As privately-funded construction booms around Nevada, projects from public agencies are adding fuel to the already hot market. But contractors eyeing big public works jobs in the pipeline find themselves dealing with new, sometimes troublesome rules. The stakes are high with a lot of big construction contracts in the pipeline.
Follow the Funds
A $347 million plan for state public works projects coming online during the next four years was approved during last year’s session of the state Legislature.
Ward Patrick, administrator of the Nevada Public Works Division, which oversees planning, bidding and construction of state projects, notes state construction budgets can swing dramatically.
In 2007, when the state’s economy was booming, lawmakers approved a $754 million capital improvements plan. Four years later, after the economy cratered, only $53 million was allocated.
Among the biggest projects that the state government has under construction these days:
An $80.4 million engineering building at the University of Nevada, Reno.
A $50.2 million health and sciences building at the Henderson campus of College of Southern Nevada.
A $44 million education and academic building at the Henderson campus of Nevada State College.
A $26.1 million DMV office in south Reno.
A $32.7 million National Guard Readiness Center in North Las Vegas.
Coming right behind those projects are additional ones estimated at more than $6 million each to upgrade utilities systems at prisons at Lovelock and Carson City.
And looking further down the pipeline, the state is preparing major projects such as an interior remodeling of its Grant Sawyer Office Building in Las Vegas and a multitude of smaller projects such as construction of a new equipment repair shop in Elko for the Department of Forestry.
It’s not just the state government that’s keeping contractors busy. Cities and counties, school districts, airports, convention authorities and a multitude of other agencies all are preparing plans and advertising for bids.
Clark County School District, for instance, is in the middle of a 10-year plan to build new schools to keep up with growing enrollment. The total price has been estimated at $1.4 billion.
Smaller projects, too, provide opportunities for contractors. The City of Sparks, for example, plans more than a dozen projects such as repainting a maintenance building, remodeling a dormitory in a fire station and upgrading restrooms in City Hall. None of them is budgeted at more than $350,000.
As private construction activity booms across the state, public agencies find themselves in the same boat as the private developers who struggle to find qualified contractors who can fit projects into their schedules.
Patrick says state public works officials have had particular challenges finding bidders on complex projects that cost less than $5 million. Because state laws provide very detailed and specific instructions for how public works contracts are advertised and awarded, state officials aren’t able to use much creativity to expand the pool of bidders.
Another limitation: Bidders on state projects need to be pre-approved through a detailed, 10-page application that asks about the firm’s financial history, its past projects and its leadership.
For builders that have the resources and patience to understand the requirements of publicly funded jobs, government work provides an important counterweight to private construction contracts.
Public works projects typically account for 40 to 50 percent of the annual billings of Martin Harris Construction LLC, whose public funded projects in southern Nevada have ranged from elementary schools to classroom buildings at UNLV to the $800 million expansion of the Convention Center that it’s handling as a joint venture with Turner Construction Co.
Guy Martin, president of Martin Harris, says publicly funded projects, which often reach their peak at times that the private market has weakened, have provided diversification to the company’s business for more than three decades.
Not that it’s been easy.
“Publicly funded jobs are animals unto themselves,” he says.
Complexity arises from the variety of ways that public agencies pursue construction projects, including:
Traditional hard-bid contracts, in which work is awarded to the construction firm that submits the lowest bid based on architectural designs.
Design-build contracts, in which the builder and the designer work under a single contract to provide design and construction services in a unified flow of work.
Construction manager at-risk contracts, in which the construction manager promises to deliver a project at a specified price, then takes responsibility for the design and construction to meet that price.
Each mechanism, Martin says, requires its own set of skills — not to mention its own philosophical approach — from builders. The tough-as-nails bulldog who battles for every dime on a hard-bid contract, for instance, may not be the best manager for a highly collaborative design-build project.
Even a single public agency is likely to use a variety of delivery mechanisms.
“We’re seeing the public agencies become much more sophisticated,” says Martin. “They’re making the decision on delivery methods on a project-by-project basis.”
Contracting on many public works jobs in Nevada got more complex at the start of this year with a new law that requires that contractors — and their subcontractors — use apprentices for specified portions of public projects.
Mac Bybee, president and chief executive officer of the Nevada chapter of Associated Builders and Contractors, a group of open-shop builders, explains that the law requires that 10 percent of the hours worked on building construction projects and 3 percent of the hours worked on road construction jobs must be handled by apprentices.
