March 7-13, 2001
Big Investment
As you've been reading here, bringing our nation's underground infrastructure of wastewater and drinking water lines, storm sewers, and treatment facilities up to snuff will require an investment of about $1 trillion, invested between now and the year 2020. (See The Riveteer, Feb. 14.) What about metropolitan Detroit? If estimates made by the Southeast Michigan Council of Governments are on the mark, communities served by the Detroit Water & Sewerage Dept. will have to spend $20 billion. Last week U.S. District Court Judge John Feikens ordered that a plan be developed to fix the problems of the aging DW&SD system by the end of this year. If it isn't ready by then, he threatened to implement the court's own plan, no matter how much it costs. The judge is hoping a group he's put together of business and political leaders æ chaired by William Clay Ford Jr., chairman of Ford Motor Co. æ can come up with a workable agenda. The DW&SD system has about 3,400 miles of water and sewer lines with some dating back to the late 19th century. Recently water and sewer rates were raised to generate $3.3 billion to pay for treatment plant improvements.
A Troublesome Marriage
All is not going well at Washington Group International (WGI). You'll recall last summer, Boise, Idaho based WGI (then known as Morrison-Knudsen Corp.) bought Raytheon Engineers & Constructors (REC) for $53 billion in cash as well as the assumption of $450 million in liabilities. Now, due to what it claims are funding problems affecting five major projects, as well as cost overruns and negative cash flows from projects acquired from REC, WGI says it wants a large cash payment from REC to set matters straight. WGI is calling the cash payment a "purchase price adjustment." In response, REC is saying it doesn't think a "material adjustment" to the purchase price will be necessary. "The purchase price adjustment should have been determined by now," says Dennis R. Washington, chairman and chief executive officer of WGI. "And if it had we simply wouldn't be in this position. Several REC projects had serious undisclosed problems and were in trouble before we acquired REC, and were it not for these contracts our business would be strong." REC disagrees. "The fact that four major projects were identified as high risk and were retained by Raytheon for completion would seem to demonstrate that Raytheon provided WGI and its outside accounting and investment advisors with full and complete disclosure of known project risks," responds Thomas D. Hyde, REC's senior vice president and general counsel. "We also partially indemnified WGI on another large project and retained other substantial liabilities, all negotiated as a result of WGI's extensive due diligence. The contract negotiations alone took place over a more than a five month period. It may be that WGI bit off more than it could chew, but we certainly aren't responsible for any failure by WGI to manage projects properly after closing." As a result of this situation, WGI may have to seek protection from bankruptcy court.
Still Rising
Construction across the nation in January remained on a growth trend. The U.S. Bureau of the Census reports that January construction put in place had its largest gain since March 2000, outperforming expectations by a full percentage point. It jumped 1.5% when compared to December 2000, reaching an annual construction rate of $830.5 billion. That's 3% higher than the rate set during January 2000. Nonresidential spending shot up 5.8% in January, the largest gain since February 2000. Listed as the main reasons for the increased investment in construction were good weather conditions, lower mortgage rates, and the impact of the Federal Reserve's lowering of interest rates twice during the month.
Keep 'Em Happy
The results of Insights in Construction, the fourth joint survey by Deloitte & Touche and the national office of the Associated General Contractors of America are in and they're somewhat of a surprise. For the first time since 1992 customer satisfaction topped the list of important goals, replacing net income and gross profits. Let me restate this. Construction companies ranked customer satisfaction as the primary indicator of business success. Seems like an old, golden rule of doing business has been unearthed. "It's a tried and true business principle that is coming back into the limelight," agrees Keith Hanigan, a partner with Deloitte & Touche and primary author of the survey. "You can no longer expect to be successful without focusing on the needs of your customers æ and, more importantly, setting up systems to make sure those needs are met." More than 1,200 contractors responded to the 2000 study, including 894 general contractors and 364 specialty contractors. The survey was conducted between July and mid-August 2000. Other surveys were conducted in 1992, 1994, and 1996.
