Roads at bargain prices

The first phase of the state Route 510 Yelm bypass project could come with a half-price sticker.

The winning bid by Scarsella Bros., a Kent-based general contractor, of $4.1 million was 53 percent below the state Department of Transportation’s internal estimate.

With the summer construction season approaching, local and state governments are benefiting from an exceptional bidding climate for public works projects such as the one in Yelm, scheduled to start this month. The bad economy is prompting fierce competition among a larger pool of contractors for available work, driving down costs for these projects, which include road construction and utility replacement.

That’s good news for taxpayers, who are paying for the projects, and rotten news for contractors trying to stay afloat in the wake of the worst economic crisis since the Great Depression.

“It’s just dog-eat-dog right now,” said Dean Smith, a division manager for Lakeside Industries, the state’s largest asphalt-paving contractor. It has an office in Lacey.

“People are just in survival mode, to be honest with you.”

A brief survey by The Olympian of local public works projects, mostly involving road construction, shows winning bids are between about 20 percent and more than 30 percent below the engineer’s estimate, which uses data from previous projects. Officials say that even after adjusting to reflect current economic conditions, bids still are coming in significantly lower than the revised figures.

“This is an extraordinary climate,” longtime Lacey City Engineer Roger Schoessel said. “I guess the folks of the Great Depression could have spoke to it, but I’ve never seen anything like it.”

Compared with what it thought it would pay, the city has saved millions of dollars on two major projects awarded in the past year: a new wastewater pump station in Hawks Prairie and the Mullen Road extension, a long-planned transportation connection.

The drop in prices comes on the heels of boom times when public officials were lamenting high bids and too few contractors bidding for their jobs.

Thurston County Engineer Dale Rancour said prices have dropped but not to their pre-2003 level, before high demand and production shortages caused a spike in construction materials and fuel costs.

Schoessel recalled a 2007 project that involved building a second turn lane on the southbound offramp of the Interstate 5 interchange at Marvin Road. It drew no bids because business was booming. WSDOT, which was managing the project, put the project out to bid a second time, he said.

Now, the opposite is happening. Aaron Inglin, an estimator and assistant project manager at Tumwater-based Andy Johnson and Co., said a $2 million to $3 million project that used to attract 10 prospective bidders is now drawing double that number.

Tightened lending by banks and the collapse of the housing market have put the brakes on private development, forcing contractors in that sector to search for work on the public side, which has been aided by federal stimulus dollars.

Four to seven contractors were regular bidders on city projects and were familiar with city requirements, Olympia City Engineer Fran Eide said.

“Now, we’re seeing a lot of new names and a lot from out of town,” she said. “That’s not to say they can’t do good work, but it just takes a little bit of extra time to vet them.”

With such stiff competition, contractors are “sharpening their pencils,” the parlance used by city officials to describe the process to bring forward the lowest reasonable bid.

The state requires contractors to pay prevailing wages on publicly funded projects, so they have to look elsewhere to cut costs.

“Everybody is scrutinizing their operations and trying to keep the prices as low as they can,” said Jerry VanderWood, spokesman at Associated General Contractors of Washington, a trade organization that represents 600 contractors, subcontractors, bonding companies and law firms around Puget Sound and Central Washington.

A nationwide survey by the Associated General Contractors of America found that 81 percent of nearly 700 construction firms that responded cut their profit margins last year. One in 10 reported submitting bids so low they actually lost money on the work.

Smith, Lakeside’s division manager, reported bidding some projects with zero margins.

“A lot of people are trying to buy jobs right now,” Inglin added. “In a way, they’re donating work.”

It falls on local and state governments to ensure that the contractor can complete the project for the amount it bid.

Eide said the city is “redoubling those efforts” to track projects, starting with the pre-award meeting with the apparent low bidder to ensure that they have “their ducks in a row.” She said there will be a resulting increase in staff time, but cost estimates aren’t available.

In a worst-case scenario, a bonding company is brought in to finish a project if the contractor is unable. That happened with the Littlerock Road construction project when the general contractor, Alpha Development of Tacoma, walked away midway through the project. The contractor’s president called the situation “unfortunate” in an e-mail but never publicly explained its action, which led to a lengthy delay.

Contractors interviewed by The Olympian didn’t expect to see a bidding environment more favorable to them coming anytime soon, a sentiment echoed by the AGCA survey. It found 88 percent of construction firms didn’t expect overall business conditions to improve until at least 2011.

“Unfortunately for the industry and for our economy, this year’s construction outlook is far from positive,” said Stephen Sandherr, the trade association’s chief executive officer, during a media conference call in late January.

Christian Hill: 360-754-5427

chill@theolympian.com

www.theolympian.com/outsideolympia