Attachment J01 2024 IHS Location Factor L48 Report 15DEC2023.pdf

Indian Health Services 2024 Special Location Factors

Prepared by OCMI, Inc.

Aesus Design Group 15 December 2023 Project No: 211342

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Indian Health Services 2024 Special Location Factors

TABLE OF CONTENTS

INTRODUCTION 2

Abstract 2

Methodology 2

Regional Construction Cost Driver Research 3

Supai, AZ: Methodology and Notes 6

2024 IHS Location Factors 11

2024 IHS Location Factors Snapshot Analysis 12

APPENDIX 16

Executive Summary 17

Macro Market Analysis 20

MSA REPORTS 29

Completed Location Modifier Forms 36

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INTRODUCTION

Abstract OCMI, Inc. was retained in 2023 to provide research and analysis services as a subcontractor to Aesus Design Group by the Indian Health Service (IHS) in furtherance of their requirement for yearly updates to their special location factors for construction. OCMI performed outreach, analysis and factor development for thirty-five

(35) locations across the contiguous United States. This report will provide the following information and documentation:

a. Explanation of methodology for data point collection

b. Overall analysis for 2023 domestic construction market

c. Analysis of factors driving individual area factors

d. 2024 Location Factors, including detailed backup of information.

Methodology

Special Locations Location Modifier (LM) Research

OCMI’s largest task in this effort was to collect information about material costs, wage rates, and taxes at each of the special locations in aid of the completion of the Location Modifier (LM) forms, which CoreLogic uses in order to assemble final location factors. Our research included the following steps:

1. Research local and regional vendors for listed materials

2. Contact vendors to request costs of materials to locations specified by IHS

• In cases where one or more of these materials was not locally or regionally available we worked with vendors identify suitable alternatives for quotation. Instances of substitutions of this nature are identified on their applicable LM sheets (see Appendix)

3. Work with vendors to develop delivery estimates

• In some instances, this necessitated outreach to second party transportation providers for particularly inaccessible locations, e.g. Supai, AZ

4. Record the material costs on the Local Multiplier form, including notations regarding any special conditions for shipping and/or material acquisition

5. Perform research into local applicable codes and requirements for Prevailing Wage statutes

• In instances where Prevailing Wage structures are prevalent these have been used in the completion of the labor rates indicated on the LM

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• In instances where Prevailing Wage structures are not prevalent we have utilized Davis Bacon wage rate

• Research state, county and local tax structures to determine applicable tax rates

6. The completed LM forms were then provided to our internal Data Management team, which they in turn used to derive the requested location factors. These factors have been entered into the 2023 Annual Data spreadsheet with their 2023 and 2024 counterparts to provide a side-by-side comparison (See Location Factor Table).

Regional Construction Cost Driver Research As an additional component to the report, OCMI was asked by IHS to undertake an examination of local and regional trends that are driving construction cost movement in each of the areas under examination where it has facilities. In furtherance of this request OCMI has performed analysis of the different metropolitan statistical areas (MSAs) that sit adjacent to each of the 35 different areas under analysis. As a part of this analysis OCMI examined unemployment, construction labor supply and absorption, material price movement, overall population growth and current/future projected construction volume.

Because of the relatively small size of most of the areas in which IHS operates facilities economic reporting in the form of calculation of local unemployment, Gross Metropolitan Product (GMP), construction labor pool availability, etc. is very difficult to locate- and even more so on a repeating basis. This repetition of reporting of economic attributes is one of the core fundamentals of an analysis of current/future activity and the area’s ability to respond, and as such it became necessary to look outside the immediate area to be able to find a sufficient amount of data on which to base an examination. In addition, these areas also provide major components of construction projects for each of these areas.

These areas are identified below along with the IHS area each supports.

1. Flagstaff

• Supai, AZ

• Kearns Canyon, AZ

• Red Mesa, AZ

• Tuba City, AZ

2. Phoenix, AZ

• Whiteriver, AZ

3. Tucson, AZ

• Sells, AZ

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4. Boise, ID

• McDermitt, NV

5. Barnstable Town, MA

• Aquinnah, MA

6. Muskegon, MI

• Benzonia, MI

• East Jordan, MI

7. Duluth, MN

• Cass Lake, MN

• Sandstone, MN

• Hayward, WI

8. Minneapolis, MN

• Granite Falls, MN

• Morton, MN

9. St. Cloud, MN

• Onamia, MN

10. Jackson, MS

• Neshoba, MS

11. Billings, MT

• Wolf Point, MT

12. Great Falls, MT

• Hays, MT

• Ft. Belknap, MT

13. Bismarck, ND

• McLaughlin, SD

14. Albuquerque, NM

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• Magdalena, NM

15. Oklahoma City, OK

• Clinton, OK

16. Tulsa, OK

• Ochelata, OK

• Wetkuma, OK

17. Rapid City, SD

• Kyle, SD

18. Dallas, TX

• Hugo, OK

19. Provo, UT

• Ft. Duchesne Green Bay, WI

• Watersmeet, MI

20. Wasau, WI

• Nekoosa, WI

21. Casper, WY

• Ft. Wakashie, WY

A table with "snapshot" summary of the conditions driving the cost for each of the 35 locations ascertained from this investigation is provided on page 13, and reports for each of the areas is included within the Market Report within the Appendix (see MSA Reports).

Supai, AZ

As noted in previous reports, the challenges of construction in the Supai, AZ area are significant. As a component to our research OCMI reached out to several different transportation companies, each of which would have a potential role to play in moving construction materials from the vendor to the project site, in order to ascertain the true cost of building in this area. While the outcome of this research is reflected in the LM form, we felt it would be appropriate to detail the factors/conditions that are present in the costs shown.

