Alaska’s proposed capital budget for 2018 is $1.4 billion, less than half what the state worked with just five years ago. As the economy struggles and uneasy businesses are apparently hesitant to build new office or warehouse space, it’s little surprise that the construction industry is losing jobs.
However, one bright spot on the economic horizon is the more than two dozen federal military and defense contracts scheduled to be let in the next two years, most of them related to the new F-35 Lightning II aircraft set to bed down at Eielson Air Force Base.
While those contracts might hold some jobs in place, the job forecast for the industry remains grim. The state Department of Labor said construction industry jobs are down 900 from March 2016 to March 2017, and the trend is likely to continue, with 1,200 job losses estimated for 2017, on top of 1,500 jobs lost in 2016. According to the department, the total number of jobs is expected to decline from 17,700 to 15,000 by the end of 2017.
General contractors, engineering firms, architects — everyone — is scrambling to work on the pared-down list of state contracts, and there’s more competition for federal contracts, such as the $842 million to be awarded in fiscal years 2017 and 2018.
The U.S. Army Corps of Engineers Alaska District oversees the awarding of millions in military-related, civil and environmental projects each year in Alaska. Chris Tew, the Corps’ chief of the Contracting Division, says the 27 military-related projects planned for Alaska in the next few years are generating a lot of interest among contractors and will likely provide a boost in an otherwise slow market.
“Everyone is looking at Eielson,” said Neal Fried, an Alaska Department of Labor economist.
Most of the projects are related to a decision to locate two squadrons of F-35 Lightning II aircraft at Eielson Air Force Base by 2020. The decision means an influx of more than 2,700 people, about 1,500 in new military and civilian jobs and 1,200 more in military dependents, according to the Fairbanks North Star Borough.
The expansion means millions of dollars in new and renovated infrastructure at Eielson, from weather shelters and aircraft maintenance facilities to a new flight simulator building, dining hall and dormitory to accommodate the new Air Force personnel.
For Alaska contractors, the work provides a boost on several fronts. Tew said a percentage of the Corps’ Alaska District projects are reserved for bidders that fit a certain profile, such as businesses owned by a service-disabled veteran, by a woman or by owners who are socially or economically disadvantaged, such as minority-owned businesses.
One of the F-35 projects already in progress is a $7.8 million plan to build in-ground concrete shelters to house the missiles that F-35s use. The successful bidder was a joint venture between Anchorage-based Watterson Construction and Callahan Construction Co., based in Fairbanks. The business, owned by former Watterson employee Ben Callahan, qualifies as an 8(a) small business. Watterson said the joint venture is set up as a mentor-protégé contract, in which Watterson mentors Callahan and helps his company gain vital experience.
“He doesn’t have bonding capacity for the project, so we provide that, and we provide help and advice,” Watterson said.
Per the contract, Callahan’s company will do more than 40 percent of the fieldwork on the project. So, while Watterson will have some employees on the job, most employees will be Callahan’s.
Only two other contracts have been awarded: a $22 million F-35 flight simulator building at Eielson, which went to Watterson Construction, and a $33 million hangar for the nine “Grey Eagle” unmanned combat drones the U.S. Army said are destined for Fort Wainwright. Anchorage-based UNIT COMPANY was the successful bidder on that project.
The list of capital projects from the Corps’ Alaska District has the construction industry abuzz right now, but Tew said the overall amount being spent isn’t much more than what the Corps typically spends in Alaska in a year.
According to the Corps, 2007 marked the largest contracting year in the past decade. Just over $600 million was spent on contracts in that year, Tew said. About $464 million is projected to be spent in the 2017 fiscal year, which began in October 2016. That’s about $140 million more than was spent in 2016.
“This is all good work for industry,” said Tew, adding that the U.S. Air Force will likely bid around another $100 million in building renovations and upgrades, projects that are not included in the USACE list of capital projects but will nonetheless need to be completed before the F-35s arrive.
The project budget is expected to be lower in the 2018 fiscal year — $378 million is forecasted — but it’s expected to jump to $451 million the following year.
Tew has been traveling the state to give presentations to several groups and said he plans to continue giving at least quarterly talks to industry groups.
As for whether the effort to talk up the projects is paying off, Tew said it’s too early to tell. He said he has seen an uptick in interest from companies that have not previously bid on USACE projects, and his office has tried to adjust bidding rules to better accommodate these new players. On contracts in which past performance on similar projects is part of the bid, for example, Tew said the Corps has allowed contractors to include 10 years of relevant experience rather than its typical cutoff of five years.
“Pricing thus far has been very competitive, and it’s been very good for the taxpayer,” he said, citing the projects that have so far been let with a smaller dollar value attached.
Projects with a greater dollar value might not see a lot more competition than they usually would as there are a limited number of general contractors in the state that can secure bonding for higher-value contracts.
Another bright spot in the construction industry is the Lockheed Martin project to build a Long Range Discrimination Radar for Alaska, along with a mission control facility at Clear Air Force Station near Nenana. The LRDR, as the project is called, updates the U.S. Missile Defense Agency’s current missile defense system to the tune of $784 million. The company estimates that more than $325 million will be spent in Alaska in the next six years.
