Is there a deeper explanation, other than inflation, of the cost estimate increase over the past 6 months even though the design is largely the same?

Per the project’s professional cost estimator:      

“The current market conditions are causing difficulties for cost estimators and, in particular, relating to bid analysis.  However, our cost estimates on large projects in the Northeast are holding up well against overall bid ranges and against low bids. 

That said, on several high-profile projects recently, we have seen a concerning trend which has led us to do some deeper investigations, including sharing appropriate discussions with other cost estimating companies, large subcontractors, and construction managers to establish rational explanations.”

Below is a summary of the issues which are causing this current volatility – some issues have been apparent for a few months, but others have become known more recently.

  • Subcontractors who successfully bid projects in 2021 are now losing money heavily as they had not anticipated current market conditions (due to reasons listed below). This situation has prompted them to include additional money in their current bids in an attempt to recover the lost money on current active projects.
  • Labor shortages – during COVID, there were significant lay-offs and the contracting companies have not been confident enough to restore their labor forces nor have they been able to find quality personnel in the region. This has resulted in a low appetite among larger contractors and subcontractors and a desire to focus on larger more profitable projects. Smaller projects with a low probability of making a good profit are being bid at higher prices. This results in a bid strategy of “here’s what we will do the job for if we win it.” This is not a competitive bidding strategy. Also, the “traveling” labor force (which tends to gravitate to cities or locations where there is work and where there are profitable projects) hasn’t aided the labor shortage in Metro Boston as it did pre-Covid.
  • Supply chain problems and lead times – this is well-documented (see below items also). Equipment vendors are quoting extremely long lead times and equipment which until recently was on 4 to 6 weeks delivery is now being quoted out beyond 20 weeks. This is creating another element of risk which contractors and subcontractors are having to deal with.
  • Rising fuel costs.
  • Equipment pricing by vendors – the vendors have no risk associated with their prices and therefore, they have been increasing their quoted costs to cover themselves for price fluctuations. Contractors have no alternative than to accept the quotes. Furthermore, vendors are only holding their prices for a few weeks which makes it a very risky proposition for contractors bidding projects of longer construction durations. Some vendors are refusing to commit to pricing until they have approved shop drawings which is leading to an elevated level of risk for bidders (see risk comments below)
  • Stock-piling materials – larger contracting organizations have stock-piled materials predicting or sometimes knowing that there are shortages. For example, roofing materials and PVC conduit. Contractors buying materials are facing higher prices because of low inventories at the suppliers and coupled with this, suppliers are only selling some materials in very limited quantities. This presents big problems for bidders on larger projects, where greater quantities will be needed.
  • Contractors are pricing risk at higher-than-normal levels because of the above factors and it is extremely difficult to analyze this. The intangible costs in current bids make it problematic to reconcile a cost estimate to bids received.

Show All Answers

1. What is the Foster School Building Project?
2. What is the Foster School Building Committee?
3. What is the MSBA?
4. What is the benefit of working with the MSBA?
5. How is our community included in this process?
6. What are the different phases of the project and how long will each phase, including construction, take?
7. What is the value of rebuilding the Foster School to people who either don’t live in the Foster district or don’t have children in the Hingham Public Schools?
8. When will the construction start and end? When would students be in the new school?
9. My child is at Foster. Will he/she need to move to a different school during construction?
10. What will happen to the athletic fields and tennis courts during construction?
11. Was a traffic study done? How will traffic be managed during construction?
12. How was the enrollment number determined? Does the new enrollment number allow for growth?
13. What is the potential base reimbursement rate from the MSBA for this project? How was the rate determined?
14. How will this new building support Hingham’s climate action planning efforts and the Town’s goal of reducing our fossil fuel use and carbon emissions?
15. I understand that Foster School is next to wetlands and in a flood zone. What will be done to mitigate the risk of flooding and protect the environmentally sensitive areas surrounding the school?
16. Is this a suitable time to build as construction costs have increased significantly since the middle school was built, and cost per square footage is far more than Public Safety building?
17. What costs does the MSBA not cover? Should we be adding components that have been excluded by MSBA? Is it prudent to build when costs are ineligible?
18. What will Foster look like compared to new elementary schools in surrounding towns? What is the square footage of new school and how does it compare to sq ft/ student at other schools in town (& MSBA
19. What additional operational costs will there be relating to the new elementary school? Is there an estimate of operational cost savings delivered by energy or other efficiencies built into the...
20. For tuition-based programming (i.e., KIA, etc.), if programming is increased, will costs be covered?
21. Would we look at redistricting the other elementary schools to ensure class sizes are comparable across the four elementary schools?
22. Will out-of-district tuition go down as a result of Special Ed programming at the new elementary school? Will additional SPED programming built into the facility enable more students to stay in...
23. Do we have to fully open at the opening of the new school or is it possible to increase over time, i.e., staffing and furniture/fixtures.
24. What process did you go through to determine the building configuration and placement on the site?
25. Is there a deeper explanation, other than inflation, of the cost estimate increase over the past 6 months even though the design is largely the same?