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PWC Sharpens Focus on Sector’s Future Opportunities

By Sammy Williams for AZBEX

If your Starbucks run includes a PSL (that’s a Pumpkin Spice Latte), then it’s a sure bet the season of Capital Improvement Plans is upon us. To mark this occasion where municipalities debut their fiscal year plans for new construction, expansion and maintenance, BEX hosted more than 200 attendees at the DoubleTree by Hilton in Tempe on Thursday, October 17th at the fourth annual AZBEX Public Works Conference.

Not only did attendees gain insight into the public sector and network with industry professionals, they also heard about current and future projects, followed by vendors’ raffle prizes and happy hour.

Here are some of the highlights of the afternoon’s program:

Top Capital Programs and Outlook of Publicly Funded Construction

BEX President Rebekah Morris kicked off the program with an overview of the public sector, including the top Capital Improvement Programs and a procurement analysis for Arizona.

Morris analyzed projected capital spending data from Fiscal Year 2013 through FY2018 and beyond to show capital spending is increasing, is likely to keep increasing, and that publicly funded construction has grown in importance to the overall Arizona construction market.

“The construction market breaks out to one-third Infrastructure, one-third commercial and one-third housing,” Morris said. “The market is projected at $15B (14 percent growth YOY) in 2019 and correlates with record high tax revenue.”

Morris then gave attendees a breakdown of the Top 10 Capital Improvement Plans. City of Phoenix took the top spot with a $7B total plan, with Arizona Department of Transportation just behind at $4.59B.

After digging into each of the Top 10 agencies’ CIPs, which included newcomers like the cities of Buckeye and Scottsdale, Morris highlighted the agencies’ upcoming projects.

As for the funding of projects, Morris pointed out, “we are not doing capital projects at a state level unless it’s federally-funded and we are using sales tax revenue rather than bonds. We’re also seeing a new trend of pay as you go funding mentality.”

Morris ended the segment by discussing current market conditions from procurement data analysis regarding bid prices versus engineers’ estimates.

“Construction bid prices remain well above engineers’ estimates and capital projects take a long time to adjust to market conditions,” Morris said. She went on to describe the majority of procurements as small (<$5M), low bid projects, and predicted construction volumes to be flat in 2020 with a slight decline in 2021.

A County’s Perspective on CIPs

Ana Olivares, director of transportation for Pima County Road & Transportation Systems, discussed the CIP process and procurement for the Tucson-area municipality.

“We’ve budgeted $76.8M for 2020 to manage 2,171 miles of roads,” Olivares said. “71 percent of Pima County roads are in poor or failed condition, and we’ve dedicated $26M for 118 miles of unincorporated roads this year.”

With several projects out for construction or design, Olivares said the County is proposing using a pay-as-you-go program for capital infrastructure improvement and hopes to have all roads improved in 10 years.

Working with the Military – Luke Air Force Base

Tiffany Draper, contracting officer/infrastructure flight section supervisor for Luke Air Force Base, educated attendees about the process of becoming a contractor at Luke.

“In FY2019, we issued 726 contract actions valued at $61M and did $16M in government purchase card transactions,” Draper said. She acknowledged that working with the military can be “highly complex and intimidating”, but reassured attendees that Luke likes to award contracts to small businesses in different socioeconomic categories.

While most of Luke’s projects are under $5M, Draper said, “anything less than $250K is reserved for small businesses and we implore these firms to market themselves to Luke.”

Upcoming Capital Projects from Public Agencies

Next up, it was the municipalities turn, with panelists Patrick Banger, Town Manager, Town of Gilbert; Dan Worth, Public Works Director, City of Scottsdale; and Reid Spaulding, Deputy Director, Maricopa County.

Banger highlighted Gilbert’s 130 projects in FY2019 worth $477.3M and the FY2020 plan for 129 projects valued at $532.6M. Notable projects include Gilbert Regional Park Phase 1B, major road projects, municipal facilities improvements and Heritage District redevelopment.

Worth discussed Scottsdale’s upcoming bond election on November 5th, which proposes no secondary property taxes, and, if successful, would be the first bond approval since 2000.