Lockheed is developing the software for the new program. On its website, the company calls the new radar “the backbone of the Missile Defense Agency’s layered defense strategy to protect the U.S. homeland from ballistic missile attack.” Lockheed recently completed construction of a scaled testing facility in Moorestown, New Jersey, where the new radar system can be tested before construction begins on the LRDR Electronic Shelter at Clear. Lockheed says its crews will deploy to Alaska in late 2018.
Lockheed Martin media relations officials said the company has forged partnerships with the University of Alaska in advance of the work planned for Alaska. Partnering with ASRC, it held Alaska STEM Day at the University of Alaska Anchorage in September and established an agreement with the university to participate in Lockheed Martin’s facilities design review for the electronic shelter, as well as establishing job requisitions for engineering internships with the company.
Lockheed also established a quarterly LRDR newsletter for distribution to Alaska chambers of commerce and, in August, held Industry Day to establish contacts with Alaska supply chain members.
The company will rely on Alaska contractors for local transportation services, material handling, fuel, septic and waste services, and more.
Tew said the mission control facility contract, valued at $112.9 million, was awarded in late April to a joint venture between UNIT COMPANY and ASRC Builders LLC. A project to build a fire station at Clear was also on the list to be awarded that quarter. The fire station has an estimated value of $12 million to $17 million. Two more projects at Clear are scheduled to be awarded this fall and winter: the foundation for the large radar building, a project with an estimated value of between $5 million and $10 million; and site security related to the radar, a project with an estimated value of $7 million to $14 million.
An estimated 350 workers are expected to be on site at Clear during the peak of the LRDR project, Tew said. But finding housing and accommodations at Clear or in nearby Anderson for that many workers is difficult, so the Corps and Missile Defense Agency are working with Arctic Slope Regional Corp.’s subsidiary ASRC Builders to construct a 320-room camp at the site.
“Our team has worked diligently to build a facility that offers comfort and privacy for the workforce — from recreation and fitness areas to single-status living quarters, we believe we have hit the mark,” said ASRC Builders’ project manager Patrick McAnally. “ASRC is proud to have an all-Alaskan workforce from start to finish on this project. Hiring locally is a priority for our company.”
The project is unique in that ASRC will own and operate the facility for the Corps and Missile Defense Agency for the duration of the LRDR project, which is expected to wrap up in 2021. McAnally said the camp was designed by Winchester Alaska Inc. and fabricated by Builders Choice Inc., a subsidiary of ASRC. The site improvements and utilities needed to deploy the camp were constructed last fall and the camp modules were fabricated and installed over the winter.
The camp will be ready for occupancy July 1, and ASRC will operate it for five years, or as long as the Missile Defense Agency requests. McAnally said he expects a workforce of between 15 and 20 people to operate the camp, from cooks and housekeepers to maintenance and front desk personnel and home office support personnel.
“It’s definitely a new opportunity for ASRC and the government to work together on this,” McAnally said. “They were for a cost-effective and practical way to house and feed a large workforce without having to build their own permanent facility at Clear.”
For the contractors who aren’t lucky enough to win one of the military contracts, the keys to surviving the economic downturn seem to be three-fold: be flexible, know your strengths and don’t overhire.
For some companies, being flexible means being willing to work in other states. Last fall, Roger Hickel Contracting Inc. won a contract to build a new elementary school in Lake Stevens, Washington.
Neeser Construction Inc., a company more well-known for innovative vertical construction projects such as the University of Alaska Anchorage School of Engineering and Industry, is doing more civil projects such as the $41 million Glenn Highway and Muldoon Road interchange in Anchorage.
Davis Constructors & Engineers is hoping to ride out the downturn by working on a few multiyear projects. The company is part of a joint venture with ASRC to build a new hospital in Bethel, a project with a budget of more than $225 million. Davis and Haskell Corp. are working together on another multiyear project, at the University of Alaska Fairbanks, to upgrade the 50-year-old combined heat and power plant at the university. The total project cost for the upgrade is pegged at $245 million.
Meg Nordale, president of GHEMM Company in Fairbanks, said while her company has bid on some military contracts and may bid on more, not every project is a good fit — or is worth the considerable effort of bidding.
Design-build projects, for example, can be expensive to bid. A team of architects and engineers generally come up with a cohesive project design as part of the bid, a process that takes much time and effort.
Nordale said GHEMM Company’s strategy is to stay lean and stick to its base. The company runs a tight ship when it comes to full-time employees, hiring out union workers for its jobs.
“I think we’re all having to work a little harder, and we’re all having to learn to live with a little less,” she said.
GHEMM typically operates with about a 50/50 split between private and public work, though in the current climate, she said, it’s skewing toward more public work — and is seeing a lot of competition.
A recent project GHEMM Company bid on from the Fairbanks North Star Borough had 10 general contractors vying for the project. In a normal year, she estimated five generals would have bid the project.
Rustin Krafft, purchasing officer for the Mat-Su Borough, said he’s seeing a similar situation. More bidders — some of them new to bidding at the borough level — competing for work, and the resulting contracts have generally been below the engineer’s estimate.
“We’re getting a lot more value for the dollar right now,” Krafft said.
Rindi White is a writer for MARCOA Media Alaska.