- The Washington Times - Monday, November 13, 2000

James R. Bognet is one corporate executive who gets his hands dirty.

Mr. Bognet is president of Bognet Construction Associates Inc., a D.C. firm that specializes in building and renovating interior office space.

Occasionally, you will find him at one of his company's construction sites, helping workers hang drywall, install windows or lay carpet.

Mr. Bognet said he joins his workers on the front line because the construction industry is suffering a severe worker shortage that is helping drive up the cost of development, including wages and office rental rates.

"I've had to go out and work weekends to keep a project on schedule," he said.

The federal Bureau of Labor Statistics said the construction industry employed 6.4 million people in the United States last year. About 356,000 of those workers were employed in Maryland, Virginia and the District, the bureau said.

Five years ago, the industry had 5.4 million workers, with 316,000 in the District, according to the bureau.

Associated Builders and Contractors, an Arlington trade group, estimates as many as 240,000 construction jobs go unfilled nationally every year.

Building industry leaders say the labor shortage increases the cost of development because companies have to pay higher wages to find and keep employees.

The average hourly wage for a construction worker is $17.75, up from $15.47 in 1996, an increase of about 1.45 percent, according to federal data.

The average per-hour wage for all workers in the United States is $13.69, up about 1.5 percent, or $1.87, from 1996, according to federal figures.

But the worker shortage isn't the only factor behind cost increases, industry leaders say.

Building materials such as cement and steel have become more expensive. Also, the need to build projects faster especially office space for the region's fast-growing technology companies is increasing costs, construction companies say.

Determining how much costs have increased can be difficult. Engineering News-Record, a building industry trade publication, estimates national construction costs are up 2.3 percent this year.

Locally, developers say it costs about $125 to build a single square foot of premium office space in downtown Washington, compared with about $90 per square foot five years ago.

Brokers say when the price of construction rises, the costs are eventually passed on to the "users of space." For example, they say landlords pass on some of the cost of expensive office development to their tenants by charging higher rental rates.

Rents in the District are up about 10 percent this year, according to Alexandria real estate research firm Delta Associates.

Andrew Craig, vice president of construction and design for Staubach Co., an international commercial real estate brokerage, said rising costs may be a national problem, but it is felt most in hot markets like the District.

"There is so much demand for development in this area that the problem takes on more urgency," he said.

Fewer hands, higher wages

In addition to the worker shortage, an increase in the use of project labor agreements has also boosted costs, according to Jim Ryan, an official with the ABC in Arlington.

The government uses PLAs to award public works projects to companies that promise to use organized laborers during construction.

"They drive up costs by their very nature because they interfere with free enterprise by eliminating competition from nonunion shops," Mr. Ryan said, citing studies that suggest PLAs can increase the costs of public works projects by 20 percent.

Brett Hitt, vice president of Hitt Contracting Inc., a Fairfax firm, said the labor shortage is probably the leading cause of surging construction costs.

The company has roughly 35 unfilled positions, or about 5 percent of its total payroll, Mr. Hitt said. The company has raised salaries to stay competitive, he said.

For example, Hitt's typical project manager someone who supervises work at a construction site is paid between $80,000 and $90,000 a year, up from about $55,000 five years ago, Mr. Hitt said.

"You have to have people. Otherwise you end up turning down jobs because you can't staff them properly," he said.

Jeff Donahoe, business development director for Donahoe Cos., a D.C. development and construction firm, said his business has about 130 unfilled jobs. He said he competes for labor by offering more employee benefits, such as expanded health insurance coverage and tuition reimbursement.

"It's not just about money anymore," he said.

Scott Brown, spokesman for the Associated Builders, said his group is trying to get more young people interested in the construction industry.

The group operates a Web site, www.trytools.com, that promotes careers in construction. It also sends industry officials into classrooms to discuss career options.

One of the biggest misconceptions, he said, is that construction workers earn blue-collar wages. The explosion of new job opportunities in the technology industry is also luring young people from other career fields, including construction, he said.

An October Engineering News-Record report found that construction project managers with a bachelor's degree and five to 10 years of experience can earn between $50,000 and $60,000 a year, while someone with 30 years of experience can earn as much as $110,000 annually.

"We feel we have to change the image of the construction worker that has been built up over the years," Mr. Brown said.

'Compressed schedules'

Mr. Bognet, the president of Bognet Construction Associates in the District, said the need to build projects on a "compressed schedule" also boosts costs.

Increasingly, local technology companies ask for projects to be built faster than usual, he said.

"For an AOL, time is money," Mr. Bognet said, referring to one of his biggest clients, Sterling, Va., Internet giant America Online Inc. Bognet Construction has built and renovated more than 18,000 square feet of space for AOL.

Also boosting construction costs are the rising prices of building materials.

For example, the price of steel has risen 2.6 percent since last year, according to Engineering News-Record.

Consolidation within the building materials industry has also contributed to the problem, according to Mr. Craig of the Staubach Co. For example, he said the number of major glass manufacturing companies in the United States has shrunk from 10 to two in recent years, the result of mergers and acquisitions.

Developers say the move toward environmentally friendly offices is also pushing up prices because the buildings tend to be more expensive, although the U.S. Green Building Council, a D.C. environmental group, said so-called green offices don't always cost more.

Several developers including the companies that have built new Greenpeace International headquarters in D.C. and the 10-story Tower Building along Interstate 270 in Rockville aim for environmental sensitivity by using materials such as recycled wood and sophisticated air-filtration systems.

Kendall Wilson, a principal in Envision Design, the D.C. firm that designed the Greenpeace building, said green buildings also make use of natural light and other features designed to make employees happier and more productive.

"Creating comfortable work space is becoming more important in a tight labor market," Mr. Kendall said.

Changing the industry

The rising construction costs are changing the building industry in some cases for the better, according to industry leaders.

Some firms are having trouble finding subcontractors to do their projects. The subcontractors say the strong economy has made it possible for them to be choosy about the work they tackle.

"Ten years ago, if you put out a bid for masonry work, you might get twentysome responses. Today, you're lucky if you get six," said David Dempsey, a senior vice president for Spaulding & Slye Colliers, a development and construction group in the District.

Public works projects are also being affected.

The new 2.3 million-square-foot center being built in downtown Washington is $48 million overbudget, primarily because of unexpected labor and material costs, according to Lewis H. Dawley III, general manager and chief executive of the Washington Convention Center Authority.

In Maryland, increased construction costs kept several new schools from opening on time this fall. The state said the average construction cost to build each square foot in a Maryland public school is about $115, up from about $90 five years ago.

James LaRoe, a Spaulding & Slye Colliers principal, said the increased costs put "added pressure" on office rental rates, since developers have to recoup some of their costs by charging tenants more for space.

Rates in downtown Washington, for example, are approaching a historic high of $60 per square foot for downtown, Class A office space.

But rising costs have also forced developers to work more closely with contractors. This makes the development process more efficient, Mr. LaRoe said.

"We have to be more strategic, more nimble," he said.

Mr. Craig said rising costs force his clients to pay closer attention to the development process, which makes them better-informed consumers.

"They want to know, 'Why am I paying $50,000 for something I paid $30,000 for last year?' You have to help them understand what's happening in the marketplace," he said.

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