“The City has unanimous support of the bond from City Council and the bond focuses on three questions: 1. parks, recreation and senior services; 2. community spaces and infrastructure, and 3. public safety and technology,” Worth said. Some of these dozens of projects would be new construction and others would be refreshes of existing sites.

Spaulding mentioned wrapping up two large projects in Maricopa County – an Intake, Transfer and Release facility, and a new, $250M building for the County attorneys.

“In 2020, we’ll focus on the County Administration Building remodel, a new animal care and control facility in the East Valley and consolidating four justice courts to the East Valley campus,” Spaulding said. “We use a pay-as-you-go model; however, 69 percent of Maricopa County budget goes to criminal justice and that limits what we have available for capital projects,” he added.

Moderator Anthony Jeffers, projects development director, Hensel Phelps, asked the panelists how they perceive preselling in advance of an RFP, and the responses were unanimously positive.

“We are happy to talk to people on an introductory basis and find out your capabilities,” said Worth. Spaulding added, “We are lucky to live here with so much talent and so many firms based in the Phoenix area.”

Jeffers inquired about unsolicited proposals, and while the panelists said those are rare, they can pay off and every now and then.

“Good ideas are good ideas,” said Worth.

Getting Onboard with Aviation

The talk then turned to aviation and the opportunities available for projects at three of the Valley’s major airports. Panelists Shea Joachim, Director of Business Development at Phoenix-Mesa Gateway Airport Authority, Kyle Katchou, Deputy Aviation Director, Design & Construction Services, at Phoenix Sky Harbor International Airport, and Corinne Nystrom, Director, Mesa Falcon Field, highlighted the needs of their respective airports and explained how to break into the aviation field as a contractor.

“We think of Phoenix Mesa Gateway Airport as an economic development project” Joachim said. He detailed how the airport’s leadership creates a master plan for the airport every 10 years, focused 20 years in the future. Current and future projects include a new passenger terminal, 400KSF of new hangar and 100KSF new industrial/flex space.

At Phoenix Sky Harbor, Katchou described the environment as “very, very busy” as the airport looks to execute a $1.2B Comprehensive Airport Management Plan master plan over next five years. Terminal 3 Modernization is on schedule to finish in February 2020 with the North concourse underway. With 120K passengers per day, Katchou describes Sky Harbor as “busy, and growing, but we are gate constrained and land constrained.” As a result, the airport is in discussions with Union Pacific to approve a $450M railroad trench project needed in order for Sky Harbor to grow North.

Falcon Field, the nation’s fifth busiest general aviation airport, is owned and operated by City of Mesa. “We have an $811M annual economic impact,” Nystrom said. “Over the next 20 years, Falcon Field will have $27M of Federal/State grant-eligible capital improvement projects.” Just in the next 12 months, Nystrom expects $4.7M in airport funded projects and a $48M, 23-acre, privately-funded hangar development expected to break ground January 2020.

Central Arizona Project – A Variety of Procurement Methods at Work

Telma Bearden, Senior Contracting Officer for Central Arizona Project (CAP), manages a $25M-$30M budget every two years for the state’s single largest resource for renewable water supply.

“Our procurement methods include Invitation for Bid, Request for Qualifications and Job Order Contracting,” said Bearden. CAP is also exploring design-build with a $10M fire protection project at five pumping plants.

Other large projects include a $5.9M IFB recharge project for Superstition Mountain and an $8.5M CMAR discharge line recoating project at Lake Havasu.

Key Takeaways

Overall, regardless of the sector, panelists agreed that the dual challenges of rising construction costs and labor shortages make executing projects on time and on budget difficult. However, this didn’t temper the excitement for the future of the public works sector and opportunities in 2020 and beyond.

When it came to seeking work, the panelists stressed three keys to success: 1. Knowing your customer and building relationships, 2. Starting with smaller projects and, 3. Collaboration and coordination.

“Collaboration is not expected, but it’s contracted. I think that’s where we’re going with contracting methods,” said Kotchou.

“Get to know who’s who, most will welcome you and hearing about your qualifications. Don’t be afraid to tackle smaller projects to get your foot in the door,” said Joachim.

The next AZBEX conference, January 10th, 2020, is all about forecasting construction activity for the next few years. Visit http://bex-events.com/forecast/ for conference details or to register.

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