Steel Rising
Atlanta Business Chronicle Excerpt - Atlanta, Georgia (August 1, 2008)

Petroleum hikes have a cascading effect on developers, says Don Boyken, CEO of Boyken International Inc., a construction consulting firm based in Atlanta. “Oil is not just used in transportation,” Boyken says. “All these other products — like plastic piping and asphalt — use petroleum, too. All those prices are feeling the pressure as well. These days you see a lot of trade contractors quote prices that aren’t good for more than a week. If you don’t contract with them very quickly, you have to get them to reconfirm their prices.”

Ken Simonson, chief economist for Arlington, Va.-based The Associated General Contractors of America, also noted oil’s influence. “All types of contractors are paying ever-larger fuel surcharges, and deliveries to job sites can number in the thousands,” he says. “Fuel costs also work their way into the materials. For example, the sand and aggregate used to make concrete is quarried with diesel-powered machinery.”

Still, Boyken says he hasn’t seen much retrenchment in the industry, despite the relentless economic bad news in the media, the ongoing downturn in the residential sector and tighter requirements from lenders. “Most projects that have been funded or are in the funding pipeline are going forward,” he says. “Part of that is that there’s increased competition among contractors. They have to keep their crews busy. ... Where before you had maybe three electricians bidding on a project, you now have six or eight, which means they may be taking on projects on a lower margin. And if they have a hiccup, they’ll get in trouble a lot quicker.” Higher prices can roil the financing as well. “Lenders don’t feel comfortable that they’ll get reimbursed for the higher costs and that they will have to lend more money,” Boyken says.