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Supai, AZ: Methodology and Notes

Background

The Havasupai Tribe administers the land, which lies outside the boundary and authority of Grand Canyon National Park. The reservation was established in 1880 ands was substantially enlarged in 1975. Policing is provided by the Bureau of Indian Affairs Law Enforcement Services.

The 2010 census counted 208 residents in the village of Supai, which is located on the Havasupai Indian Reservation. The Havasupai are one of the smallest federally recognized tribal nations and have resided within the Grand Canyon area for more than 800 years.

Supai has been referred to as “the most remote community” in the contiguous United States by the U.S. Department of Agriculture. Supai is the only village on the reservation and is not accessible by road. The only methods of transportation in or out of Supai is by hiking 8 to 9 miles, helicopter, or mule team. The terrain in this area is quite dicey/dangerous.

The most unusual mode of delivery used by the Postal Service is the mule train. Since the 1930s, mules have been carrying mail and goods to the Havasupai people located near the Grand Canyon. 10-22 mules are used daily, along with one wrangler, 5 days a week, traveling about 8 to 9 miles down into the canyon to the Supai Post Office. This is the only remaining USPS post office in the USA that still must use mules for mail service.

Post Office Address: 100 Main Street Zip: 86435 County: Coconino

Materials Shipped From Flagstaff to Hualapal Hilltop Helipad near Supai

Hualapai Hilltop Helipad (Airwest Helicopter Service)

Air Transport from Hualapai Hilltop Helipad to Supai Helipad

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Material Deliveries:

There are only two viable means to transport goods into Supai, via mule train or by helicopter. Either way, all deliveries must commence at the Hilltop Trailhead and campground parking lot. The helicopter landing pad is adjacent to the trailhead parking lot.

Material & Equipment Resources Availability

Most construction materials can be purchased at the three nearest major cities below:

NEAREST MAJOR CITIES

City Mileage to Hilltop Parking Lot Hours

Flagstaff, AZ 169 miles (see map Attachment A) 5 hours, 12 minutes Las Vegas, NV 227 Miles (See map Attachment B) 6 hours , 4 minutes Phoenix, AZ 269 miles (See map attachment C) 6 hours, 46 minutes

Mule Train

One Pack Mule can carry up to 4 bags with a maximum weight of 32lbs.

per bag, which translates to 128lbs per mule.

Maximum baggage size: 36 inches long, 19 inches wide and 19 inches tall. All baggage must be soft sided with nothing hanging off the outside. The cost per mule is $400 and subject to change, and reservations must be made in advance. The travel time between Hilltop and Supai is approximately 4 to 5 hours one way.

Helicopter

Haulapai Hilltop to Supai Helicopter service is only available by Air West. Air West has two diverse types of helicopters. Each is equipped with a 100-foot cable with cargo net.

• Special arrangements must be pre-scheduled for large quantiles of construction materials.

• Contact: Greg Barlow – (623) 516-2790

• Tribal Confirmation is required before transporting anything into the reservation.

Operations:

Normal Operation (March 15th - October 15th) Sunday, Monday, Thursday and Friday Winter Operation: (October 16th – March 14th) Sunday & Friday.

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Unique Challenges

Weather Condition Challenges

SUPAI, AZ: WEATHER CONDITIONS

Month Temp

(Min) Temp (Max)

Rain Days

Precipitation Comments

January 31°F 55°F 2.8 days 1.34” Low temperatures not ideal for work outside February 33°F 58°F 2.9 days .08” Low temperatures not ideal for work outside March 38°F 67°F 5 days .09” Low or lost productivity 25% of month April 44°F 74°F 4.8 days .06” Low or lost productivity 25% of month May 52°F 84°F 4.5 days .07” Elevated temperatures June 60°F 95°F 1 days .04” Elevated temperatures low or lost productivity July 67°F 98°F 6 days 2.0” High Temperatures with heavy rainfall, Flash flooding August 66°F 96°F 5.7 days 2.4” High Temperatures with heavy rainfall, Flash flooding September 59°F 89°F 3.3 days 1.5” Elevated temperatures October 47°F 77°F 4.2 days 1.1” Approx 25% low or lost productivity November 37°F 65°F 2.5 days .05” Ideal conditions December 30°F 54°F 3.1 days 1.1” Low temperatures not ideal for outside work

Craft Labor Availability Challenges:

• Tribal Leadership approval must be obtained before any projects may commence

• All tradesmen must be brought in

• Housing is limited, and there is only one lodge within the village

• Campground is not open this year due to Tribal requirements

• Meals are a challenge as there are limited resources for large-scale production in the village

Material Challenges

Logistics is a challenge, considerations include:

• Coordination between supplier, trucking and transport into Supai

• Materials are not readily available nearby

• Size and weights are critical either by mule and/or helicopter

• Materials such as cement must be bagged for shipment and mixed on site

• Wet Ready Mix is not practical due to setup time between plane and delivery into Supai

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• Waste dumpsters must be brought and removed by helicopter

• Sanitary Toilets must be shipped in and removed via helicopter

• Any type or kind of waste materials must be flown out by helicopter

• Any kind of temporary construction field office is a challenge

• High speed internet or cell phone service will be limited to local resources which may be a challenge

Heavy Equipment Challenges:

• Equipment such as backhoe, dozers etc. must be dismantled, flown to Supai in pieces and reassembled onsite.

• Fuel for equipment must be flown into Supai.