Annett Wins Advancement
R.E. DeMattia Group, Plymouth, has promoted Roy Annett to vice president of development. Previously he was director of development, a job which he obviously performed very, very well. At his new desk he'll be responsible for DeMattia's development staff, which produces, maintains, and markets office, technological, and industrial properties on a build to suit or a speculative basis to lease. Annett has over 26 years of commercial real estate experience, overseeing the development process from conceptual planning through tenant occupancy. During his time at DeMattia his projects have included the Volkswagen of America office and technical development in Rochester Hills, the Bunzi distribution facility in Howell, Progressive Tool's industrial facilities in Plymouth, and the Victor Park West office building in Livonia. Annett is a graduate of Albion College and is affiliated with the Certified Commercial Investment Member Institute.
Relief May Be On The Way
There's word from Washington, D.C., that the Federal Acquisition Regulatory (FAR) Council is working on a notice to completely withdraw controversial, new contracting regulations. Known to at least some in the construction industry as the "blacklisting regulations," the new rules were enacted during the last days of the Clinton Administration, seeking to provide more power to contracting officers to ban firms suspected of labor and other law violations from bidding on federal construction projects. Reportedly the notice to withdraw the rules is to be published in the Federal Register before the middle of this month. Public comments are then to be received by the FAR Council.
Checking The Taxpayers
This week the Huron Valley School District in Oakland County's Highland Township will be surveying residents to determine if there's support for a major school bond program. A study conducted last year found that an estimated $135 million needs to be spent to improve the district's facilities. Projects under consideration include refurbishing two high schools, building a bus garage, and upgrading school building utilities. There are about 11,000 students using the Huron Valley School District's 18 buildings.
Bechtel's In Charge
Bechtel Infrastructure Corp., along with three Chicago, Ill., contractors, has received a contract estimated at $1 billion to build a new terminal at O'Hare Airport. Part of the O'Hare World Gatework expansion, the contract also includes other, related facilities. Working with Bechtel will be UBM Inc., Cotter Consulting Inc., and d'Escoto Inc. The Bechtel team triumphed over bids submitted by Walsh Construction and Fluor Daniel.
Chao Drops By The ABC
Late last month U.S. Labor Secretary Elaine Chao paid a visit to Kirk Pickerel, executive vice president of the Associated Builders & Contractors in Washington, D.C. Reportedly the two discussed ways in which the ABC can assist her in achieving the U.S. Labor Department's goals while at the same time helping out open shop construction. The two are planning to meet again, according to my source.
Are You Covered?
The Design Build Institute of America claims that nearly 30% of the nonresidential construction market in the U.S. in 1998 used the design-build process. The use of design-build is expected to increase, the DBIA says, but contractors who use it must be careful about their insurance coverage. Many believe there's design coverage under their commercial general liability insurance policy. Yet when a claim is made, the institute says, many contractors make the unpleasant discovery that their policy provides only limited æ or no æ coverage at all. This can happen when the policy doesn't have a design-build exclusion. Under that circumstance the coverage afforded is then limited to bodily injury and property damage stemming from an occurrence stated in the insurance document. To get around this problem, contractors are now including CG 2280, an ISO endorsement, which offers limited coverage for the professional design services provided by a subcontractor to a design firm. Another approach is to purchase design errors and professional liability policies to cover for design errors and omissions.
New To The Market
Lafarge Corp. has signed a licensing agreement for a European product that it claims is a "breakthrough composite building material." The agreement enables Lafarge to market Ductal in the U.S. and Canada. Ductal is supposed to offer "strengths similar to steel and toughness equivalent to ceramics" because it offers a "combination of compressive and flexural strength" combined with "a high resistance to abrasion and corrosive elements." Ductal was developed from research conducted by three French firms æ Rhodia, S.A., Bouygues, S.A., and Lafarge S. A. Said to be "very different" from concrete, the material can still be produced in standard concrete batching equipment and can be made in a range of colors, textures, and finishes. You can access Lafarge's website at www.lafargecorp.com.
Questions? Comments? Ideas?
Please submit your responses to the Great Lakes Fabricators & Erectors Association as soon as possible. You can call our new offices in downtown Detroit at 313/309-2000. Or you can drop an email to Guy Snyder at guysny@concentric.net or call him at 313/961-9217. We hope to hear from you soon!
