Trying to Fix Builder Relations
When Los Angeles officials asked contractors in June to bid on the job of building a new police headquarters to replace aging Parker Center, only one responded -- and his bid was $43 million higher than the city’s $200-million estimated cost.
The lack of interest among contractors disappointed city leaders but was no surprise. California’s public agencies are hard-pressed to find builders for billions of dollars’ worth of projects including roads, schools and airport runways as the construction industry struggles to cope with a sustained national building boom.
Aggravating officials’ plight is their reputation for being difficult to work with, particularly by making numerous project changes and late payments. Contractors who have the choice are often opting to build for private developers instead.
“We have frustrated [contractors] so much that they have given up,” Councilman Tony Cardenas said. Reduced competition is driving up prices, he said, “and taxpayers end up with the bill.”
One prominent operator said that many large contractors had gone out business in the last decade -- and that government shared part of the blame.
“The construction industry has essentially gone broke working for public agencies,” said Ron Tutor, president of Sylmar-based Tutor-Saliba Corp., the lone bidder for the police headquarters. “There are only a few of us left.”
Tutor-Saliba, one of two bidders on a project now underway to replace the south runway at Los Angeles International Airport, has been in some high-profile legal wrangles with public agencies. In 2004, Los Angeles airport officials threatened to remove the firm from a $34-million expansion of the Van Nuys FlyAway center, alleging that the company had failed to fix construction defects. The city later signed off the project as complete, though months behind schedule.
Seeking to mend fences and find bidders for more than $100 billion worth of projects, public agencies are hosting the California Construction Expo today at the Los Angeles Convention Center.
Government agencies, led by the Los Angeles Unified School District, the Metropolitan Water District of Southern California and the Los Angeles Community College District, have invited builders to come learn about upcoming projects and attend workshops on how to do business with the public sector.
“We are trying to woo contractors,” said Diana Ho, a consultant for the college district. “We’re reaching out.”
Although many builders plan to attend, skepticism remains.
“Talk isn’t going to win us back,” Tutor said. “They’ve got to change the way they do business.”
It’s no longer business as usual at the LAUSD, said Guy Mehula, chief facilities executive for the district, which needs bids on $1.4 billion worth of projects during the next 12 months, including 39 new schools.
In recent months, the district has begun to expedite payments on change orders and help contractors comply with state hiring and wage rules for their employees, among other changes, Mehula said. Bills are now paid within 20 days on average.
“We want to make sure the process goes quicker,” said Mehula, a former construction manager for the Navy. “We want to be as efficient and contractor-friendly as possible.”
At this point in the real estate cycle, being contractor-friendly is probably a requirement for anyone who hopes to get major work done because there aren’t enough builders to go around. The residential construction boom of the last few years, coupled with increased public spending and massive rebuilding along the Gulf Coast in the wake of Hurricane Katrina, has stretched builders thin. Hot markets for condominium towers in Las Vegas and other cities have added to the strain.
Recent cooling in the housing market is expected to improve builder availability and the flow of construction materials, but contractors will probably still be short-handed, predicted Dennis Katovsich, a senior vice president at the Newport Beach office of McCarthy Building Cos., which specializes in building hospitals and is working on the new $500-million County-USC Medical Center in Los Angeles.
“Talent in our industry is at a premium from senior administrators down to carpenters,” he said. “Everybody is pretty much at full employment.”
Part of the problem is that worker ranks are still thin because enrollment in construction training programs was pared back during the 1990s, when the economy was slow and hiring flagged. And fewer Americans are attracted to the demanding business these days.
“Not everybody wants to be a plumber, electrician or cement finisher anymore,” Katovsich said.
There is plenty of work for survivors in the private sector, said Frank Foellmer, a division manager at Swinerton Inc. The San Francisco-based contractor and others are often servicing their long-term private clients first to keep them happy.
“Not bidding a public job does not hurt your opportunity to bid the next job if it is attractive,” he said. “We need to pick and choose our clients because we have a finite number of resources.”
Some public agencies including Los Angeles and the state’s university systems have improved their bidding and administrative processes, though, Foellmer said. He intends to attend today’s program to see whether any public projects described at the event are good fits for his construction teams.
Private industry “won’t sustain the pace it is currently on,” he said. “We’re always looking for opportunities in the public sector.”
The city’s community college district has $2.2 billion in bond money to upgrade nine colleges, said Larry H. Eisenberg, executive director of facilities planning and development. “There is so much work ahead of us.”
Tutor said government still needed to do more to gain contractors’ trust.
“Getting competitive bids isn’t a right,” he said,. “It’s something you’ve got to earn.”
