Building Pittsburgh

On January 6, the Superior Court of PA overturned a March 2010 decision, which denied the Bricklayers of Western PA Combined Benefits Fund to lien Scott’s Development for unpaid benefit contributions made by a subcontractor. On two projects William Pustelak Masonry worked for Scott’s Development inEriebut did not make complete pension contributions for the union laborers employed on the jobs. Pustelak subsequently closed its doors and the Bricklayers, along with the Laborers filed a lien on Scott’s property to collect.

 A trial court found that the Bricklayers, while entitled to pursue the contributions, did not have standing as a contractor or subcontractor and therefore could not use the Mechanics Lien to collect.

 Superior Court accepted the Bricklayers Trustees’ argument that their collective bargaining agreement with Pustelak was an implied contract to provide labor for the projects and since labor was performed successfully, the Benefits Fund should be given the same rights as a subcontractor. In his majority opinion Justice Allen wrote:

“We conclude that under the applicable rules of statutory construction, the definition of “subcontractor” in the Mechanics’ Lien Law is entitled to a liberal interpretation. Contrary to the trial court, we conclude that a traditional subcontractor agreement is not a mandatory prerequisite to confer “subcontractor” status…. We further conclude that under the specific facts presented in this case, the unions are subcontractors and given the unique legal relationship that exists between the trustee and the union, the trustee has standing to assert a mechanics’ lien claim on behalf of the union.”

 The decision has surprised most observers of construction and law in Pennsylvania. Of special concern at the moment is that the amounts involved in the case are relatively minor, roughly $40,000 and the developer may be more inclined to settle the case than appeal it to the PA Supreme Court. That Court is also not obligated to hear the case. For owners, this decision means that a significant amount more due diligence will be needed or more extensive bonding used on projects to avoid liens from obligees for subcontractors that aren’t currently even required to inform the owner of their involvement.

Thus, an owner can enter into a contract with a general contractor and not only be hit with a lien from a sub that he/she isn’t aware is on the project (this is especially true of sub-subcontractors) but also from a pension fund for that sub. While there are several ways to avoid being caught off guard - none of which are free of cost or time - the logistics of verifying the status of current pension payments are more complicated by far than verifying that a supplier or secondary sub was paid.

Because the reporting of delinquent pension contributions lags by at least 60 days (and practically lags 90 days) it will be impossible for owners to know at the time of payment that all union contractors are current with their benefits. In fact, it is difficult enough for owners to even ascertain which of their contractor’s subcontractors are signatory with a labor craft.

To protect himself and owner will need to require affidavits from subcontractors on the job that all benefit payments are current. It’s likely that even in good faith some of those affidavits will be inaccurate and there will doubtless be occasions when the truth is interpreted loosely. Regardless of the intent and the ultimate legal protection an owner gets from such affidavits, the purpose of contracting is to facilitate construction, not provide an owner with solid legal protection. The Bricklayers decision adds another layer of risk to an already risky proposition. For a project owner/developer, being right isn’t nearly as comforting as being completed and free of entanglements.

Non-residential construction jumped 50 percent in 2011. The non-residential construction market was aided by the start of the Allegheny Ludlum Brackenridge Mill and a resilient regional economy in 2011. Because of the ATI project contracting was expected to rise considerably over the volume of 2010. But a variety of positive factors pushed construction higher than expected. 

Non-residential contracting totaled $3.73 billion in 2011, up sharply from $2.5 billion in 2010. It’s worth noting that volume in 2010 was inflated by the USSteel Clairton Works project, which accounted for roughly 20 percent of the annual total. Mainstream commercial activity increased by approximately half billion dollars, with the number of projects increasing significantly as well.

 The activity in the fourth quarter of 2011 can be a real boost going into this year, especially since architects and engineers remained busy going into January. Hospital construction, new office and apartment construction and a whole spectrum of projects related to the expansion of natural gas in the region should push construction to nearly $4 billion in 2012. 

New housing construction remained stuck in low gear. The total number of homes started in 2011 was 2,853, up 2.7 percent from 2010, which the lowest for any year since we began tracking activity in 1994. Permits for detached homes fell 14.1 percent to 1,656, but a 40 percent increase in attached housing - to 1,197 units – offset that decline.

 We were surprised by the decline in traditional single family homes. Our forecast was for a ten percent increase but the hangover from the rush to beat the sprinkler mandate was steeper than expected. Going into 2012, however, we are seeing the first legitimate signs of a recovery in a relative boom in apartment construction. Our forecast is for attached and multi-family to virtually double in 2012, with improved credit conditions and pent-up demand pushing single family detached volume back to the 2,000-unit neighborhood. The forecast is for overall housing permits in 2012 will reach 4,000 units for the first time since 2007.

 The totals listed below represent the number of new housing units for which building permits were issued, excluding mobile homes and elderly care complexes.  The top areas were: 

For estimators there were an annoying handful of projects bidding between the holidays this year. None were very exciting but all were for repeat clients who were asking for extraordinary service. For a few firms there were some holiday good tidings in the form of juicy contracts.

