Public sector trying to balance budgets as inflation rises
A trifecta of issues with jobs, inflation, and supply chain issues has made it even more expensive to build — leaving the public sector in a bind.
Much like everything else these days, the price to build something is going up.
A combination of worker shortages, increased wages, supply chain issues and inflation have contributed to the price jumps in the construction industry.
That’s caused the public sector to try to solve a complex puzzle of how to stay on budget when it builds the roads we drive on or the buildings we use every day.
“Some of it was driven by COVID, but a lot of it was driven by some policies coming out of Washington, D.C.,” Mike Gibson said of the price increases. He’s the executive vice president of the Associated General Contractors of Kansas.
With rising costs, contractors' dollars aren’t stretching as far.
“Some planning that is going on in the public sector to build a 20,000-square-foot facility, they may only be able to build a 16- or 18,000-square-foot facility,” Gibson said.
That’s left the public sector trying to figure out how it can stay within its budget.
Wichita pledged to contribute $3.7 million to fund construction of the North Junction interchange project. At a recent City Council meeting, it had to increase that to $4.5 million.
City projects now cost 7 to 10% more than what’s budgeted, according to City Engineer Gary Janzen. That even includes small projects.
“We, up at NoMar, we’ve got a project to build some shades over the big plaza area,” Janzen said. “That came in higher, and we talked to the contractors with all the same reasons, and it wasn’t that big of a project.”
Some of the increased costs are being offset by savings from other projects that came in under budget.
“Overall we’re staying within our financial capacity,” City Treasurer Mark Manning said. “We’re just basically taking a little bit from a project that under-expended and reallocating to a project that had costs that were a little higher than what we thought.”
Contractors also have another tool in their toolbox – value engineering.
When some materials are unavailable or don’t fit within their budget, they’ll seek out other materials that can work.
“It’s nothing we haven’t seen before,” said Gibson with the contractors association. “It’s nothing that can’t be addressed and handled through the value engineering process.
“A lot of emphasis is being put on value engineering between the schools and between the counties and cities and other public entities out there … the universities.”
While fluctuating costs are nothing new to the construction industry, the current increase is something the city hasn’t seen in recent years.
“There’s no doubt that the data would tell you that inflation just overall is higher than what we’ve experienced at least in the recent past, so it’s definitely becoming more of a challenge for the city,” Manning said.
The trifecta of issues that contractors are facing with jobs, inflation, and the supply chain won’t be solved overnight.
“Based on the information I’m seeing out of Washington, D.C. and our chief economist … we’re going to be in this mode for at least the next 18 to 24 months,” Gibson said.
In the meantime, Gibson said it’s important for government officials to plan ahead.
“A school board, or a city manager, or a county manager, and most of these people know that it’s important for them to reach out early to the construction community, the design community; to sit down and talk about what their budgets are,” he said.