New Construction Market / HVAC Commercial Market

Contractors Give K-12 Schools Failing Grade

July 30, 2012
Trans

The K-12 school market in 2012 has received a failing grade from a group of mechanical contractors who specialize in this market segment, and their observations are backed up by a comprehensive report that indicates this segment of the commercial building market has declined 50 percent from pre-recession levels. The contractors also agreed that school districts are putting Leadership in Energy and Environmental Design (LEED) certification, green building, and sustainability on the back burner.

School Construction at $10.4 Billion in 2012

According to information compiled by Market Data Retrieval (MDR), a company of Dun and Bradstreet, the total K-12 school construction market is projected to total $10.4 billion in 2012 compared to $12.3 billion in 2011. This pales in comparison to the $20 billion average for the market in the years between 2000 and 2008.

The 2012 construction market was broken down into three segments, with new construction leading the way with $7.3 billion, followed by additions at $1.6 billion, and renovations at $1.4 billion. These figures were part of an annual report compiled by Paul Abramson, education industry analyst for School Planning & Management and Stanton Leggett & Associates president. Abramson said, “The demand for school space and improved facilities has not lessened — the number of children schools serve continues to rise — but, as a consequence of the 2008 recession, combined with the anti-tax sentiment it spawned, the money has dried up.”

Contractors Give Market Overview

Six mechanical contractor executives were interviewed for this article including Paul Dvorak, project manager/engineer of Egan Company Inc., Minneapolis; Tim King, president of HACI Mechanical, Phoenix; Al Toone, vice president and Doug Savage senior project manager of KK Mechanical, Roy, Utah; Tony Rogers owner/vice president of Merrell & Associates, Carrollton, Ga.; and Ken Misiewicz, president and CEO of Pleune, Grand Rapids, Mich. The severity of the market downturn varied by contractor, but in most cases they indicated K-12 new construction in their market area was down substantially.

Toone, whose firm covers five Western states said, “In the last two years we are only bidding 20 percent of the schools we used to bid.” The only area where new construction was close to 2008 levels is in Michigan and Misiewicz said, “It baffles me, but it might be because the schools are in need and the price of construction is as good as it can get.”

Most of the school work has been in additions and remodels. This end of the market has become very competitive with very low margins because, in addition to a smaller pie for established firms, several residential contractors have moved into this area to keep their doors open. Rogers said this has made the margins skinny over the last few years, but he has seen a reversal in the last few months, and these contractors are getting out of the market because they have not been able to live up to the expectations of the school administrators. “They hit a bottleneck in financing and finally with lack of experience with qualified people.”

King said his service division has been relatively busy retrofitting and upgrading schools as a result of his company’s membership in a purchasing cooperative for schools and municipalities in Arizona called Mohave Educational Services Cooperative (www.mesc.org). He stated, “We have in place a means pricing guide with discounts that are established through Mohave, and then school districts can contract through Mohave without having to go through a bidding process since our prices are published.” He has even hired salespeople to canvas school districts to make them more aware of the Mohave contract.

LEED Replaced With Lowest Cost

According to our contractor group the K-12 school districts have all but turned their backs on LEED certification for their projects. The same goes for green projects and sustainability. The school administrators are interested in qualifying for LEED for the mechanical systems, but they don’t want to go through the certification process if it means adding to the cost of their projects. Dvorak said, “They like the sustainability concepts but don’t necessarily want the plaque. School districts in Minnesota must have open bids and that tends to be bottom dollar. That’s what drives the projects.” In the current economic environment, LEED has been replaced with ROI and life-cycle costs. Misiewicz added, “LEED is nice and it’s icing on the cake but they are more focused on dollar savings.”

The contractors also identified new product technology trends that are catching on in the school market. VRF systems were mentioned the most as a cost-effective and energy-efficient solution especially in areas where water is in limited supply. Other products included magnetic bearing chillers, dedicated outdoor air systems, pressure-independent control valves for chilled-water systems and modular packaged heat pumps. (See sidebar).

How to Make the Grade

The group also cautioned their fellow contractors who want to participate in the K-12 market. Getting in on the new construction side of the business is extremely difficult because it is almost exclusively “bid and spec” and past experience is critical in winning the project. On the service end of the business, contractors are dealing with a school administrator so the company’s reputation is very important. Misiewicz advised, “We have found that background checks, drug testing, driving record checks, and safety training programs have been helpful. Hire people that you can trust to work in a school building.”

Most agreed to break in to the school market a contractor has to start with small projects and establish an excellent track record. Savage said it best, “You’ve got to eat hamburger before you get a steak.”

Sidebar: DOE Cites Products

The Department of Energy has recently published a report which identified the Bard Quiet Climate 2 Heat Pump as one of 20 commercially available products in its Building Technologies Program under the classification of Buildings R&D Breakthroughs. According to the report, Bard Manufacturing Co. and the Lawrence Berkeley National Laboratory (LBNL) developed a packaged heat pump that offers schools an alternative to centralized systems.

The report claims, “The unit allows the flow of ventilation air in individual classrooms to be adjusted based on occupancy, which reduces operating expenses compared with centralized systems that often condition large volumes of fresh air whether the classrooms need it or not. The decentralized HVAC approach also minimizes the impact of repair and replacement.” The report also states the unit “reduces audible noise levels to less than 42dB while operating and less than 35dB while in fan-only mode, and it reduces indoor concentrations of CO2, VOCs and aldehydes.”

The Bard Quiet Climate 2 was one of three products highlighted in the DOE report. The other commercially available products were a hybrid solar electric/thermal system from EchoFirst Inc. and a packaged gas heat pump from IntelliChoice Energy.

Publication date: 7/30/2012

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