Beyond Estimation TM

The Cost Reconciliation Tracker TM

Construction Cost Forecast

James Vermeulen, PQS, LEED AP – Co CEO

Blair Tennant, LEED AP – Project Manager

www.vermeulens.com

Toronto Boston Dallas Los Angeles

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Vermeulens is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request.

This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.

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Cost Reconciliation Tracker Present trends in median trade costs from January 2008 - Current

Quantify current cost reductions and provide future cost projections.

Construction Cost Inflation Understand historic trends in construction cost inflation

Where we were. Where we are. Where we are going.

Cost Drivers Examine the cost impact of: Volume, Commodities, Labor & Profit Margin

Economic Drivers Examine the cost impact of: Commodity Pricing, Equity Markets, Exchange Rates & Employment

LEARNING OBJECTIVES

Where we were

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5

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High/Low -4.1%

Low / Current +3.7%

Growth RatesQ3 09 +1.6%Q4 09 +4.9%Q1 10 +3.7%Q2 10 +1.7%Q3 10 +2.5%

Cost Reconciliation Tracker TM

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Code Group VCC CM CM-VCC VCC CM CM-VCC

01 Allowances $1,156,805 $2,422,380 $1,265,575 $2,651,790 $2,672,730 $20,940

02 Site Work $2,636,810 $3,773,428 $1,136,618 $2,918,155 $2,882,279 ($35,876)

03 Concrete $5,840,270 $5,065,081 ($775,190) $5,065,361 $5,065,081 ($280)

04 Masonry $1,547,241 $1,767,385 $220,144 $1,615,526 $1,609,395 ($6,130)

05 Metals $17,945,452 $17,804,383 ($141,069) $15,675,089 $15,577,004 ($98,085)

06 Wood/Plastic $3,172,732 $3,831,671 $658,939 $3,694,276 $3,600,999 ($93,277)

07 Thermal/Moisture Protection $2,903,951 $3,046,873 $142,922 $3,099,398 $3,086,080 ($13,319)

08 Doors/Windows $17,219,666 $15,756,579 ($1,463,087) $15,214,307 $15,299,926 $85,619

09 Finishes $9,635,770 $9,399,224 ($236,546) $10,135,975 $10,137,758 $1,782

10 Specialties $1,335,983 $1,163,012 ($172,971) $1,410,825 $1,418,709 $7,884

11 Equipment $1,127,700 $1,852,358 $724,658 $1,692,000 $1,693,414 $1,414

12 Furnishings $784,846 $302,393 ($482,453) $559,342 $573,596 $14,255

13 Special Construction $300,000 $148,575 ($151,425) $150,000 $148,575 ($1,425)

14 Conveying Systems $4,858,875 $7,212,645 $2,353,770 $5,963,888 $5,993,138 $29,250

15 Mechanical $28,949,381 $35,232,816 $6,283,436 $29,127,187 $29,493,221 $366,034

16 Electrical $15,451,608 $16,700,277 $1,248,669 $16,476,313 $16,451,613 ($24,700)

17 Permits & Fees $19,075,543 $20,452,111 $1,376,568 $20,043,336 $20,051,467 $8,130

18 Contingencies $16,841,472 $14,102,030 ($2,739,443) $15,684,472 $15,697,176 $12,704

19 Enabling $22,704,456 $22,704,458 $2 $22,704,458 $22,704,458 $0

20 Total Construction Costs $173,488,558 $182,737,674 $9,249,116 $173,881,696 $174,156,616 $274,920

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115 Projects

STRUCTURAL STEEL ($/TON)

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$2,940 - $3,300 $3,260- $3,565

+9%

$180 Deviation

$3,120 Average

$150 Deviation

$3,410 Average

$2,785- $3,140

-13%

$2,965 Average

$2,410- $2,855

-11%

$2,635 Average

$2,385- $2,723

-1%

$2,610Average

$2,285- $2,530

$2,408Average

-9%

-29%

CONCRETE SLAB ON DECK ($/SF)

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$5.1 - $6.1

+2%

$5.1 - $6.3

-14%

$4.6 - $5.3

-8%

$4.3 - $4.8 $4.3 - $4.9

+3%

$4.5 - $5.3

-21%

+5%

MASONRY - CMU ($/SF)

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$16.0 - $17.9 $15.6 - $17.7 $14.7 - $16.7 $14.8 - $15.6 $12.8- $14.9 $15.8- $17.7

-18%

ROOFING MEMBRANE ($/SF)

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$13.2 - $16.5 $14.0 - $17.0 $14.8 - $16.9 $13.4 - $14.8

-11%

$12.7 - $15.0

-2% +8%

$13.2 - $15.1

+2%

-13%

CURTAINWALL ($/SF)

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$99- $118

+4%

$95- $114 $84- $101

-15%

$84- $96

-3%

$76- $88

-8%

$86- $96

+12%

-24%

DRYWALL PARTITIONS ($/SF)

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$7.1 - $8.2 $7.1- $7.9

-1%

$6.4- $7.4

-9%

$5.7- $6.8

-9%

$6.5- $7.2 +10%

$6.1- $6.8

-7%

-18%

ELEVATORS ($/STOP)

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$31,500 - $37,000

$58,000 - $70,000

PLUMBING – BRANCH PIPE ($/LF)

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$26- $29 $28 - $30

+4%

$26 - $29

-4%

$25 - $27

-5%

$24 - $25

-7%

$24 - $26

+4%

-16%

DUCTWORK ($/LBS)

