REVERSE AUCTION BIDDING: WHAT DO YOU THINK?
The reverse auction process is now being adopted by increasing numbers of owners to procure construction and related services. Essentially, reverse auction bidding (RAB) is a process in which a buyer of goods and services continues to solicit bids from sellers until the buyer is satisfied it has received an acceptably low price. While this process has worked well for the procurement of manufactured goods, there is speculation about whether the same process is suitable to our industry, particularly because of the unique challenges and variability of construction projects.

One of the few investigations into reverse auction bidding, Sandherr noted, is a white paper entitled “Analysis of Reverse Auction Bidding,” developed by the Construction Industry Cooperative Council of Minnesota, and written by Dean Thomson and Jocelyn Knoll, attorneys with the law firm of Fabyanske, Westra & Hart. The paper reviews both the advantages and disadvantages of reverse auction bidding. For instance, advocates of the process claim that owners or taxpayers gain significant savings through use of the process. Critics, however, believe the claimed savings “are illusory and that the process could actually cost owners and taxpayers more than traditional sealed bidding.” To read the complete paper, go to www.fwhlaw.com/Articles/206732.pdf.

Give us your feedback! Do you think reverse auction bidding is workable for the commercial construction industry? Have you had experiences in this area? During the next month or so, we’ll be collecting information on this process and developing an article for Commercial Builder magazine later this year.

Send your feedback or contact Carmel Nayman at 800-368-5242 x8410 for more information.

THE MASTERFORMAT REVOLUTION ENTERS FINAL PHASE
After two years, four drafts, and requests for comments from nearly 500 A/E/C firms, the Construction Specifications Institute is closing in on the end of a process that will lead to publication of the first revolutionary set of changes to CSI’s 16-division MasterFormat — the nation's predominant standard for organizing written specifications for constructing nonresidential buildings.

Created some 40 years ago, MasterFormat has been in need of a major overhaul for some time now to keep up with the changes in construction technology and processes. The latest — and final draft, says CSI — is likely to be acceptable to greater numbers of users as it has fewer divisions than some of the earlier versions and includes the current MasterFormat's familiar basic structure for the traditional architectural divisions. And to avoid having to go back to drawing board any time soon, this version contains plenty of room for future growth because of a new six-digit numbering system (versus five digits in the original version) for the sections within divisions.

This latest draft “reflects the prevailing sentiment that Draft 3 was outside most people’s comfort zones as to the number of divisions,” said Dennis Hall, FCSI, CCS, CCCA, AIA, chairman of the MasterFormat Expansion Task Team. “We now have in Draft 4 what we believe is a good compromise. It will look familiar to current MasterFormat users as far as the traditional building disciplines are concerned but will still be able to adapt to new subjects, methods, and materials for many years to come,” Hall said.

To view the proposed divisions and for more info, go to www.csinet.org/press/pr41803.htm.  An outline of Draft 4 is scheduled to be posted for comment mid-May at www.csinet.org/technic/mfrevision.htm and will be available for feedback through fall of this year. The new MasterFormat is scheduled to be published during late fall 2004. [return to top]

OPPORTUNITIES ABOUND WITH NEW MARKET TAX CREDITS
Although it’s been kicking around since the late 1990s, the New Markets Tax Credit (NMTC) — created during a Democratic administration and approved by a Republican-controlled Congress — is finally up and running.

The NMTC was created under the Community Renewal Tax Act of 2000 as a way to encourage the private sector to invest in America’s low-income communities. A flexible program, the NMTC will likely be a huge stimulus to economic and community development throughout the nation. Like its successful cousin, the low-income housing tax credit, the NMTC is not a direct government subsidy, but rather an incentive for the private sector to invest capital for the benefit of America’s disadvantaged communities.

Will Cooper, Sr., chairman of WNC & Associates, Inc. — a nationally diversified investment company — believes there are numerous opportunities for builders to reap the benefits of the NMTC. WNC is one the 66 companies that received program awards, which Cooper says have been split between home builders and nonprofit organizations. Not all the awards are national, he said. Some of the awards are for local or regional projects, so the amounts will vary depending on the scope of the project.
 