• Concrete mixers and or other equipment must be shipped unassembled and reassembled on site in Supai

Attachment A:

Flagstaff, AZ to Supai Hilltop Parking Lot: 151 Miles

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Map Attachment B Las Vegas to Supai Hilltop: 227 Miles

Map Attachment C Phoenix, AZ to Supai Hilltop: 269 miles

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LOCATION FACTORS

2024 IHS Location Factors

LOCATION 2022 2023 2024 3 YEAR

AVERAGE

% CHANGE

2023-2024

Kayenta, AZ 1.12 1.10 1.07 1.10 -2.73% Keams Canyon, AZ 1.12 1.13 1.06 1.10 -6.19% Red Mesa, AZ 1.14 1.14 1.03 1.10 -9.65% Sells, AZ 1.04 1.01 1.03 1.03 1.98% Supai, AZ 3.38 3.44 3.40 3.41 -1.16% Tuba City, AZ 1.13 1.03 1.05 1.07 1.94% Whiteriver, AZ 1.05 1.04 1.02 1.04 -1.92% Aquinnah, MA 1.43 1.48 1.52 1.48 2.70% Benzonia, MI 1.08 1.14 1.08 1.10 -5.26% East Jordan, MI 1.14 1.17 1.13 1.15 -3.42% Watersmeet, MI 1.20 1.21 1.19 1.20 -1.65% Cass Lake, MN 1.33 1.31 1.23 1.29 -6.11% Granite Falls, MN 1.34 1.34 1.28 1.32 -4.48% Morton, MN 1.33 1.26 1.21 1.27 -3.97% Onamia, MN 1.33 1.37 1.34 1.35 -2.19% Sandstone, MN 1.37 1.47 1.40 1.41 -4.76% Neshoba, MS 0.94 0.91 0.96 0.94 5.49% Browning, MT 1.03 0.98 1.07 1.03 9.18% Ft. Belknap, MT 1.03 1.01 1.10 1.05 8.91% Hays, MT 1.03 1.01 1.07 1.04 5.94% Wolf Point, MT 1.03 1.06 1.08 1.06 1.89% Belcourt, ND 1.05 0.98 1.04 1.02 6.12% Magdalena, NM 1.10 0.99 1.06 1.05 7.07% McDermitt, NV 1.16 1.23 1.30 1.23 5.69% Clinton, OK 1.04 1.07 1.08 1.06 0.93% Hugo, OK 1.06 0.97 1.06 1.03 9.28% Ochelata, OK 0.97 0.93 0.97 0.96 4.30% Wetumka, OK 1.00 0.99 0.96 0.98 -3.03% Kyle, SD 1.07 1.12 1.05 1.08 -6.25% McLaughlin, SD 1.12 1.09 1.02 1.08 -6.42% Ft. Duchesne, UT 0.98 0.98 1.05 1.00 7.14% Nespelem, WA 1.16 1.25 1.31 1.24 4.80% Hayward, WI 1.12 1.19 1.26 1.19 5.88% Nekoosa, WI 1.18 1.21 1.29 1.23 6.61% Ft. Washakie, WY 1.02 0.92 1.00 0.98 8.70%

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2024 IHS Location Factors Snapshot Analysis Though OCMI was responsible for the development of the FY 2023 location rates provided to IHS, it is important to remain aware that all prior FY factors were developed by a separate entity with an unknown development methodology. Though these historical factors will continue to exert less influence on present and future analysis as time goes on, it is worth noting that they are still exerting an influence on blended three year averages for each of the factors. 2023 has continued the nascent trends seen at the end of 2022 with material costs and competing project volume continuing to return closer to normal levels across most MSAs. Energy pricing has continued to exert an upward influence on costs, however, and with the war in the Ukraine now compounded by geopolitical tensions in the Middle East this condition is not expected to ameliorate in the immediate future.

Most of the areas surveyed continued to report strong construction markets relative to market capacity to take on the demanded volume. Importantly, though, the common theme continues to be the limiting factor of available, capable construction labor. Labor, and to a lesser degree energy, will be the headline issues for construction cost through 2024 and beyond even as overall demand tempers in the face of rising interest rates.

We have compiled the table below that lists brief reasons for the cost movement in each area examined, but for a more in depth analysis of the conditions effecting each area please see the Appendix.

LOCATION 2023 2024 % CHANGE

2023-2024

LOCAL MARKET

INFORMATION

Kayenta, AZ 1.10 1.07 -2.73% Keams Canyon, AZ 1.13 1.06 -6.19% Rising interest rates have significantly tempered demand for single family homes and, more importantly, private sector construction

Red Mesa, AZ 1.14 1.03 -9.65% Rising interest rates have significantly tempered demand for single family homes and, more importantly, private sector construction

Sells, AZ 1.01 1.03 1.98% Supai, AZ 3.44 3.40 -1.16% Tuba City, AZ 1.03 1.05 1.94% Whiteriver, AZ 1.04 1.02 -1.92% Aquinnah, MA 1.48 1.52 2.70% Benzonia, MI 1.14 1.08 -5.26% Projects undertaken in

2021/2022 have largely completed and freed up area labor sources.

