Shaky Foundation
Rising Insurance Rates, Ergonomics Hurt Contractors

by Dave Brumbaugh

 

If the construction industry was affected only by the amount of work available, company owners could say they’ve seen better and seen worse.

However, the effects of soaring liability insurance rates and the uncertainty caused by the state’s ergonomics rules have made the industry uneasy.

“I illustrate this as the legs of a stool,” says Art Anderson, vice president of the Bellingham-based Northern District of Associated General Contractors (AGC) of Washington. “Pretty soon the stool will fall over.”

Liability insurance for contractors has become increasingly expensive and fewer companies are offering it. Rates spiked upward after insurance companies suffered major losses in the stock and bond markets, followed by payouts related to Sept. 11 terrorist attacks. Also, lawsuits blaming contractors for mold, particularly in condominiums, are a factor.

“If you’re building or want to build condominiums, I don’t even know if you can get insurance,” Anderson remarks.

The ergonomics rules being implemented by the state Department of Labor & Industries are the hammer hanging over the head of the industry. Contractors and other businesses say the rules, designed to protect the health of workers, aren’t backed by science and would add millions to their costs. (See guest editorial, page 54.)

Gov. Gary Locke’s announcement in March that enforcement of the rules would be delayed until 2004 was of little comfort to contractors and others in business. The Building Industry Association of Washington and AGC have joined a coalition that is attempting to overturn the rules in court. A hearing in the case is scheduled May 10 in Thurston County.

“We’re very disappointed in the governor’s ruling,” Anderson says.

 

How full is the glass?

When looking at the construction industry in Whatcom County, optimists can point to major projects at Western Washington University, St. Joseph Hospital and the Phillips 66 Ferndale Refinery, a strong residential real-estate market and pockets of commercial activity.

However, pessimists retort with rising costs for liability insurance, extreme competition for public-works projects and the need to seek projects far away from the county.

“It all depends on what’s your niche,” says Kevin DeVries, general manager of Exxel Pacific in Bellingham, perhaps the largest general contractor in the county.

Whatcom County joined the rest of the country in experiencing an economic slowdown the second half of last year, punctuated by the 9-11 terrorist attacks. The county already was reeling from the shutdown of Georgia-Pacific’s pulp mill and the Alcoa Intalco Works aluminum smelter in Ferndale in the first half of 2001.

The construction industry statewide has suffered. According to the state Employment Security Department, about 13,600 people in construction-related businesses lost jobs between February 2001 and this February, more than 9 percent of the industry’s workforce.

But the passage of time, signs of a rebounding economy nationwide (if not in Washington) and continued low interest rates have given investors a chance to reassess their situations.

“I look for it to pick up in the summer,” DeVries remarks.

Exxel Pacific hasn’t been too busy here, he reports. Its current projects include the $7 million Barkley Trails apartment complex and the Windermere Real Estate building, both in Bellingham.

But the company continues to gain contracts throughout the West Coast. Exxel Pacific is working on projects in the Portland, Ore.-Vancouver area, Napa, Calif. and Richland. It also is building Walgreen’s drugstores, as it did in Bellingham, in the Seattle-Lynnwood area.

“You like to be as local as you can but, if you can’t be local, you want to be as diverse as possible,” DeVries states.

For the Napa project, about 1,000 miles away, Exxel Pacific brought its concrete and framing subcontractors from Whatcom County.

“We see a lot more willingness of subcontractors to travel,” DeVries says.

Pat Rose, owner of Rose Construction in Bellingham, operates at the other end of the industry spectrum from Exxel Pacific. Her small business specializes in remodeling projects for residential, commercial and government clients. She’s receiving many requests for bids and is upbeat about the coming months.

“The phone is ringing and I’ve experienced times when the phone isn’t ringing,” Rose says.

 

Big local jobs

Despite the economic slowdown, Whatcom County has a number of multimillion-dollar institutional and commercial projects underway or pending.

• The Phillips 66 (formerly Tosco) refinery reached a major milestone in its $220 million upgrade project with the February placement of a 560-ton converter. The converter is the key component of the refinery’s new fluidized catalytic cracking unit, which will reduce emissions during the refining process and allow to refinery to increase the amount of products it makes from every barrel of crude oil it refines. It will take approximately one year to install all the piping and instrumentation required to make the unit operational.

• Sellen Construction of Seattle began work last summer on a $70 million expansion of St. Joseph Hospital in Bellingham and is emphasizing the use of local subcontractors and suppliers. The project will add 169,000 square feet of building space and a 200-car parking garage to its main campus over the next two years. Impero Contracting of Bellingham is handling some of the work.

• Growing student enrollments are keeping two contractors busy. Tiger Construction of Everson began work last summer on the $6.8 million Northern Heights Elementary School (expected to open this fall) for the Bellingham School District. Colacurcio Brothers Construction of Blaine is building and remodeling classrooms in a $2.4 million project for the Blaine School District.

• Western Washington University has numerous projects in various stages. (See sidebar.)

• Sierra Construction of Redmond is the general contractor for the 165,000-square-foot Lowe’s Home Improvement store, a $7.2 million project on Sunset Drive in Bellingham. Also, the parent company of retailer Fred Meyer is moving ahead with plans to build a 171,000-square-foot center, anchored by a Fred Meyer grocery and department store, on 16 acres at the southeast corner of Interstate 5 and West Bakerview Road in north Bellingham. Work was completed early this month on a 59,000-square-foot Safeway supermarket in Lynden. Combined with the gas station at site, the project totaled more than $3 million.

• Lynden has two other construction projects scheduled this year. J.D. Bargen Industries is adding 71,000 square feet of facilities to its Lynden Door manufacturing plant at a cost of $2.3 million. John Daniels Construction of Bellingham was awarded the bid of $1.65 million for building a new Lynden Library.

• The county’s two tribes also are factors in local construction work. The Lummi Nation is opening its 28,000-square-foot Silver Reef Casino this month and has plans for building an elementary school and college facilities. The Nooksack Tribe plans a $12 million expansion of its Nooksack River Casino, including construction of a hotel, in the next 14 months.

“It’s certainly not a feeding frenzy like it was in the past,” sums up Anderson. “It’s sustainable but there’s not a backlog (of projects).”

 

Wild cards

Several proposals also could give a boost to contractors if they fall the right way.

• A recommendation on a revised proposal to build Sumas Energy 2, a 660-megawatt power plant, in Sumas, soon will be sent by the state Energy Facility Site Evaluation Council to Gov. Locke. The plant, estimated to cost about $400 million, would employ up to 400 workers at the peak of its construction.

• Voters will decide this November the fate of a $7.8 billion statewide transportation package that includes a tax increase of 9 cents per gallon of gasoline. AGC is among the business proponents of the package, which Anderson says would ensure that some highway projects in Whatcom County get funded.

• Trillium Corp. announced in March that it was pursuing an agreement with Georgia-Pacific to develop the company’s property along Bellingham’s waterfront. Although work could be several years away, the development could result in plenty of jobs for contractors.