To qualify as an apprentice, a worker must be enrolled in a state-approved apprenticeship program. Trade unions run approved apprenticeship programs. So does the ABC, which provides a non-union apprenticeship program for electricians statewide and a non-union program for apprentice plumbers in the Reno area. It’s working to expand its apprenticeships to cover other trades, including operating engineers, carpenters, sheet-metal workers and low-voltage electricians.
Construction companies that win state-government contracts but haven’t signed union contracts or aren’t part of the ABC generally will need to sign a deal with a union hall to utilize union apprentices.
Martin worries that many builders and subcontractors haven’t yet invested enough time in learning how the new apprenticeship-utilization law works.
Nevada Labor Commissioner Shannon Chambers has conducted numerous training sessions across Nevada, and the issue is such a hot topic that links to Apprenticeship Utilization Act are on the top of the Labor Commissioner’s website.
Still, Martin worries the law isn’t well understood among general contractors and many subcontractors.
A particular difficulty is, the law allows waivers to the required use of apprenticeships, but the waivers must be granted by the public agency that’s issuing the building contract. Subcontractors can’t simply request a waiver from the general contractor, and the general contractor can’t assume its application for a waiver will be issued.
Martin says some contractors may look at the hassles involved with the new law, throw up their hands and stop competing for public works jobs.
Non-union contractors represented by ABC argue the new law gives union contractors an unfair advantage because non-union contractors now face additional hurdles to staff public-works construction jobs.
“[The law is] an effort to remove competition and funnel taxpayer funded work to the trade unions, which only make up roughly 15 percent of the construction workforce,” Bybee says.
Patrick notes, however, that the measure took effect only at the start of this year, and it’s still too early to know what effects — if any — the new requirements will have state public works contracts. The effects may prove to be subtle.
Martin says the need for contractors to invest in learning about the law’s complexities creates yet another barrier to companies looking to enter the public-works market, further reducing the number of bidders battling for state projects. Already, he says, the barriers to entry were high because of the need to comply with complicated regulations.
Jeffrey Vilkin, president of Las Vegas-based Tradewinds Construction, says open-shop contractors are stymied, too, by requirements that they pay state-mandated prevailing wages on government projects.
Prevailing-wage rates are set by the Office of the Nevada Labor Commissioner, which conducts an annual survey of the wages paid by contractors on jobs throughout the state. Contractors voluntarily provide information to the survey, but Vilkin says participation often is low among open-shop contractors who don’t pursue public works contracts. Labor unions, meanwhile, actively encourage union contractors to report every dollar they pay in wages.
If 40 percent or more of the hours reported in the survey were collectively bargained, then the union rate becomes the prevailing wage, Bybee says.
For carpenters in the Las Vegas area, the prevailing-wage rate — hourly pay plus fringe benefits — stands at $60.91 an hour. The median wage for all carpenters in the area, open-shop as well as unionized workers, is $25.54, reports the U.S. Bureau of Labor Statistics.
“Approximately 80 percent of the work in Nevada — as measured by dollar volume — is done open-shop. How is it that the ‘prevailing wage’ matches the union wage?” asks Vilkin.
He says a more-accurate measure of the prevailing wage would find a figure similar to that paid by non-union contractors in the state. That, in turn, would bring major savings for taxpayers who pay the bills on local, state and federal projects in Nevada.
In fact, Vilkin says, prevailing-wage rates in nearby markets such as Phoenix are actually closer to open-shop rates in Nevada. In one Arizona city, the prevailing wage (hourly pay plus benefits) for carpenters is $38.62 an hour.
For all the regulation faced by contractors on public works projects, Martin says the rules were put in place because a government agency, at some time with some project, ran into a problem with a poor-performing contractor. Over time, the rules pile up.
The rules are demanding, too, for the state employees who manage construction. Ward explained, “The professional engineers and architects of the State Public Works Division operate with a keen awareness of and pride in being conscientious stewards of taxpayer dollars, while at the same time respecting the Nevada business men and women we contract with to build and maintain our state facilities.”
But there’s no doubt the public works market, for all the opportunity it represents, remains a challenging business.
“This is a very unforgiving customer base with an ever-changing set of rules,” Martin says. “There are a lot more companies that have gone out of business because of publicly funded jobs than have ever gone out of business from private jobs.”