UWSP could use 36 percent in savings to reduce debt

By Nick Paulson
Journal staff

Construction bids for the new suite-style residence hall at the University of Wisconsin-Stevens Point came in about 36 percent less than initial estimates, likely because of the lack of construction work available in the recession.

Cost estimates from architects during the design process were about $27.3 million for the new building, which will replace Hyer Hall. But after collecting bids from contractors, the lowest responsible bidders for each sector should add up to about $18 million.

The gap creates big savings for UWSP. Greg Diemer, vice chancellor for business affairs, said administrators haven't yet discussed how to use the savings. But because the entire project, estimated at $35.5 million, is being paid for with bonds, there are several options.

UWSP could shorten the term of the bond, pay it off more quickly and save on interest. That also could help lower the cost for students to live in the new residence hall. The UW System also has looked at shifting the bond authority so the money could be used on backlogged maintenance problems, although that would require approval from the Legislature.

"I would expect the first priority will be to see if we can do some debt reduction and help reduce costs to students," Diemer said.

Unusually low bids for new construction projects aren't unique to UWSP. In 2009, buildings at UW-La Crosse, UW-Oshkosh, UW-Superior and UW-Madison all came in 15 percent to 25 percent below estimates, said David Miller, associate vice president for capital planning and budget for the UW System.

Both Miller and UWSP Director of Facilities Planning Carl Rasmussen said the reason was simple.

"The scarcity of work," Miller said. "Construction firms want to keep their people employed, so they are fighting really hard to get this work."

"They're willing to take less overhead in order to get a job," Rasmussen said.

Since the recession began, construction has been one of the hardest hit industries. The low demand for work also has led to a low demand for commodities, which has lowered prices. But savings for the UW System will last only as long as commercial construction lags. The opposite happened in 2005, when commodity prices skyrocketed and bids came in above estimate.

"The bad news for the economy is good news for the user right now," Miller said. "Frankly, we're trying to bid as many projects as we can while we're in this bubble of competitive pricing."