East Jordan, MI 1.17 1.13 -3.42% Watersmeet, MI 1.21 1.19 -1.65%

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LOCATION 2023 2024 % CHANGE

2023-2024

LOCAL MARKET

INFORMATION

Cass Lake, MN 1.31 1.23 -6.11% Area construction employments has reduced by almost 10% from the levels seen in 2022

Granite Falls, MN 1.34 1.28 -4.48% Area construction employments has reduced by almost 10% from the levels seen in 2022

Morton, MN 1.26 1.21 -3.97% Onamia, MN 1.37 1.34 -2.19% Sandstone, MN 1.47 1.4 -4.76% Steep reductions in competing project volume has served to lower local labor premiums

Neshoba, MS 0.91 0.96 5.49% Local construction labor is at the highest levels observed since 2006-2008

Browning, MT 0.98 1.07 9.18% Large statewide construction volume combined with decreases in the supply of local construction labor have served to increase costs

Ft. Belknap, MT 1.01 1.1 8.91% Large statewide construction volume combined with decreases in the supply of local construction labor have served to increase costs

Hays, MT 1.01 1.07 5.94% Large statewide construction volume combined with decreases in the supply of local construction labor have served to increase costs

Wolf Point, MT 1.06 1.08 1.89% Belcourt, ND 0.98 1.04 6.12% New energy projects, notably

Project Tundra ($1.4bil.) are serving to significantly increase construction volume

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2023-2024

LOCAL MARKET

INFORMATION

Magdalena, NM 0.99 1.06 7.07% Increases in public sector construction at a state and local level have increased construction labor employment to its highest level since 2006-2008

McDermitt, NV 1.23 1.30 5.69% Extreme competition for construction labor continues to exert upward pressure on pricing

Clinton, OK 1.04 1.07 2.88% Hugo, OK 0.97 1.06 9.28% Increased energy pricing and public sector construction investments have driven the MSA to its highest construction employment levels on record

Ochelata, OK 0.93 0.97 4.30% Wetumka, OK 0.99 0.96 -3.03% Kyle, SD 1.12 1.05 -6.25% Increased optimism regarding availability of construction materials, notably lumber and steel, have served to decrease costs

McLaughlin, SD 1.09 1.02 -6.42% Increased optimism regarding availability of construction materials, notably lumber and steel, have served to decrease costs

Ft. Duchesne, UT 0.98 0.98 0.00% Ft. Duchesne, UT 0.98 1.05 7.14% Population influx combined with increased public construction investment have combined to create largest construction labor levels on record

Nespelem, WA 1.25 1.31 4.80%

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2023-2024

LOCAL MARKET

INFORMATION

Hayward, WI 1.19 1.26 5.88% Construction volume growth has reached a point where labor is at it’s highest level in 15 years

Nekoosa, WI 1.21 1.29 6.61% Construction volume growth has reached a point where labor is at it’s highest level in 15 years

Ft. Washakie, WY 0.92 1.00 8.70% Large expansion in local and state funded public projects have increased local construction volume by roughly $150mil. since 2022

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APPENDIX

CONTENTS

Executive Summary 17 Purpose & Methodology 17 Market Volatility 17 National Construction Market 17 Key Take Aways 17 Factors of Escalation 19

Macro Market Analysis 20 National Escalation Rate 20 Inflation & Medium-Term Wage Growth 23 Material Pricing 24

MSA REPORTS 29

Completed Location Modifier Forms 36

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Executive Summary

Purpose & Methodology

To support the US Department of Health and Human Services Indian Healthcare Services division ability to accomplish planning and budgeting for projects across their national portfolio OCMI was tasked with providing a market study to characterize current and projected construction market conditions. This study is provided as a "snapshot" look at the current economic conditions. This study is provided as a ‘snapshot’ look at the current economic conditions along with rough forecasting of future outlooks in tandem with the 95% CDs team submission.

Market Volatility

Federal measures to raise interest rates are continuing to show signs of effectively stifling both inflationand new construction spending. At the same time, the other associated effects of these actions make the possibility of recession very real. As of time of reporting, volatility in construction material costs has effectively subsided, though elevated post-pandemic pricing levels remain the going rates. Global conflict in important oil producing regions could instigate volatility in key material sectors; particularly concrete and other energy-heavy production materials.

National Construction Market

Steep increases in both construction costs and, importantly, spending over the last 1.5 years has forced public and private capital project managers to regularly adapt to changing conditions. Well-documented material price spikes have combined with long-term

Key Take Aways

1. As previously forecasted, pricing surges seen through much of 2021 and 2022 have continued to temper, with net-pull back having been achieved in private construction subsectors. Increased interest rates

BY THE NUMBERS

46.4 November2023 AIA Architecture Billings Index - South (Below 50 considered pessimistic)

+1.2% Change In Turner Building Cost Index (Q2 ‘22 - Q1 ‘22)

ENR

+2.5 ENR Construction Cost Index

- National Average (YoY, November 2023

Dodge -1.4% Dodge Institutional Building Momentum Index (MoM, November 2023

Dodge +3.2% Consumer Price Index (%Change YoY, November 2023)

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have been successful in tempering inflation growth, and no significant recessionary effects have been observed to date across the broader economy.

2. Though tempered by interest rate increases over the last 18 months, measured shifts in labor-commanded compensation are continuing to provide significant upward pressure on market wide construction pricing. We estimate that this condition will continue to be compounded by market-internal and external competition for a dwindling human capital pool over the foreseeable future.

3. Continued general optimism towards material pricing forecasts is caveatted with three acknowledgments: A) the U.S. is at the beginning of a structural realignment as it relates to domestic production emphasis- the growing pains of which could cause new rifts down the line. B) Domestic prioritization of increased movement towards electrification of building utilities/increased sustainability will continue to manifest by way of upward pressure on MEP building components. ) Increasing geopolitical tensions across the globe will continue to provide an ongoing, and potentially significant, rationale for premiums within energy markets.

4. Across most MSAs examined, as well as the nation broadly, the general contractor hunger factor within the public construction sector has continued to tick upwards. The prospect of recession, along with continued reductions in demand for private sector, have served to increase contractor hunger levels.

It is important to note, however, that even given these conditions most contractors surveyed are still seeing three (3) bids or less on most projects.

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Factors of Escalation

Before the discussion on escalation, it is important to emphasize and illustrate the factors and components that make-up cost escalation - a primary subject of this report - and how those differ from one of the component parts, inflation. While cost escalation includes inflation, other economic variables make calculating the escalation factor for any one specific industry and/or region a more complicated exercise. Escalation is as a combination of variables; any number of which can vary from expectations in response to ordinary or extraordinary market activities, as seen during the recent global COVID outbreak.

