NEW YORK CITY-The bureaucratic structure faced by contractors doing business with the City of New York is one of the reasons that construction costs here are so high, according to a report released today. “Government regulations and procedures are much more onerous here, in our opinion,” said Richard Anderson, president of the New York Building Congress, at a breakfast forum Wednesday morning. Anderson, whose organization prepared the report, noted that it costs two-and-a-half times as much to build an office tower here as it does in Chicago.
The featured speaker at the breakfast forum acknowledged the city’s role in widening the gap between New York and other markets. “We’re a bad client,” said Robert Lieber, deputy mayor for economic development. “We think that competition is the key to keeping costs under control, and we recognize that we have not presented a particularly competitive environment.”
As a result, Lieber said, “we don’t get a very robust response” on RFPs, and city construction projects often come in over budget and behind schedule. Improving the level of competition on city projects is key, he said, citing a projection that for every bid received, the final costs of a project can be reduced by 2% to 3%.
Lieber expressed the hope that the Bloomberg administration’s efforts to address inefficiency and lack of competition for bids will create a “spillover” effect into how the private sector does business. He discussed five reforms in the process for city capital construction projects, as revealed on Monday by Mayor Michael Bloomberg. One is a program to develop accurate project scopes and cost estimates before budgets for the projects are approved. Another is a three-year pilot program that will eliminate the “no damages for delays” clause from 25% of city construction projects, thus allowing contractors on those projects to collect damages for delays caused by the city.
The city is also looking to halve the time it takes to process change orders on contracts, which currently take as long as 300 days to turn around. “We recognize that half of 300 days is 150,” Lieber said. “That doesn’t mean 150 days is acceptable.”
Other reforms which take effect immediately include the implementation of a centralized tracking system for construction bids on city projects and a move to “operationalize” changes to the Wicks Law that were approved this spring by the New York State Legislature. One of the Wicks Law changes raises the dollar threshold for mandating multiple prime contracts on city projects from $50,000, a figure that was set in 1961, to $3 million. Lieber said the city is considering other reforms, including changes to the bonding requirements on city projects.
Discussing the NYBC report, Anderson pointed out that there’s “no single reason” why costs have escalated 400% in 35 years. “It’s a lot of things,” including labor costs and commodity prices. On the other hand, he noted that while base costs are higher in New York, they’ve escalated more slowly over the past couple of years than in Las Vegas, Los Angeles, San Francisco or Seattle.
According to the report, costs rose 32% between the first quarter of 2004 and the first quarter of 2007. General contractors in New York City reported a 5% to 6% increase in 2004, an 8% to 10% increase in 2005, and a 12% increase in 2006. The rate of escalation moderated to 11% annually in 2007 and is expected to reach 1% a month over the next two to three years. At present, construction in New York City is more than 60% more expensive than in Dallas; 50% more than Atlanta; 25% more than in Seattle; and 20% more than in Los Angeles.
Some of the report’s findings include: