You are currently browsing the category archive for the 'Commodities Pricing' category.
HVAC (Heating, Ventilating and Air Conditioning) systems have evolved and gotten better with technology. Matching system requirements with the need and with quality will always trump the bells and whistles. Over the years I have worked with a number of HVAC subcontractors and a few thoughts come to mind that might be useful:
SYSTEM ENERGY EFFICIENCY
Depending on the application and occupancy, a higher SEER (Seasonal Energy Efficiency Rating) for equipment is preferable most of the time. A higher the SEER means more expensive equipment, but the lower operating cost is a win for energy and your occupants.
SYSTEM MAINTENANCE
When selecting the right HVAC system, keep in mind the occupancy type vs. the long-term cost of maintenance. Chilled water/boiler systems will require preventive maintenance for a chiller, cooling tower, boiler, heat exchanger, etc to a greater extent than a DX (direct expansion) unitary system. A DX split or packaged system will be a handful of components that are readily available and replaced at a minimal cost.
INSTALLATION COST
Most of the HVAC system cost is in the equipment and control system. Both are important to system sustainability. Duct systems normally require little maintenance if quality materials, closure systems, sealants and higher “R” value insulation are used. Providing the correct type of air distribution is just as vital as selecting the equipment and will maximize coverage, eliminate the draft effect on occupants as well as air noise transmitted from the device due to a high velocity (fpm) of air.
BUILDING AUTOMATION
There’s a big debate over whether to use programmable thermostats or fully automated systems. Most projects perform well with proper zoning and programmable thermostats as opposed to extensive control systems that require increased up front cost and service for the life of the system.
Each control system has a place in the “right choice column.” A commercial building operating from 8 a.m. to 5 p.m. will have different needs than an institutional building or medical facility. The challenge with a fully automated system is it’s almost always proprietary in nature and can only be serviced by the brand vender, leaving the building owner with no other option for value shopping. A stand-alone zoned system with programmable thermostats is fairly user-friendly and can be serviced by any commercial company. This dramatically reduces long-term replacement and/or maintenance cost for the end user.
To me, when it is all said and done, you need a cost-efficient system that will deliver the performance and can be maintained without having to go to the banker every time a failure happens.
________________________________________________
Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.
Because of the current imbalance of supply and demand in the commodities market, the cost of construction has been trending downward over the last year or so. Some of our projects take years to develop, and before this correction, the previous several years saw 3-4% increases annually. It’s hard to come back to your customer relationships and routinely share news of a bigger bill. The tables have now turned. The projects we bid a couple of years ago are costing less to finish than we anticipated. But how long can this continue?
I watch commodity prices every week, and over the last 60 days some have increased on the order of 30% or more. This will ultimately lead to higher building costs after supply balances with demand. I am not sure when that will change, but it will change.
I have mentioned to some of our customer relationships that I believe the next couple of quarters might be a good time to lock down pricing. Of course there is also a school of thought that there’s another shoe to drop with commercial real estate values. Who knows?
To make the best decision, it’s important to educate yourself. Among other newspapers, I try to read The Wall Street Journal daily. At the first of the year, it seemed like they published very few articles reporting positive news, but now the mix seems to be about 50/50. Lingling Wei and Peter Grant published an excellent article Monday regarding the commercial real estate sector, its relation to the economy as a whole and why the downward trend might stay a while.
As a practical example, I recently visited with a friend at the Sewanee: The University of the South. In the course of our conversation, she relayed her concern about the low pricing they received for a new project. The advice I gave her is the same I would I offer you. As a developer, if the contractor that submitted the price was qualified, proceed on but have a contingency to take care of those “misunderstandings” and change orders which will occur during these times. The low price you receive initially is just the beginning of the process. Be careful to keep a reserve in case our downward commodities trend starts moving back up.
___________________________________________________________________________
Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.
We recently priced a pro ject in Atlanta (a little less than $1 million job), which had several general contractor bidders and a ton of subcontractor quotes. In fact, there were a total of 20 subcontractors competing for $70,000 worth of HVAC work. Amazing. What’s even more amazing is that our cost was exactly the same as the general contractor with the lowest price and we came
in second. The difference? The general contractor with the low bid put $0 for his overhead and profit. At first blush an owner may think that is a great deal, but in keeping with the laws of economics someone will eventually lose.
Something similar happened when we priced a project we are currently constructing in Richmond, VA. After being awarded the job, our sprinkler subcontractor said his price included reusing the old pipe, a new one for me in the industry. Everyone is looking for ways to get “low.” We are currently buying steel bar joist at the cost of the raw product—bar and angles. So basically we are getting the design cost, engineering cost, fabrication cost and the freight for free, as are our customers.
The recession has compelled many to find innovative ways to cut costs. Interesting times for sure.
___________________________________________________________________________