At the same time, it is valuable to try to parse what is likely permanent and what is likely conditional. While the specifics and contextual variables are too numerous to fully quantify, the underlying principle of temporary spikes is important to apply to this analysis. For example, temporary spikes in price due to prolonged supply access shortages (real or contrived) should not necessarily dictate the calculus of the authoritative ‘new normal’ in terms of pricing and growth rate. This is critical to realistic projections of future escalation which rely on a current period denominator.

The figure above is reproduced from the Secretary of Defense’s 2017, “Inflation and Escalation Best Practices for Cost Analysis: Analyst Handbook”.

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Macro Market Analysis

National Escalation Rate

By a number of metrics (including ENR CCI, ENR BCI, BLS Non-residential Construction Cost PPI), the historical average annual construction cost escalation rate is approximately 3.2% per year. Counter to this trend, the years 2021 and 2022 registered construction cost escalation rates of 4.8% and 17.2%, respectively (BLS, New Healthcare Construction, PCU236224236224). While 2021 brought about surges in speculative endeavor valuations (equities, new housing development) which betrayed the supply chain challenges, 2022 manifested the downsides of aggressive relief monetary policy. Supply chain challenges continued into 2022 with the spikes in material commodity prices reaching their peaks in the first two quarters. The worst of the unprecedented price spikes due to supply chain system shocks are likely behind us, but monetary inflation has left the predicted price floor to which prices will settle less clear. At present, the temporary stasis appears to rough out to an anecdotal formula of: PreCOVIDPrices + 30%.

CONSTRUCTION DEMAND

PPI Change YoY New Nonresidential Government Construction Private Sector Concrete Nonresidential Electrical Nonresidential

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In the short term (1-2 years), we forecast a slightly above historic-average annual escalation as monetary inflation continues to impact nominal pricing.

Domestically, the aforementioned monetary inflation has left real worker wages (U.S. Federal Reserve Board, 2022) trailing the Consumer Price Index (CPI) by several percentage points. This is likely to continue to push commanded wages up across the trades - both union and non-union alike. A risk-averse escalation rate of 5% for calendar year 2023, and 4% for 2024 is prudent when aiming to apply escalation to capital planning budgets.

OCMI has developed a projection of national escalation rates based on current economic conditions and forecasted future impacts.

The following pages discuss a number of the factors which will contribute to changes in construction costs.

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Projected Construction Activity

The Architecture Billings Index (ABI) is a regarded leading indicator of future construction activity by roughly 9-12 months. Looking at the last 12 months of reporting, we can see that the ABI has tracked well with general post-COVID lock down momentum. And with that, since November of 2022, index readings across three of the country’s four major regions have hovered around or below the 50 mark

- indicating comparatively falling interest and activity levels among architects. Per the AIA’s accompanying report commentary, a down- tick in executed design contracts and a capital market that is “killing projects” is driving a good portion of the overall survey indications. Recent moves by the Federal Reserve Board to increase effective interest rates have most certainly curtailed investor appetites, to some degree, as private capital investment becomes more costly from an equity perspective.

Again it should be stressed, though, that at least at a general contractor level, these realities are less impactful to SDVOSB general contractor outlooks.

October 2023 Architecture Billing Index

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Inflation & Medium-Term Wage Growth

Relief actions by the federal government, including the CARES Act and Consolidated Appropriations Act of 2021, infused trillions of new dollars into the U.S. (and international) economy as the government worked to shield citizens and companies through the worst of the economic turmoil. In turn, this resulted in monetary supply growing at an unprecedented rate, as seen for example, in the graph to the right. These actions combined with extremely low interest rates, supply chain disruptions, and energy price turmoil to create record high inflation over the last year.

As a correction, the U.S. Federal Reserve has worked to increase Effective Federal Interest Rates (Fed Rate) at the quickest pace in the nation’s history. The rapidity of this action has caused uncertainty across markets, particularly highly leveraged and lending-dependent markets like real estate development. Recently, the impact of these moves on the U.S. Bond market has translated into the failure of Silicon Valley Bank and large dips in stock market equities.

The net effect by design, however, has been a staunch slowdown in borrowing and spending across the U.S.

economy. How deeply this will impact private-side non- residential construction is not fully understood - yet Further, how severe the private-side slow down is will be the biggest determinant how decreased demand will impact pricing and bidder interest in public (federal) projects - particularly at the subcontractor level.

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Material Pricing

A primary contributor to many of the material price spikes of the COVID era, transoceanic shipping disruptions and cost increases reached previously unimaginable levels in 2021 and early 2022. Drewry Supply Chain Advisors, which tracks and publishes container shipping costs, is currently tracking the composite cost of shipping containers at roughly

$1,709/ea, or approximately on par with pre-pandemic pricing levels. While perhaps more acutely felt at the personal consumer level, this regression to previous levels represents a positive sign for equipment and foreign material pricing. It should be noted, though, that while this is positive for pricing, this has not negated manufacturing lead times that persist for large, engineered equipment like air-handler units and switch gears.

Previously forecasted trends of continued easing in material pricing dynamics have continued to materialize over the last three months, with most major categories reporting some level of negative change year over year according to the most recent data (October 2023). The table to the right outlines the changes across major categories for the last 1, 3, 12, and 24 months.

Of notable importance to the IHS project priorities at the focus of this study, concrete products highlighted to the right are still registering above average year- over-year changes. This category of material will be critical to continue monitoring for estimate and budget management as the project evolves.

