WIUM Tristates Public Radio

More Construction in Iowa Means Fewer Contractors

Sep 19, 2014

Southeast Iowa is learning a valuable lesson about supply and demand courtesy of a nearly $2 billion investment in the region.

There are more than 1,900 temporary construction workers building Iowa Fertilizer Company's plant near Wever. 400 more will join them in the coming months.
Credit Jason Parrott

Iowa Fertilizer Company President Shawn Rana told a crowd of more than 100 during a recent luncheon in Fort Madison that the construction of its fertilizer plant near Wever is going extremely well.

"With 1,900 construction workers present at the site and the addition of around 400 more in the coming months, we are on-time and on-schedule," said Rana.

That was music to the ears of the city, county, business and education leaders in attendance, who had hoped for this kind of boost to the local economy during construction.  The plant should be up and running with nearly 250 full-time employees in late 2015.

The volume of workers at the plant means fewer contractors are available for other projects in southeast Iowa. That is resulting in higher than anticipated bids, if bids are submitted at all.
Credit Jason Parrott

The success of the project does create an unintended consequence: it's draining the available labor force for other construction projects in southeast Iowa.

According to John Hanson with Midwest Construction Consultants (Houghton, Iowa), the issue is not confined to southeast Iowa. He said the entire state is experiencing a construction boom because of a number of large-scale projects and investments.

"We have had bids come in and we have been contacting potential bidders," said Hanson, "and some of them are close to two years out on construction, booked up to two years.  We have seen a lot of bids come in that you might have eight potential bidders and only one bid come in."

 Mark Fisher with Klingner & Associates (Burlington, Iowa) is seeing the same thing.  He is the project manager for Burlington's downtown facade improvement program.

The bid to renovate more than a dozen building facades in downtown Burlington came in nearly $250,000 over estimate.
Credit Jason Parrott

The project, which involves renovations of more than a dozen storefronts in the 300, 400, & 500 blocks of Jefferson Street, was supposed to cost about $750,000.

Fisher said a number of contractors expressed an interest in the project, with some even requesting an extension to submit a bid, but in the end, just one bid was received -- for nearly $1,000,000.

“We were quite surprised to only have one general contractor bid this particular project," said Fisher.  "Some of the prospective bidders that asked for the extensions actually chose not to submit a bid.”

The participating property owners must cover the additional costs.  That has some dipping into their wallets while others are scaling back their designs.

The high bid for the facade program means downtown business owners will have to decide whether to scale back their projects or dip into their wallets to cover the added expenses.
Credit Jason Parrott

Fisher said while this project is more complicated than new construction, it's more likely the process was affected by the availability of jobs for contractors.

"Three years ago, bids were very competitive," said Fisher.  "There were a lot of hungry contractors looking for work, (but) now, most of the contractors that we deal with have a lot of work on their schedules so they are still bidding, but there is a lot more work out there.”

John Hanson said it even extends to smaller projects like a new house or a roof replacement.

“Sometimes your smaller projects, people don’t even want to take a look at because they are booked out so far," said Hanson.  "They have the larger projects they can bid on that have the higher profit margin on it than the little projects, so you are experiencing those conditions also.”

Hanson believes this will be the norm for the next few years, especially if interest rates remain low and large, private employers continue to locate or expand in Iowa.

Because of that, he said it is impossible to look at a previous construction project and say a new project will cost the same per square foot.