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The Economics of Building Green: How Fear and Loathing Govern One Man’s Market

If you listen to Barry Wallis, you get the feeling that green construction couldn’t be easier to do. Yet the general manager at DAIco Supply Company, Fort Worth, Texas, feels that many projects leave more than a few LEED® points on the table.




Take a typical case: A subcontractor is doing his final punch list. The building is pretty well buttoned up. Suddenly, the GC asks for all LEED documentation related to his work over the course of the entire job. The sub loathes the thought of filling out reams of paperwork.




“The sub never told our order desk the project was a LEED,” Wallis says. “Now he wants a signature letter from [the stud manufacturer] on its steel studs and doesn’t understand why [the stud manufacturer] is hesitant. Can they be sure it’s their steel in the walls?”




Let’s try to understand this breakdown in communication. The project manager for the subcontracting company should have known the project was going for LEED certification … right?




“Presumably,” Wallis says.




Well, he would’ve had a specification manual for the job. If it was a green job, that manual—even if it was 1,000 pages long—would have begun with a LEED letter of intent right on page one.




“It usually is there.”




Did you ask if it was a LEED project?




“We did. We always do. We were told it was not.”




And this happens regularly in Dallas-Fort Worth?




“Yes.”




Why don’t subcontractors in your area communicate better about their green projects?




“They think it will inhibit their ability to win the bid,” Wallis says. “They have this misnomer that if they tell the supply yard it’s a LEED project, they’ll get jacked-up pricing.”




Dallas-Fort Worth




Dallas-Fort Worth (DFW) may or may not be representative of the wall-and-ceiling industry at large, but it’s a huge market. Economically, the region is like most places in North America—fiercely competitive with new construction square footage down sharply due to the recession. Environmentally, the City of Dallas has instituted minimum LEED Silver certification ratings for all city-owned projects. Thus, DFW is a good pick for profiling what’s happening in green construction.




Similarly, DAIco Supply may or may not represent most distributors, but it’s a good choice for this article. Wallis has Green Advantage® Commercial certification. His company has just about all the green paperwork a contractor would need. DAIco even has chain of custody certification to stock FSC wood in one of its yards.




In short, Wallis and DFW make for a compelling case study. So then, let’s ask: What are the economics of putting up green walls and ceilings? Do green projects hinder a subcontractor’s ability to win bids?




Green Econ 101


The main gypsum board suppliers to Dallas-Fort Worth include American Drywall, Georgia-Pacific, National Gypsum, Temple-Inland and USG, with just about all having plants in the area. Is there a premium for gypsum board with a high recycled content in DFW?




“Typically not,” Wallis says. “We can buy a 95-percent recycled content board for the exact same price as 6-percent recycled content board.”




There is, however, a premium for FSC-certified plywood and studs. That premium runs 12 to 15 percent, Wallis says, largely due to a freight upcharge. The area, he says, “is just not inundated with forests.” By buying FSC-certified wood in truckloads, DAIco defrays some of the freight charges for its customers.




What about steel? Wallis says there’s no upcharge for steel in Dallas-Fort Worth. Insulation? No. Metal ceiling grid? No. Lay-in panels? Again, no. “In our market with our product mix,” Wallis says, “the only thing that has an additional cost factor is FSC wood.”




So, for every $1,000 a subcontractor spends on either gypsum board, insulation, ceiling components, steel studs or wood, the comparable green material costs the same, $1,000—except for FSC-certified wood, which may run $1,150.




Just for comparison, green wall and ceiling products in New England also don’t carry any premium pricing. “There may be some specialty materials that, from time to time, cost a little more,” says Dennis McDonnell, vice president at T.J. McCartney, Inc., Nashua, N.H. “But with insulation, metal studs and drywall, there’s no real added cost for the most part. There’s virtually no impact on the labor side either.”




Fear-Driven Economics


In today’s price-driven era, and especially in Dallas-Fort Worth, Wallis sees timidity on the part of his customers. They’re afraid to ask for help. That, in turn, leads to problems.




Case in point: A Methodist church project broke ground in September 2009. Somewhere along the way the drywall contractor stopped using the original supplier awarded the job. The project manager had submitted some orders to that supplier, but his superintendent began ordering materials from DAIco. Nobody, however, told DAIco the church was a LEED project. Wallis asked, but he was told it was not a LEED job.




“They missed a lot of credits,” Wallis says. “They had a half truckload of plywood, 2-by-4s and 2-by-6s that, according to their documentation, should have been FSC certified. I assured them that all the material that left our facility was not FSC wood. We don’t arbitrarily ship it, because it has a premium.”




Whereas the church was aiming for a LEED Silver certification, it may now have to settle for less—and may not qualify for any LEED certification in the end. Bad communication may ultimately mean failure.




Of every 10 LEED projects, how many could have ended up with higher LEED classifications had there been better communication along the way? Wallis’s answer: One of every 10 green projects. In other words, 10 percent of green projects in DFW end up with less than expected results.




