South Central bidding gets more competitive; profit margins cut

07/02/2009

By Sam Barnes

Bids are coming in considerably lower than estimates on some South Central highway projects, in particular those funded by the American Recovery and Reinvestment Act of 2009. Transportation officials point to an increasing number of bidders and stabilizing costs as reasons.

Bill Temple, chief engineer with the Louisiana Department of Transportation and Development, says highway contractors in Louisiana are competing for a dwindling slate of projects and have been forced to expand into new geographies and to bid on progressively smaller jobs.

“In the last six months to a year we’ve seen an up tick in the number of bidders,” Temple says. “In other states, some of the smaller contractors have been gobbled up, but in Louisiana we haven’t had that consolidation.”

La. DOTD began examining bid data six months ago when it became concerned that bidders would actually dwindle due to a change in its bid process. The process persuades contractors to reduce the contract time in its bids by making it part of the overall bid calculation.

 Temple says his department feared that some contractors would shy away from projects that used the method, although the opposite has occurred.

“We are attributing that to the economic times,” he says.

William Ankner, La. DOTD secretary, says the highly competitive environment became evident when the first stimulus-funded projects were let in March.

A 4.7-mi segment of Interstate 49 in north Caddo Parish came in at $31.1 million, or about $4.7 million dollars under the estimate. The low bidder on the project was Austin Bridge & Road LP of Irving, Texas. A second stimulus project, the Bayou Lafourche Bridge in Larose, La., came in at $30.4 million, also under the estimate. The low bidder was James Construction Group LLC of Baton Rouge, La.

“… I hope it’s a good omen for the other stimulus projects, not only for the prices but also for the competition we are seeing for this work,” Ankner says. La. DOTD is receiving $298 million in federal stimulus money.

Ronny Baldwin, state office engineer with the Alabama Department of Transportation in Montgomery, Ala., says he has observed an increase in the number of bidders, particularly on bridge projects.

“We have a lot of bridge contractors based in the state, and our bridge construction bond program is coming to an end,” Baldwin says. “That means a lot of these contractors have been released to pursue other projects.” He says this has created a highly competitive environment and significantly reduced contractors’ profit margins.

Elsewhere, Tennessee is bucking the trend because of an unprecedented number of projects being doled out to its contractors.

Steve Hall, assistant chief engineer with the Tennessee Department of Transportation, says Tennessee ranks second in the number of ARRA projects awarded to date. In fact, the state coordinated the largest bid letting in its history on June 12.

This abundance of projects “is providing enough work to go around,” Hall says. “We’ve seen maybe three new contractors enter the market.”

TDOT has awarded 193 projects and $421 million to road builders, cement companies and electricians for various projects in all of Tennessee’s 95 counties. TDOT awarded the majority of those projects in bid lettings in April and May, with the remaining contracts awarded during the June letting.

Gerald F. Nicely, Tennessee’s commissioner of transportation, says without the ARRA funds TDOT’s construction budget would have been about $50 million less than it was last year. He adds that the ARRA funds are about 80% of Tennessee’s yearly allocation from the federal government.

Kent Starwalt, executive vice president of the Tennessee Road Builders Association, welcomes the ARRA funds, saying that business for his membership was down 25% in 2008, compared with the previous two years.

He adds that many in the road construction equipment business saw volumes down 90% in the same period.

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