The program provides investors with seven years of federal tax credits for making investments in a wide range of businesses located in low-income communities. The tax credits result in a dollar-for-dollar reduction of the investor's federal tax liability.

The NMTC is administered by the Department of Treasury through the Community Development Financial Institutions Fund. The CDFI Fund is responsible for administering $15 billion in tax credit authority over six years through a competitive process, with annual tax credits rising by 2006 to $3.5 billion.

An investor is eligible to receive an allocation of tax credits through Community Development Entities (CDE). To qualify as a CDE, the investor must be a domestic corporation or partnership that can demonstrate a primary mission of serving, or providing investment capital for low-income communities or low-income persons. CDEs serve as an intermediary vehicle to provide loans, investments, or financial counseling in low-income communities and are accountable to the communities they serve. To be eligible to receive the tax credit, a CDE must use the funds received from investors to make Qualified Low-Income Community Investments. A number of requirements and exclusions of certain kinds of activities exist.

Obtain additional information about at the CDFI Funds Web site at www.cdfifundhelp.gov/index.asp?Section=NMTC. You can also visit WNC’s Web site (www.wncinc.com/nmtc.htm) for more information about the program.

A presentation on the program will take place at the Affordable Housing Subcommittee meeting on Friday, May 9, 8:00 – 10:00 a.m., in Washington, DC, at the Marriott Wardman Park. All NCBC members are invited to attend.
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THE MULTI-FAMILY HOUSING MARKET CONTINUES TO PUZZLE
Speaking at the Spring Construction Forecast, held April 24 at the NAHB National Housing Center, both Jack Goodman of Hartrey Advisors and Ron Whitten of Whitten Advisors provided insight into — and projections about — the puzzling multi-family market.

Goodman recalled a Multi-Housing News headline from a year ago that stated “Rebound Around the Corner in 2002.” Well, he admitted, it hasn’t happened, and multi-family housing is going to continue to be characterized by very high vacancy rates. Still, Goodman said, the stability in the multi-family segment is unprecedented and should continue through 2003. “What’s particularly noteworthy is that the stability has been there despite widely differing production and demands.”

Regarding condos, Goodman believes there’s an even more favorable climate for multi-family for sale rather than for rent. Noting the large numbers of baby boomers in the 55 to 64 age range, plus the movement toward more single-person households, “You can argue this is a real good time for condo construction.”

Whitten is not optimistic about rental apartment construction: “Vacancy rates are high, occupancy has fallen. The drop from fourth quarter ‘02 to the first quarter ‘03 was larger than the one we saw in the aftermath of 9/11, and that sets the stage for higher vacancies.” He projects that 2003 will be a period of slight declines in occupancy—almost stable—and expects that to translate into an effective rent growth rate of 1% to 2% in 2003. In 2004, don’t look for much improvement during the first quarter, said Whitten, but by the second or third quarter, we may be able to raise rents slightly, perhaps 2% to 3%.

Whitten also shared the results of a study conducted by his firm in which 40 markets were compared to see how attractive they would be for investment. Less than 20% of the markets received the highest rating — Los Angeles, Norfolk, Philadelphia, Riverside, and San Diego.

For additional highlights from the Construction Forecast, check out the April 28 edition of Nation’s Building News Online. [return to top]

BUSINESS FAILURE — NO ONE LIKES TO TALK ABOUT IT…
... But the construction building business is tough, especially these days. Firms fail or struggle to survive. And certainly with less than optimistic outlooks for commercial building, builders focusing on this segment can use plenty of advice on how to stay successful. Davidson & Golden, P.C., a Tennessee-based accounting firm, points out 10 early warning signs to watch for so you and your firm can stay on the road to success — and off the fast-track to failure!

