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Price hikes continue to impact construction.

In 2005, project bidding prices in the construction industry continued to escalate. Even before the destructive hurricane season, the PinnacleOne Pulse of US Public Construction study reported public owners were experiencing an average price increase of 13.2 percent, more than four times the rate of inflation. Will this escalation continue in the coming year? What other trends may emerge?

PinnacleOne, one of the nation's leading construction consulting firms, has compiled the following outlook on the U.S. construction industry for 2006:

* Full Impact of Hurricanes to Hit Industry by Mid-Year. In the early part of 2006, there will be minimum escalation to construction costs while the cleanup in Louisiana Mississippi, Texas and Florida is taking place. However, by mid-year, once re-construction starts, look for costs to rise rapidly as the demand for materials and labor will dramatically escalate. Increases could be as much as 10% to 15% across the country and it may take as long as 18 to 24 months before supply and demand for these resources level off.

* Popularity of ADMs to Climb. Given the continued price escalation for labor and materials, public owners will continue to increase their use of alternative project delivery methods (i.e., Construction Management at Risk, Design-Build, Job/Task Order Contracting) in an effort to reduce expenses or at least add some level of predictability to otherwise uncontrollable project costs.

* Selective Bidding. In light of the continuing critical shortage of staff resources in all aspects of the industry (trade, professional, etc.), there will be fewer bidders on public projects as some contractors, concerned with the public sector's ability to implement and execute awarded programs, will focus their efforts on low risk projects.

* Going Green. Given the impact of recent natural disasters and the dependency of emerging economies in China and India on fossil fuels, the price of oil and gas--which has more than doubled in the last two years - will continue to be volatile in 2006. These phenomena are likely to spur increased use of energy efficient cogeneration systems and renewable wind, hydro and solar technologies.

* Independent Agents. With little margin for error in the market, mitigating risk has never been a higher priority. Owners will increasingly assert more control of the construction process by inserting independent commissioning agents to look out for their interests.
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Publication:Real Estate Weekly
Date:Feb 1, 2006
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