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$7.4 - $8.4 $7.8 - $8.5

+3%

$7.0 - $7.9

-8%

$6.8 - $7.5

-4%

$7.1- $7.4

+1%

$7.0- $7.4

-1%

-12%

CONTROLS ($/PT)

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$1,130 - $1,270

+3%

$1,110 - $1,220 $1,000 - $1,110

-12%

$1,000 - $1,090

-1%

$970 - $1,050

-1%

$951 - $1,040

-5%

-17%

ELECTRICAL FEEDER ($/LF)

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$127 - $141

+6%

$114 - $139 $97 - $114

-21%

$93 - $112

-3%

$100 - $114

+4%

$96 - $105

-6%

-25%

GENERAL REQUIREMENTS \ CONDITIONS

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7.7% - 11.5% 7.4% - 11.2%

-3%

8.3% - 10.9%

+4%

8.3% - 9.7%

-6%

8.2% - 9.6%

-1%

8.4% - 11.3%

+12%

-10%

GENERAL REQUIREMENTS \ CONDITIONS

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1.4%

1.1%1.3% 1.3%

1.5%

1.0%

0.6%

CONTRACTOR’S FEE (%DIRECTS)

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2.8% - 3.4% 2.8% - 3.5%

+2%

2.6% - 3.3%

-6%

2.6% - 3.1%

-3%

2.4% - 3.1%

-4%

2.0% - 2.7%

-15%

-25%

ESCALATION CONTINGENCY (% DIRECTS)

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6% - 8%

COST RECONCILIATION

TRACKER SUMMARY

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TRADE 2008 PEAK – BOTTOM 2010

Concrete -21%

Masonry -18%

Steel -29%

Roofing -13%

Curtainwall -24%

Drywall -18%

Plumbing -16%

Ductwork -12%

Controls -17%

Feeder -25%

GC’s & GR’s -10%

Contractor’s Fee -25%

TRADE SUMMARY

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TYPICAL INSTITUTIONAL PROJECT – DIRECT TRADE COST

CONSTRUCTION COST IMPACT

Assumes trade-weighted average of individual percentage trade reduction

Peak 2008 – Bottom 2010

-14%

WHITING-TURNER CONTRACTING

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Peak 2008 – Q3 2010

-13.2%

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BUDGET EXAMPLE

Q3 2008 - $100M

14% Escalation Q2 2010 - $114M

14% Market AdjQ2 2010 - $86M5%

Bids @

Cost

Q2 2010 - $82M

-25%

-5%

-28%

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Recession Bottom Growth

Design Contingency

Preliminary Design 10% - 15% same same

Schematic Design 6% - 9% same same

Design Development 3% - 6% same same

Contract Documents 0% - 3% same same

Construction Contingency 3% - 5% same same

Escalation Contingency negative zero 4% - 8%

Bidding Contingency -5% to 0% -5% to 0% 0% to +5%

Project Contingency (Owner) 15% - 10% 15% - 10% 10% - 5%

CONTINGENCY

WHEN WILL

THE

WINDOW CLOSE ?

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COST DRIVERS

Volume

Commodity Pricing

Labor Productivity

Profit Margins

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• MaterialRaw Goods

• Markup Overhead, Equipment, Profit: (Manufacturer & Contractor)

STRUCTURAL STEEL PRICING

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US DOLLAR RISK HEDGE

High/Low -26%

Low / Mar 09 +18%

Mar09/Current -11%

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US DOLLAR RISK HEDGE

Low / High +123%

High / Mar 09 -58%

Mar09/Current +91%

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US DOLLAR IMPACT ON COMMODITIES

Low/High +164%

High/ Mar 09 -56%

Mar09/Current +57%

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CONSTRUCTION EMPLOYMENT

High/Low Total – 6% Construction – 28%

Low/Current Total + 1% Construction +0.3%

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$140B Stimulus Package

CONSTRUCTION VOLUME

High/Low

Total –35% Infra –11% Res –66% Non Res –37%

Low/Current

Total +2% Infra +11% Res +6% Non Res +0.5%

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CONSTRUCTION COST INDEX

Trendline Avg

W-T 3.5%ENR 3.0%Gov 2.6%

% Decline(Peak – Current)

W-T -11.6%Gov -4.9%ENR +2.5%

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Indicator Bottom Increase •Equities March 09 +91%

•Commodities March 09 +57%

•GDP Q2 09 + 4%

•Employment Dec 09 + 1 %

•Non Res Volume Oct 10 +0.5%

Economic Summary

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COST DRIVERS

Volume

Commodity Pricing

Labor Productivity

Profit Margins

2009 2010 2011

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•Peak 2008 to Bottom 2010: -14.0%

•1st Half 2011: + 2.0% + 1.0% + 0.0%•2nd Half 2011: + 2.5% + 1.5% + 0.5%

Cost Outlook

High

VolumeModerate

Volume Low

Volume

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1. Major Economic Indicators have bottomed.

2. Construction Prices are bottoming.

3. Cost Escalation must be factored into construction budgets moving forward.

Summary

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•CM Selection Must Have Full Estimate and Schedules

•Negotiate GMP Post Bid Buyout

•Continue Design & Preconstruction

•Watch Equity Markets for Sustained Rebound

Recommendations

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•Track Record

•Project Volume & Benchmarking

•Consensus Approach in Reconciliation

•The Reconciliation Tracker

•Conceptual Estimating

•Brand

•Trusted Advisor

Why Vermeulens