feels the city took the necessary steps to make the building a desirable home for city employees rather than just a functioning office space.

“I think everyone has been very patient working through the different things,” Patrick said. “We’re going to have a super project.”

Kalispell City Hall is one of several projects, both completed and proposed, that have significantly overrun expected costs and timelines in the past several years in Northwest Montana.

The estimated price tag for the restoration of Going-to-the-Sun Road in Glacier National Park recently jumped from a $140-170 million estimate in 2002 to $240-270 million. A large streetscape project in Whitefish has grown from $3 million to $5.2 million. Sharp increases in the prices of gas, asphalt and steel are among the biggest culprits, officials said. The sagging U.S. dollar doesn’t help either.

In 2002, a $15.8 million bond passed for renovation and construction at Flathead Valley Community College. Because of lawsuits, the project didn’t get underway until 2005 and was completed in 2007. By that time, FVCC President Jane Karas said, the project’s price tag had risen to more than $20 million. The school is still trying to come up with that extra money, she said. Also, a proposed $21.5 million high school bond in Whitefish is more than $11 million higher than a similar 2003 bond, an increase largely attributed to construction price increases.

According to figures from the Engineering News-Record, construction costs overall increased by 17.3 percent from 2004 through 2006, compared to 4.3 percent the previous three years. A study released this month by the Associated General Contractors of America reports that high material prices aren’t expected to slow down. Gas is one of the biggest concerns.

Gas prices affect all construction because of the transportation of materials. For that reason, Hegreberg said there is emerging discussion about raising fuel taxes, which, considering already high gas prices, is unlikely to sit well with the public. But in the interest of maintaining public safety infrastructure, as well as keeping down all construction costs, the need for solutions is imminent, Hegreberg said.

“It’s not a crisis, but it’s a problem,” Hegreberg said. “Where the problem is in the declining safety of our public infrastructure. As a nation we’re not putting the kind of money into our public infrastructure that most countries are and we’re tying to grapple with how to deal with it.”

Labor is another major construction cost and a particularly problematic one in construction-heavy areas like Flathead, Gallatin and Missoula counties, Oswood said. He said the City Hall project has been hit in two ways by labor costs: One is that it’s hard to find enough good help in the Flathead and, two, because it’s a government building he has to abide by state-mandated wages which currently are higher than what he would be paying.

Oswood said 75 percent of his employees commute from Red Lodge, Anaconda and Helena. While they’re here they stay in hotels, for which Oswood pays, an expense exacerbated by the City Hall project’s length.

“My costs are in overhead and when a job takes twice as long as it’s supposed to, it costs me a fortune,” he said.

Despite the delays and price increases, both Oswood and Patrick said Kalispell is still getting a cheap deal. The city spent $1.1 million to buy the building and then $1.7 million on construction. The per-square-foot costs of the 21,000-square-foot building are low for a project of this magnitude, they said.

Patrick said the extra dollars were well spent, as the city didn’t want to pinch pennies if it meant being cheap. He wanted a building that will leave an impression for generations.

“We’re leaving a legacy and that means a lot to me,” Patrick said.