Early Warning Signs 

1. Growing too fast
2. Obtaining work in a new geographic region
3. Dramatically increasing in single job size
4. Obtaining new types of work
5. High employee turnover
6. Inadequate capitalization
7. Poor estimating and job costing
8. Poor accounting system
9. Poor cash flow
10. Buying “dumb” stuff

Should you panic if you match up with two or three of the above? Not necessarily, but experience with failed firms show these are among the most common mistakes made. Just be cautious about falling into too many of these traps, Davidson & Golden advises.

To read the article on which the above was based — “Ten Most Common Causes of Construction Contractor Failures,” by Robert A. Davidson, CPA, and Martin G. Maguire, CPA — click here or go to Davidson & Golden’s Web site at www.davidsonandgolden.com and click on the Newsletters (Winter 2002) link. [return to top]

NAHB BUILDER APPOINTED TO HUD MULTI-FAMILY POST
Appointed as Deputy Assistant Secretary for Multi-Family for the Federal Housing Administration is Stillman D. Knight, Jr., a home builder from Daphne, AL. In making the announcement on April 21, HUD Secretary Mel Martinez cited Knight’s “vast experience in the multi-family housing industry” and said he “will be a tremendous asset to the Bush Administration’s continuing efforts to expand homeownership, create affordable housing opportunities, and strengthen communities.”
 
Knight is the former chairman of the board and CEO of The Knight Company and has received numerous NAHB awards. He was recognized as the National Council of Multi-Housing Industry’s “Builder-Developer of the Year” in 1986, and was selected as one of the nation’s “Top 50 Apartment Developers” in 1992 and one of the “Top 100 Apartment Developers” in 1995. In addition, Knight founded the Alabama Apartment Council in 1997 and received an NAHB Pillars of the Industry award in 2001. He is a native of Mobile and a life director of NAHB.

In his new position, Knight will be responsible for the overall management, development, direction, and administration of HUD’s multi-family housing programs. These include FHA multi-family mortgage insurance, project-based rental subsidy programs, housing for the elderly and persons with disabilities, and community-based initiatives. [return to top]

HOW DO YOU COMPARE TO OTHER NCBC MEMBERS?
Interested in finding out where your firm stands compared to other members in the commercial building marketplace? In a survey taken last year of NCBC members, the vast majority who answered the question, “What was your dollar volume?” indicated their businesses have volume in the $1 million to $10 million range. Here is the actual breakdown:

Dollar Volume

• Under $500,000:  none
• $500,000 - $1 million:  1
• $1 million - $5 million:  19
• $5 million - $10 million:  13
• Over $10 million:  none

Asked about their primary business activity, the largest categories noted were Office Buildings and Retail/Strip Malls. More details follow:

Primary Business Activity

• Office Buildings:  30
• Retail/Strip Malls:  24
• Self-Storage/Mini-Warehouses:  11
• Industrial Warehouses/Manufacturing:  9
• Institutional (Hospitals/Schools/Churches): 4
• Land Development : 1
• Other (i.e. tenant improvements):  none

For more information about the NCBC survey, contact Carmel Nayman at 800-368-5242 x8410. [return to top]

EVENTS OF NOTE
Fire up Outlook, take out the Palm Pilot, or open your DayTimer. Here are key dates for your calendar:

2003 Spring Board of Directors Meeting
May 7-11, 2003
Marriott Wardman Park
Washington, DC
The NCBC Board of Trustees will meet on Thursday, May 8, from 10:30 a.m. to 1:30 p.m., at the Marriott Wardman Park in the Virginia C room.
 
2003 Fall Board of Directors Meeting
Sept. 17- 21, 2003
Boston, Massachusetts
The NCBC Board of Trustees will meet on Friday, Sept. 19, 2003, in two sessions. The Board of Trustees meeting will take place from 7:30 – 10:30 a.m., and a strategic planning session is scheduled for 3:00 – 6:00 p.m.

2004 International Builders’ Show (IBS)
Jan. 19-22, 2004
Las Vegas Convention Center
Las Vegas, Nevada

For more information on NCBC meetings, contact Carmel Nayman at 800-368-5242 x8410. For more information on IBS, call 800-368-5242 x8111 or visit www.buildersshow.com/2004/.