New Mexico’s Rising Construction Costs Impacting 5,000 Public Projects

The state faces mounting construction costs.

Source : Wikimedia

February 1, 2024

Author : Alex Bustillos

In New Mexico, a recent report by the Legislative Finance Committee (LFC) paints a concerning picture for the state’s construction sector, with escalating costs threatening to derail numerous public projects. 

With a significant investment in capital improvement projects, the state faces a trio of challenges: soaring construction bids, a critical workforce shortage, and increased demand, potentially leaving some of its 5,000 public projects in jeopardy.

The LFC report brings to light a staggering 60% increase in private and public nonresidential construction spending in New Mexico between 2021 and 2022, totaling around $4.9 billion. This second-highest growth in the United States is part of a broader national trend of rising construction costs, which have surged by 43% since January 2019. In school construction alone, New Mexico has witnessed a 138% hike in costs in 2023, far outpacing the national average.

One of the most pressing concerns highlighted in the report is the labor shortage in the construction industry. New Mexico currently needs at least 2,000 more construction workers to meet its project demands. This shortage mirrors a national deficit, with the Associated Builders and Contractors trade group estimating a nationwide shortage of 546,000 workers required to complete projects in 2023.

Contractor News had previously reported that labor paucity has plagued the American construction industry for the last few years, and firms can mitigate it by employing more diverse hiring trends. 

The state’s two elementary schools in Los Alamos exemplify the crisis. Initially estimated at $17.5 million each in 2022, their construction costs have now skyrocketed to $38 million and $40 million, respectively. These numbers underscore the volatility and unpredictability of current market conditions.

To address these challenges, the LFC report suggests several measures. Reconsidering existing price ceilings on construction spending is one strategy. Additionally, the report advises limiting per diem payments related to construction projects and introducing an “annual common construction report card” for greater transparency and accountability in per-square-foot construction spending.

The Public School Capital Outlay Council (PSCOC), with its unique rolling award cycle, has been effective in providing funding that reflects current market conditions. However, this approach alone isn’t sufficient to combat the escalating costs. The report also recommends to explore alternative project delivery methods, such as Construction Manager at Risk (CMAR) and design-build processes, to improve cost management and project completion times.

The LFC’s findings highlight the financial strains on New Mexico’s construction sector and pose a significant risk to the state’s infrastructure development. With the fate of over 5,000 public projects at stake, the report highlights the need for urgent action and strategic planning to navigate this period of economic instability. Effective management of these escalating costs is crucial for ensuring the continuation and completion of essential infrastructure projects across New Mexico.

Category : Investment in Infrastructure Market Watch Material Costs State Government

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