At long last came the awarding of contracts for Mt. Lebanon’s $88 million High School project. Nello Construction won the general piece at $49.1 million. The other high profile bid before the holidays was the $50 million Squirrel Hill Tunnel rehab. The Squirrel Hill project underscores the divergence in competitive conditions between the heavy/highway market and the building side. No market is really fat right now but many building contractors are able to be selective now. The tunnel project will be multi-year and carries some significant risks. There were a total of 6 bids on the job with a better than 20% variance from top to bottom. The 5% gap between first and third tells a lot about how tight the infrastructure market is going to be. Read more about that in the Jan/Feb BreakingGround.

The fourth quarter ended with much more bidding and contracting than usual. Given the better macroeconomic climate, it’s a good bet that the region has put recessionary times behind. The first quarter will tell a lot about that.

Wednesday afternoon Mt. Lebanon School District took a second round of bids for its new high school campus project. All along the project has had a budget of $85-90 million but the design was not in line with that the first go around this spring, when bids totaled about $112 million. The re-design worked. Yesterday’s bids were $84.5 million, giving the district some room to maneuver and add some alternates that will make the building operate better. Nello Construction was low on the general portion at $49 million. The best bids on the other major contracts were from McKamish on the HVAC at $14.9 million and Farfield on electrical at $10.96 million (although some controls options could put Lighthouse in the driver’s seat).

For all the good news from the bid opening I’d be concerned if I was the district about the fact that only two general contractors bid a job this big and the other, Massaro Corp. was $8 million higher than Nello’s bid. Nello’s a very experienced school builder so it’s not likely they will find an $8 million mistake in their bid and leave the project suddenly over budget but a variance of 15% between first and second would give me pause. If the documents aren’t air tight (and they rarely are) there could be costs coming that will up the final price before the job is done. And with a three-year plus duration, this job has a lot of uncertainty that will be impossible to bake into the bid. What will diesel cost in 2014? How tight will labor be in 2013? How do major subcontractors respond to 10% or 15% inflation in a basic material in a couple of years (would you want to bet against that)?

Another project that was being tracked more quietly is the new $50 million Mylan Labs Headquarters in Southpointe. Mylan selected PJ Dick Inc. to be the contractor for the job, which should get underway in early 2012.

One of the plum jobs of the year was awarded Wednesday evening. Carnegie Mellon selected Jendoco Construction as the contractor for its $60 million Nano-Bio-EnergyTechnologies Building. The project is still in the early design stages & will be in design almost all of 2012, with work starting in early 2013. CMU is committed to doing the job from start to finish in BIM & in a collaborative way. Should be interesting.

Another job that UPMC is seeking a construction mgr./contractor for during design is its new energy plant to be located at the UPMC Mercy campus along Boulevard of Allies. The completed project is expected to be nearly $50 million. The contractors competing are Mascaro, Massaro, Mosites, PJ Dick & Rycon.

The period between Thanksgiving and Christmas is typically the slowest time of the year for bidding. Every year there is usually a plum out there that will keep some estimators busy right through the holidays but it’s usually a slack time. During the next two weeks, however some very interesting projects are bidding that may give an indication about the market.

Next week bids are being taken on two apartment projects worth roughly $30 million each. Morgan Management is taking bids from Mistick Construction and MW Builders on the Rochester Village project, 228 units in Park Place in Cranberry Twp. At the other end of town, EQA Landmark has asked for prices on its 250-unit apartment project at Newbury in South Fayette from Dynamic, Mistick Construction and MW Builders. These are the first of what may be five apartment complexes to start in 2012. The upheaval in the housing market, the growth in employment in natural gas/energy and the availability in financing is driving a boom in multi-family construction nationally and we are about to experience it in western PA. Expect at least twice the number of multi-family and attached units in 2012 – perhaps 2,100 units – as in 2011 or 2010.

On the 15^th JC Penney is bidding its new store at the Monroeville Mall, a 110,000 fit-out of part of the former Boscov’s space, which Rycon is preparing for the tenant right now. Bids will come from Rycon, Mosites Construction and Poerio from this area plus EMJ Corp., Woods Construction and Whiting-Turner from out of town. And on the 19^th Dick’s will take bids from Rycon, Continental, TD Farrell and WDS Construction for their new $10 million store in Cranberry Twp. on Route 228.

That’s two new apartment complexes and two new retail stores plus the $90 million Mt. Lebanon High project on the 14^th and the $60 million Squirrel Hill Tunnel rehabilitation on the 15^th. Merry Christmas, someone!

The news of Friday’s (and later Monday’s) extraordinary jump in consumer spending on the first days of the holiday gift season lifted the stock markets on Monday but the joy lasted only as long as writers could begin looking for the cloud behind the silver lining. The juxtaposition to 2010 is interesting. After a summer driven by fear of European default the news that consumers had increased holiday spending by about five percent sparked a six month rally in stocks on the hope of an economic turnaround. Twelve months later – after a summer of fear about Europe again – news of an increase in spending that is three times as large sparks…uncertainty about how sustainable that is.