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Previously forecasted trends of continued easing in material pricing dynamics have continued to materialize over the last three months, with most major categories reporting some level of negative change year over year according to the most recent data (October 2023). The table to the right outlines the changes across major categories for the last 1, 3, 12, and 24 months.

Of notable importance to the IHS project priorities at the focus of this study, concrete products highlighted to the right are still registering above average year- over-year changes. This category of material will be critical to continue monitoring for estimate and budget management as the project evolves.

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The graph above provides a visual representation of cumulative change in Producer Price Index value for a variety of materials. This serves to highlight the to- date net change in pricing levels through, and after, the COVID pandemic and associated market volatilities.

The chart below highlights the year-over-year price movement of all construction material costs over the last 3+ years through the worst of the pandemic woes. At it’s peak, the spike from pre-COVID pricing levels reached +35%. At present, the net change from January 2019 to today sits at just under 35% in total, with many materials and commodities seeing stabilization over the last 3-6 months.

Role of Energy in Construction Costs

Energy, specifically by way of petroleum products, is one of the largest contributing factors to the cost of construction of any type. From concrete manufacturing to plastic products and material delivery, energy is a cost applied to nearly every construction activity. Accordingly, it is important to note that any potential improvement in the cost of other raw inputs will be partially, if not fully, offset by sustained, elevated energy prices. As seen in the chart to the right, energy was already the highest fluctuating input to construction. Low cost oil and natural gas through much of 2020 muted some price hikes in costs related to domestic transportation and delivery operations.

At present, the war in Ukraine and conflict in Gaza are ongoing with no clear path to cessation in sight.

Current developments in the Middle East are likely a precursor to escalation of tensions between the US and several different significant OPEC countries, which could in turn raise doubts about the viability of shipping through the Straights of Hormuz and, correlatively, the world supply of light sweet crude.

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The upshot of this is further spiking of energy (petroleum) costs in 2024. This will impact almost all components of construction by way of transportation costs, personnel cost of living, and general operations.

Future Escalation Projections

As discussed, the factors contributing to escalation are numerous. Many of these factors are also well outside of domestic control and influence. Following is a brief overview of some of the primary contributors and indicators of escalation and their projected directional trends.

While the volatility levels keep confidence intervals suppressed, OCMI has developed a projection of national escalation rates based on current economic conditions and forecasted future impacts. Through 2024, we anticipate an aggregate rate between roughly 4-6% escalation YoY.

ESCALATION PROJECTIONS

YEAR LOW RANGE HIGH RANGE

2024 4% 6% 2025 3% 5% 2026 3% 6% 2027 2% 6%

AVG PER ANNUM 3% 5.5%

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FACTOR SUMMARY IMPACT ON COST

Market Volume & Interest (Discussed in greater detail in following pages)

Nationally, the inflation-adjusted pace of demand for construction has been relatively steady. Most pertinent to this project, though, the pool of SDVOSB general contractors capable of taking on a project of this structural complexity is minimal. The low levels of competition likely competition for this project, even in consideration of potential JV formations, should be accounted for in terms of potential cost-add risk.

Upward

Monetary Inflation Elevated inflation levels (> 2% YoY) will likely persist into 2024. The pace of change is difficult to forecast.

In the macro, the moves by the Federal Reserve will push escalation down - the risk now present is if a larger systemic impact on banking and capital market dynamics will be realized, sharpening the effect across markets.

Neutral

Materials Pricing The worst of the YoY spikes are behind us, with a general outlook for continued stability in 2024. While a net-decrease in pricing is not risk-appropriate, a macro assumption of average rates of change (+2-5% yearly) is a reasonable allowance. Due to the large amounts of concrete utilized in this project, some risk factors should be considered in light of global events in the Middle East.

Neutral

Energy This factor is near fully out of the control of domestic actors and policy makers. Proceeding with an appropriately risk-adjusted outlook is pragmatic and suggests factoring in elevated energy costs for the next year at a minimum.

Neutral-to-Upward

Labor As mentioned already, and detailed at the local level on the following pages, wages are likely to continue to grow at an above average rate over the next two years. While overall demand (in phyiscal volume) for construction has actually slowed, this lower level has still kept the employment base fully absorbed.

Upward

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MSA REPORTS

Albuquerque, NM 30

Great Falls/Billings, MT 32

Dallas, TX 33

Casper/Cheyenne, WY 35

MSA REPORTS

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Albuquerque, NM

Despite significant growth over the previous three (3) years, the construction market in Albuquerque has shown no signs of abating in 2023. Residential construction, especially in the multifamily subsector, continues to drive the market forward with rental rates continuing to rise (+3.5% y-o-y) as vacancies reach new lows (1.8%). Developers and contractors had approximately 4,200 units currently in construction as of Q3 2023 but with almost all of the units currently in construction already commited to consumers there remains ample demand for future projects and, in point of fact, projects currently in design actually outpace the dollar value of the projects that have been delivered to date.

Though Healthcare construction was projected to remain reasonably robust through 2023 projects currently planned or in construciton have actually exceeded expecations by roughly 20% and currently total just over $280mil., including the $50,000,000 New Mexico State Veterans Retirement facility currently in construction.

Other subsectors are outperforming expecatations as well. Though still in excess of total volume in 2022, the Commercial/Manufacturing subsectors have seen a more muted level of growth in 2023 but this is expected to reverse dramatically in the 12-18 months. With more than 45 projects currently in design, including the $1.2bil.

Maxeon Solar Plant in Mesa Del Sol, area contractors are anticipating a bright future across all commercial construction subsectors.

