Although the economy in Rhode Island is struggling, Shawmut Design and Construction seems to be picking up construction projects. Ron Simoneau, managing director of the company’s academic construction branch, took a few minutes this week to talk with Providence Business News about the growth and how it relates to the Rhode Island commercial market.
PBN: What is the state of commercial construction in Rhode Island?
SIMONEAU: Even with the economy still in decline, the commercial construction market in the Northeast is holding steady. Specifically, the academic, health care and energy-construction markets are showing growth and continue to expand. Because the Rhode Island commercial construction market mirrors the Northeast market, we are seeing growth in those specific markets as well.
At Shawmut, we focus specifically on the academic, commercial, corporate interiors, cultural and historic, health care, retail and hospitality markets. Obviously, our academic and health care sectors, which are very big in Rhode Island, remain very strong for us. But we have noticed a decline in the other markets we service. We have observed that our corporate clients are exercising financial caution in this economy, choosing to make small renovations in the spaces they already occupy, as opposed to finding and renovating new office spaces. Our cultural and historic clients are finding this economic environment difficult as they tend to rely heavily on donations and grants to fund large capital construction projects.
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PBN: How has commercial construction in Rhode Island been affected by the rising cost of construction materials?
SIMONEAU: Material cost escalation continues to be a major concern for everyone. Despite the condition of the local economy, the impact of the global market on oil and steel continues to drive the cost of derivative materials higher every quarter. The recent and sustained spike in fuel costs has imposed a significant impact on petroleum-based materials and record-high diesel prices are driving up delivery costs on just about everything. Steel products, such as structural steel, rebar and metal studs, continue to rise. Projects that accounted for escalation in the early planning phase are the least impacted. Projects that gambled that price pressure from a slowing economy would offset material escalation have taken hits.
At Shawmut, we provide recommendations around material escalation to help our clients with every round of budgeting. We are also performing cost comparisons between different construction methods such as cast-in-place concrete as an alternative to structural steel. In some cases, once all of the peripheral elements are factored in, concrete construction can be a cost-effective alternative to structural steel.
PBN: As a construction company, how much of those added costs get absorbed and how much get passed along to clients?
SIMONEAU: The majority of our work is performed as a Construction Manager-at-Risk. This means that we agree to deliver a project within a Guaranteed Maximum Price (GMP) and must manage and control construction costs to not exceed the GMP – or pay for overages out of Shawmut’s profits. Because of this, we advise our clients of all financial risks associated with their project, including material escalation and account for these costs within each round of estimating. We need to be able to accurately predict how much materials costs will rise within the life of the project, to establish the GMP. Once the final GMP is established, the financial risk associated with cost escalation is shifted to us, and will not get passed along to the client.
PBN: What is Shawmut working on now?
SIMONEAU: We have several projects currently under construction including a large vertical expansion at Rhode Island Hospital; a new academic building at Roger Williams University; a new Interfaith Center at Bryant University; several renovation projects at St. Georges School and Rhode Island School of Design; a major lobby renovation project at 100 Westminster; two corporate fitness centers; and numerous projects at Brown University. We are also in the pre-construction planning phase for several upcoming Brown projects, including a new Creative Arts Center, a Fitness Center and Natatorium.
PBN: What type of growth do you expect the company to see within the next year?
SIMONEAU: Because we are such a diversified company, with projects ranging from high-end retail to large scale commercial projects to historic restorations, we are expecting to report growth in 2008, despite the economy. In the local New England market, Shawmut is anticipating double-digit growth through 2009 due to our strong presence in the academic and health care markets and the large backlog of work we already have lined up for the next two years.
Shawmut Design and Construction has offices in Providence, New York City, Las Vegas, Atlantic City and New Haven. Its Providence office was ranked among the 2008 Best Places To Work by Providence Business News. Additional information is available at www.shawmut.com.
