‘Like flies to construction honey’: Contractors flocking to North Dakota for work

BISMARCK - As the joke goes, North Dakota has two seasons: winter and road construction. And with the state Department of Transportation preparing for more than $1 billion in projects this year, it’s open season for out-of-state contractors looking for work.
North Dakota’s bounty of construction projects, including a flurry of work in western counties to accommodate oilfield traffic, is drawing contractors from other states “like flies to honey,” said Paul Diederich, president of the Associated General Contractors of America and West Fargo-based Industrial Builders Inc.
“They’re coming from all over,” he said.
As of last week, the DOT’s directory of prequalified contractors - those who have proven their experience and bonding capability so they can bid on state projects - listed 255 contractors from 28 states, based on mailing addresses.
Bridge painters from Florida and road surfacing crews from California are among those looking for a piece of the Peace Garden State.
Despite the heap of projects slated for this season, industry representatives and DOT Director Grant Levi said they’re not concerned about having enough contractors to do the work.
Levi said that, while there were exceptions, in most cases the projects awarded last year averaged between four and 12 bidders.
“We believe we have very good competition from the contracting industry,” he said.
Contractors do what it takes
After a record construction season of more than $878 million last year, the DOT plans to bid $815 million worth of projects for this season. That’s more than triple the $249 million in new construction projects in 2007, before the state’s current oil boom hit full swing.
In addition, the DOT estimates this season will include $194 million in carryover work from multiyear projects that began last year, including the Watford City bypass project and the expansion U.S. 85. - a key artery for oil traffic - to four lanes.
Levi said about $173 million in county work also remains to be bid.
The state’s strong economy has contractors from states with less rosy financial pictures and less robust construction schedules looking to North Dakota, Diederich said.
“Construction is a very competitive industry, and the people who are in it are willing to do what it takes to get work, and that includes sometimes traveling to distant locations that are totally different than what they’re used to,” he said.
Intermountain Slurry Seal Inc. of Watsonville, Calif., is among those bidding on North Dakota projects. The contractor specializes in pavement preservation and is a subsidiary of Granite Construction Inc., a publicly traded company that has done work in all 50 states, said Ron Botoff, director of investor relations.
“Is it something about North Dakota specifically that draws ISS out to bid work? No. There’s good work that we think we can bid competitively and profitably,” he said.
The DOT doesn’t keep records of prequalified contractor lists from past years to be able to compare the number of out-of-state contractors then and now. About 60 percent of the contractors currently on the list are based in North Dakota or Minnesota.
But Diederich and Russ Hanson, executive vice president for the Associated General Contractors of North Dakota, both said they’ve noticed a significant increase in out-of-state bidders.
“It’s absolutely unbelievable,” Diederich said.
Competition, challenges
The result has been a “very competitive” bidding process, despite the larger number of projects, he said.
Hanson said local contractors have felt for years that they had the ability to increase their capacity to take on more work, and that’s happening in many cases - but not all.
Diederich said Industrial Builders usually peaks at about 300 employees during the construction season but dipped to 260 employees last year.
“And that’s because I think there’s more competition. We’re certainly capable of adding more. We’ve got a lot of equipment that’s not being used right now,” he said, adding it also depends on the contractor’s portfolio.
Finding temporary housing for non-local workers also continues to be a struggle, though the situation is improving, Hanson said.
“They are maybe a little more available, but they’re sure not cheap,” he said.
Costs on the rise
The cost of housing workers, difficulty finding labor and rising cost of materials have contributed to a significant increase in construction costs in North Dakota, especially in the west, Levi said.
According to the DOT’s construction cost index, what cost $1 in 2001 had increased to $2.61 last year.
One mile of concrete overlay costs about $660,000 in eastern North Dakota, compared with nearly $1.07 million in the west, a 61.5 percent difference, DOT figures show. Minor rehab work costs 74 percent more in the west.
Levi said most construction bids have been “fairly close” to the state engineer’s estimates.
However, in one project bid earlier this month, which involves rebuilding the intersection of Highways 23 and 1804 at New Town and a mile-long stretch of 1804 north of the city, the low bid was $9.9 million - $2.5 million higher than the engineer’s estimate. The bid is still being evaluated, Levi said, adding the DOT may not have estimated enough cost for the complexity of the project.
Compared to eastern North Dakota, where much of the work this year will be preventative maintenance, Levi said the work will be more intensive in western counties where higher traffic volumes - particularly heavy trucks - in oil-impacted areas have pummeled roads originally built to handle traffic associated with small-grain farming and ranching.
In what the DOT considers the state’s 17 oil-producing counties, the number of vehicle miles traveled increased from 1.7 billion in 2010 to 2.7 billion in 2012, before decreasing last year to 2.6 billion.
“We’re basically rebuilding many of the roadways,” Levi said.
For contractors, that spells opportunity.
“You go where business is,” Botoff said.