Construction employment has followed volume as area providers continue to strain to find enough qualified tradesmen to fill vacancies. After rising more than 10% from 2021-2022, area employment has continued to increase over the course of 2023 and currently stands 10% higher than the same time last year at 28,600-

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the highest level observed since 2008. Though the area unemployment rate across all sectors has ticked down slightly over the last 12 months (-.6%), total employment has once again posted a new all time high at approximately 435,000. Among countractors surveyed anecodotal reports of widespread shortages across multiple levels and types of workers were common, though the most pronounced shortages were identified in the electrical, mechanical, carpentry and supervisory positions. Though sources surveyed continue to believe that these shortages are not likely to end in the near future, they are more optimstic about their potential capacity to attract additional labor from other areas where slowdowns in construction are being observed to help offset shortfalls.

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Great Falls/Billings, MT

The greater Montana market continues to struggle to accommodate the downstream effects of the volume of population influx that has occurred over the last three (3) years. Currently statewide unemployment is at its lowest point since at least 1976 while full time construction employment reached its highest point on record at 38,800 jobs in June of 2023. When taken in tandem with expectations of total sector growth of more than 10% for 2024, the reasons for localized construction cost premiums become evident. Even with slight declines in total construction noted in 2023 contractors continue to selectively bid work due to constraints in labor supply, and 1-2 bidders/project remains the most commonly noted bid scenario across all survey respondants. Area contractors continue to note the likelihood of wage premiums for experienced tradesmen, and that though traveling workers are being brought in from other MSAs, most notably Denver, the higher wage rates of their original MSA and the per diem/travel costs are serving to further increase labor cost premiums throughout the state.

From a sector perspective residential construction in the area has begun to slow down and is set to decrease for the first time four (4) years next year, but growth in other sectors, most notably civil/horizontal construction, will more than offset these declines. It should also be noted that area sources surveyed did not expect these dips to be long lived, with every contractor or designer contacted for this survey expecting continued significant growth over the next ten (10) years. Material premiums in the area have declined over the course of 2023 but premiums and delays are still being noted for MEP related materials, and with civil work set to increase by more than 50% next year contractors are anticipating concrete costs to continue to accelerate at above average rates.

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Dallas, TX

The Dallas, TX market has largely continued, and in some cases seen an acceleration in, the trends seen at the end of 2022/beginning of 2023. The state boasts two (2) of the top three (3) residential construction markets in the country with Houston at number 1 and Dallas coming in at number 2, and almost 20,000 permits have been issued in 2023 across the single family and multi family submarkets for the Dallas area. Commercial construction has seen a slight dip over the course of the year, but with six (6) area projects totaling more than $1bil. in construction value, more than $10bil. in total volume and a roughly equivalent amount of projects currently in design the area is showing no signs of significant slowing in the next 24 months. Despite higher vacancy rates and slowing leasing activity office construction has remained strong over the course of the year and Dallas is currently showing the 8th highest level of new build office space in the country, largely on the back of area expectations regarding future growth and absorption. Continued announcements regarding business relocating to the state are providing a logical rationale for this expectation and almost $1bil. of new capital investments have been announced in the 4th quarter of 2023 alone. The ease of outward, rather than upward, expansion in the area has continued to increase the geographical size of the MSA and with area infrastructure straining to accommodate population influx the city is expected to see an increase of more than 50% in the civil/horizontal construction sector in 2024.

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Total construction labor absorption in the area has continued to increase as well. After posting new all time highs in 2022 the market has continued to expand and the current level of 256,900 represents a new all time high for the city, while specialty trade contractors are also reporting all time highs in terms of total employment and are currently showing approximately 140,000 full time workers. Indeed, despite total volume decreasing slightly over the course of the year construction employment has continued to accelerate and has posted a 7% gain y-o-y, an increase of 1.5% from the gain seen 12 months before. Unemployment is currently sitting at 3.6%, which doesn’t mark an all time low but is within 30 basis points of that mark. Area contractors surveyed are still experiencing significant labor shortages across most categories, with the most pronounced shortages in the concrete/cement and MEP categories, and traveling workers from outside the MSA remain commonplace.

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Casper/Cheyenne, WY

Broadly speaking the Wyoming construction market can be understood to be intrinsically tied to energy production, and though the per barrel price of oil remains reasonably strong signfiicant cuts in the average pricing of natural gas have served to depress the number of opportunities for construction in the area over the last five (5) years. Because a strong percentage of the workers that traditionally work in these types of roles are “roving” workers that move to where jobs are the lack of these types of roles has served to depress the total number of available workers below levels observed in previous years, and the state has struggled to train replacements as sectors that have traditionally seen less growth become more dominant. Though the construction market in Wyoming has seen declines in total volume over the last 12 months these declines have yet to manifest themselves in terms of decreases in construction costs, and the majority of the lost volume has been in the residential construction subsector where rising interest rates have served to decrease demand for new housing markedly. Though other sectors, including heavy civil/horizontal construction, non-residential commercial, and institutional have seen slight declines in 2023 all are anticipated to see growth in 2024, with total volme set to exceed both 2022 and 2023 by the end of the year. Total construction employment statewide currently stands at 22,800, the highest number since the pandemic, and though slight upticks in area unemployment (+.6% y-o-y) and labor force (+6000 y-o-y) may provide a small amount of relief for contractors looking to scale up their workforce highly skilled workers, e.g. electricans, sheet metal workers, superintendants, etc. will continue to be in short supply as the area continues to stretch to new economic heights.