Education and Logistics


Whereas smaller contractors fear bidding wars in the marketplace and avoid openly presenting their LEED projects for that reason, larger subcontractors have a tendency to sidestep the help their suppliers may offer thinking that they themselves have it all covered.




“They feel like they have a complete grasp of green construction and don’t want to talk about their LEED jobs,” Wallis says.




Again, problems can arise. Many large contractors simply turn to the Internet for LEED information. They may, for instance, pull generic forms (listing available LEED credits) off manufacturer’s Web site. They add the documents to their bid packages. Later, they’re puzzled to learn that the materials don’t meet the project’s LEED location criteria. “They never realized they may be outside of a regional zone,” Wallis says.




One DAIco customer had a LEED Gold project under way in Waxahachie, Texas. Having done LEED projects before, the subcontractor felt he could simply transfer the product list for one job to another and earn the same LEED rating.




But geographically speaking, Dallas-Fort Worth is an expansive area. What has worked on one job may not always meet regional qualifications for other job sites. Insulation produced in McPherson, Kan., may earn LEED credits in Dallas, but Waxahachie is south of Dallas by 40 miles—20 miles outside the 500-mile range of the Kansas plant.




In this case, the subcontractor compromised LEED points by not consulting on the matter. “His comment was, ‘It met the regional credit on Job A. Why not on Job D?’ Well, Job D was outside the 500-mile radius,” Wallis says.




Checks and Balances


What does a study of Dallas–Fort Worth reveal about subcontractors who do well in the green building arena? Wallis says capable firms use a series of checks and balances (see sidebar).




“They read their spec manuals. They electronically provide copies of them to us,” he says. “Together, we work to create a model of what the materials list should look like and note the manufacturers that can help achieve the maximum amount points.”




DAIco sets up specific internal parameters for the job, such as specific items that cannot be ordered and minimum recycled content criteria. The team tracks mileage, including the cities and states containing the extraction harvest points and the manufacturing plants.




“We have six to seven contractors that do this at length,” Wallis says. “They win more projects as a result because they demonstrate up front that they have a better grasp of the process, especially if they are bidding a GC who doesn’t understand green building.”




More planning on the front end makes jobs go much smoother. It can even shave time off construction cycles and help locate alternative sources of material.




“If we can aid customers in providing an alternative product that they can put in their bid package and submit, the GC will see that their bid is different from other bids,” Wallis says. “Many subs are afraid to do this because it takes some selling. It’s not just taking an order. It requires them to say, ‘Here’s why we deserve to be paid $100 when my competitor wants to charge $90.’”




Diminishing Returns




Recently, Wallis attended a building convention where he had breakfast with a successful commercial developer. Wallis and the developer met as they parked—Wallis in his 3-year-old Chevrolet Z71 pickup, the developer in his brand new BMW 750Li hybrid sedan.




After sipping on coffee, the developer turned to Wallis and said, “The biggest issue we face is cost overruns. I don’t understand that.” Wallis sat silently and listened to this man’s general complaint.




“What do you think?” the developer asked.




“The problem is you want to build a $1,000,000 facility for $800,000,” Wallis said.




“Yea, what’s wrong with that?” was the reply.




“Nothing if you get what you’re paying for,” Wallis replied. “Unfortunately, you do get what you pay for. The building cost you $1,100,000 because somebody shortchanged the system.”




“I don’t follow you,” he said.




“Well, what if I said I could sell you that $105,000 BMW 750Li you own for $80,000 instead?”




“I’d have to ask if it had an engine and a transmission.”




“See? You have your head wrapped around the car. Why are you not able to wrap your head around a building that has a much longer lifespan?”




The point is, trying to get something for less than it costs doesn’t work. When project timelines are accelerated and architects don’t have time to complete their work, the trades get less than a full set of drawings for their bids. Since the drawings are incomplete, that increases the number of Requests for Information, and the system starts to bog down. Eventually, GCs fax requests for re-quotes, which puts more pressure on contractors to lower their prices.




“What happens when the construction trades go cheaper? What corners are they cutting? They do ‘value engineering,’” Wallis says.




Maybe a 6-inch 18-gauge drywall stud is exchanged for 8-inch 20-gauge stud. But somewhere along the way, building code enforcement will catch the switch and disallow it. In the effort to remedy the situation, the subcontractor forgets to check on the recycled content required of the steel studs. Efforts to cut corners cuts green building success in the end.




“Architects spend a lot of time getting educated and trained,” Wallis says. “Maybe there’s a reason they drew the 6-inch 18-gauge stud. Maybe history taught them that if you put anything less it could lead to failure. And when you have many looking only for what’s cheap, the project’s green objectives start getting traded for price. Sooner or later, the team begins to think, ‘Green building costs more.’ Well, no it doesn’t—not if you put in the right green products to start with.”




Mark L. Johnson is an industry writer and marketing communications consultant.

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