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Daily News-Record
Cost
Control HARRISONBURG - Construction costs are rising faster than the rate of inflation, area builders and experts say, as prices of petroleum-based products, metals and steel spiral upward. A project like the new Rockingham Memorial Hospital, which takes about four years from groundbreaking to move-in, becomes a complex estimating equation, said Dennis Coffman, RMH director of facilities planning and development. "Our original [$280 million] budget was written when gas was $2.25 a gallon," Coffman said. "When we started we didn't know that gas would be close to $3.25 a gallon today." Other materials have followed that pattern. In early 2004, copper cost about $1 a pound. Monday, it was selling for $3.60 on the New York Mercantile Exchange. "Copper has become a precious metal," Coffman said. "In a job like ours where we have miles of wire and pipe, it makes the cost almost impossible to predict." Price Impact RMH has hired a consulting firm to help manage costs and keep the total bill as close as possible to $280 million. Bovis Lend Lease, construction management and consulting firm based in the United Kingdome, will concentrate on cost control while the contractors build the hospital, Coffman said. "About 300 workers are on the job every day now," Coffman said. "The guy managing the daily activities doesn't have time to deal with complex cost issues." For example, the issue with steel prices is not whether prices will rise, but rather by how much, according to a February report from the U.S. Department of Commerce. "Due to current low levels of imports, tight supply, and rising costs of iron ore and scrap, steel mills may attempt to increase prices as much as 25 percent to 30 percent," the report said. Some analysts are forecasting 2008 prices at $644 - $650 per ton, which is well above the 2007 average of $527 a ton, the report added. Bovis looks for alternatives and reacts to changes that no one anticipated, Coffman added. Softening Residential Work Steel is also a major part of the James Madison University Performing Arts Center, according to Jim DeLucas, chief development officer of Nielsen Builders Inc. The $80 million project, scheduled for completion in 2010, has large open spaces for auditoriums that require steel spans for support, DeLucas said. And every project is hit with rising fuel prices, from earth moving equipment to delivery trucks. Some companies are adding surcharges to cover the rising costs of fuel. Paving companies have begun to tie the price of asphalt to petroleum prices, DeLucas added. "That puts the risk of volatility in oil prices on the contractor or the owner," he said. A downturn in residential construction has softened prices in some materials, such as lumber and drywall. "Gypsum wall board, decorative trim and cabinets have leveled out in pricing," DeLucas said. "And concrete, which skyrocketed in 2005, has come back down a bit." Projects of long duration get into difficulties if they can't anticipate price increases, Coffman said. "We're watching and trying to find the best time to lock in all these prices," Coffman said. "We're not over budget, but we're watching everything closely."
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