For about six months consumers have been surveyed and responded by saying they had less confidence in the economy’s direction, but at the same time consumers were spending more each month. Similarly, a consumer poll was released Monday that showed that only 10 percent of consumers planned to spend more on the holidays this year, while 42 percent planned to spend less. Either the 10 percent spent a ton more – remember that Black Friday sales jumped over 16 percent – or the consumers answering the survey were saying one thing while doing another.

Yes, this spike in sales could be driven by great deals. Or, the American consumer could have been saving all year for this – while somehow spending more too – and the bump is short-lived. And it’s true that buying a bunch of new consumer goods mostly benefits workers in China or Malaysia or Vietnam, not American workers. And certainly, growing consumption that is built upon growing consumer debt isn’t sustainable. All these things and many more could be reasons why a 16 percent jump in holiday sales is really not as good as it sounds, but ask yourself how the reaction to a one percent decline in sales would be greeted.

Business owners and developers are consumers too. When they see empty stores and hear of declining sales they are very unlikely to respond by advancing plans for new construction. A holiday season retail boom doesn’t guarantee another construction boom cycle but it doesn’t hurt either.

On a more regional and objective note…contracting for the first eleven months of 2011 has already exceeded the forecast for the year of $3.2 billion. Housing is still stuck in a slump and will be for at least another year but non-residential construction is cycling up fast. In addition to the surprising overall strength in volume, some high profile projects are proceeding.

A decision should come within the week about the construction manager for CMU’s $65 million nanotech center. UPMC is in the process of seeking project/program management services for its $394 million cancer research center. Mascaro Construction got the nod this week to be the construction manager for the $60 million Cardinal Wuerl North Catholic project. Perhaps the most interesting development is the selectivity being shown by contractors bidding the $90 million Mt. Lebanon High School project. Only four generals – Massaro, Mascaro, Whiting-Turner and Nello – are bidding (and no guarantee all will ultimately bid). As a single prime project the job attracted almost twice that many bids early in the year. This time around a handful of those bidders are passing on the project, including low bidder Walsh Construction.

By the time the details of West Penn Hospital’s emergency room expansion hit the newspapers the construction was already underway on the critical systems. The Highmark investment is energizing capital spending and planning throughout the system. The $18 million ER is being delivered as a design/build by Astorino. The firm also has been commissioned to design other components of the upgrades and expansion, which includes a total of 300 new beds. That much new capacity should run $300 million or more.

In other hospital news, UPMC awarded their $5 million emergency room expansion at Magee Women’s Hospital to Mascaro Construction.

Mascaro and PJ Dick are submitting bids to Mylan Labs on Nov. 22 for the construction of its new 250,000 square foot headquarters in Southpointe.

The three finalists for the construction management of CMU’s Nano-Bio-Energy Tech Center are being interviewed Nov. 21. Construction of the building isn’t scheduled until early 2013 but the university expects to select a CM from among Jendoco Construction, Mosites/Gilbane Jt. Venture and Turner.

The equipment leasing and finance industry is a $628 billion industry that can be an interesting barometer on activity. The industry’s association released its November 2011 Monthly Confidence Index on Friday and confidence in the equipment finance market is 57.4, up from the October index of 50.7, indicating an increase in optimism about business activity from leasing and finance execs, despite ongoing concerns about the global economic situation.

When asked to assess their business conditions over the next four months, 18.9% of executives responding said they believe business conditions will improve over the next four months, up from 9.8% in October.  75.7% of respondents believe business conditions will remain the same over the next four months, a decrease from 80.5% in October.  2.0% of executives believe business conditions will worsen, a decrease from 9.8% in October. Some of the other highlights of the survey are:

• 24.3% of survey respondents believe demand for leases and loans to fund capital expenditures will increase over the next four months, an increase from 17.1% in October.  70.3% believe demand will “remain the same” during the same four-month time period, up from 68.3% the previous month.  5.4% believe demand will decline, down from 14.6% who believed so in October.  

• 27.0% of executives expect more access to capital to fund equipment acquisitions over the next four months, up from 12.2% in October.  73.0% of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 87.8% the previous month.  No survey respondents expect “less” access to capital, unchanged from October.

• When asked, 16.2% of the executives reported they expect to hire more employees over the next four months, up from 14.6% in October.  75.7% expect no change in headcount over the next four months, a decrease from 78% last month, while 8.1% expect fewer employees, an increase from 7.3% in October. 

• In November, 32.4% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 26.8% in October.  67.6% believe there will be “no change” in business development spending, down from 68.3% last month, and no one believes there will be a decrease in spending, down from 4.9% one who believed so last month. 

For observers looking for signs of economic direction the data continues to fly in the face of consumer sentiment and media tone. The Commerce Dept. announced October’s retail sales volume and the data shows an increase of over 7% compared to October 2010. That’s a steeper growth path than the 2005-2007 trend and the overall spending is 3.5% higher than the volume at the peak of the last business cycle in Nov. 2007. A 7% increase in the segment that makes up 70% of the U. S. economy is significant anytime but especially if it’s during a period of time when consumer sentiment is falling (like this summer).

Monthly retail sales (Source: Reed Construction Data)