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Completed Location Modifier Forms

Kayenta, AZ 37 Keams Canyon, AZ 38 Red Mesa, AZ 39 Sells, AZ 40 Supai, AZ 41 Tuba City, AZ 42 Whiteriver, AZ 43 Aquinnah, MA 44 Benzonia, MI 45 East Jordan, MI 46 Watersmeet, MI 47 Cass Lake, MN 48 Granite Falls, MN 49 Morton, MN 50 Onamia, MN 51 Sandstone, MI 52 Neshoba, MS 53 Browning, MT 54

Ft. Bellknap, MT 55 Hays, MT 56 Wolf Point, MT 57 Belcourt, ND 58 Magdalena, NM 59 Mcdermitt, NV 60 Clinton, OK 61 Hugo, OK 62 Ochelata, OK 63 Wetumka, OK 64 Kyle, SD 65 McLaughlin, SD 66 Ft. Duchesne, UT 67 Nespelum, WA 68 Hayward, WI 69 Nekoosa, WI 70 Ft. Washakie, WY 71

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Kayenta, AZ

LOCAL MULTIPLIER FORM

LOCATION SURVEYED

ADDRESS ZIP CODE

COST

Concrete, 3000 p.s.i., 1" aggregate ready-mix, in full loads, 40 cubic yards . . . . . . . . . . . (per cu. yd.)

Note: ot water charge is excluded from cost above . . . . . . . . . . . . . . . . . . . . . . . . . (per cu. yd.)

lightweight, 3,000 quantity . . . . . . . . . . (per )Concrete block, 8" x 8" x 16", regular, Brick, 8" x 2¼" x 3¾", common clay (not face), concrete, 5,000 quantity . . . . (per thousand)

Drywall, ½" gypsum board, fifty 4' x 8’ sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (per 1,000 sq. ft.)

Galvanized pipe, 1" threaded, with coupler, standard lengths, 50 pieces, 21' ea. . . . . . . (per 100 ft.)

*Note: list one or both and state gauge if different

LOCAL SALES TAX

LABOR, INCLUDING ALL FRINGE BENEFITS – per hour The labor rate should be the amount the laborers receive, not the amount at which they are billed out.

Electricians Structural Iron Workers

Bricklayers Plumbers

Carpenters Common Building Laborers

REMARKS: Anything pertinent to local construction costs and use of nonunion labor:

MATERIAL

Please check one or state size when a choice is given. Substitute alternate size or weight if not available, and note change.

ZIP CODE (Area Surveyed)Kayenta, AZ 86033

10/10/23

Home Depot (928) 526-1692Page Steel (928) 645-3166Brimall/Cemex (928) 537-5716D-Mac (770) 664-7120

$310.00

$9.00

$327.00

$980.00

$600.00

$87.01

$315.00

$190.00

$139.98

$108.00

$456.00

$430.00

$951.56

$689.14

6.4%

42.00 46.44

42.26 $ 22.11

35.10 17.54

Pricing above includes delivery unless otherwise noted.

OMCI

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Keams Canyon, AZ

LOCAL MULTIPLIER FORM

LOCATION SURVEYED

ADDRESS ZIP CODE

COST

Concrete, 3000 p.s.i., 1" aggregate ready-mix, in full loads, 40 cubic yards . . . . . . . . . . . (per cu. yd.)

Note: ot water charge is excluded from cost above . . . . . . . . . . . . . . . . . . . . . . . . . (per cu. yd.)

lightweight, 3,000 quantity . . . . . . . . . . (per )Concrete block, 8" x 8" x 16", regular, Brick, 8" x 2¼" x 3¾", common clay (not face), concrete, 5,000 quantity . . . . (per thousand)

Drywall, ½" gypsum board, fifty 4' x 8’ sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (per 1,000 sq. ft.)

Galvanized pipe, 1" threaded, with coupler, standard lengths, 50 pieces, 21' ea. . . . . . . (per 100 ft.)

*Note: list one or both and state gauge if different

LOCAL SALES TAX

LABOR, INCLUDING ALL FRINGE BENEFITS – per hour The labor rate should be the amount the laborers receive, not the amount at which they are billed out.

Electricians Structural Iron Workers

Bricklayers Plumbers

Carpenters Common Building Laborers

REMARKS: Anything pertinent to local construction costs and use of nonunion labor:

MATERIAL

Please check one or state size when a choice is given. Substitute alternate size or weight if not available, and note change.

ZIP CODE (Area Surveyed)Keams Canyon, AZ 86033

10/10/23

Home Depot (928) 526-1692 Page Steel (928) 645-3166 Brimall/Cemex (928) 537-5716 D-Mac (770) 664-7120

$310.00

$9.00

$327.00

$980.00

$600.00

$87.01

$315.00

$90.25

$39.98

$108.00

$355.00

$430.00

$951.56

$689.14

6.4%

42.00 46.44

42.26 $ 22.11

35.10 17.54

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Red Mesa, AZ

LOCAL MULTIPLIER FORM

LOCATION SURVEYED

ADDRESS ZIP CODE

COST

Concrete, 3000 p.s.i., 1" aggregate ready-mix, in full loads, 40 cubic yards . . . . . . . . . . . (per cu. yd.)

Note: ot water charge is excluded from cost above . . . . . . . . . . . . . . . . . . . . . . . . . (per cu. yd.)

lightweight, 3,000 quantity . . . . . . . . . . (per )Concrete block, 8" x 8" x 16", regular, Brick, 8" x 2¼" x 3¾", common clay (not face), concrete, 5,000 quantity . . . . (per thousand)

Drywall, ½" gypsum board, fifty 4' x 8’ sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (per 1,000 sq. ft.)

Galvanized pipe, 1" threaded, with coupler, standard lengths, 50 pieces, 21' ea. . . . . . . (per 100 ft.)

*Note: list one or both and state gauge if different

LOCAL SALES TAX

LABOR, INCLUDING ALL FRINGE BENEFITS – per hour The labor rate should be the amount the laborers receive, not the amount at which they are billed out.

Electricians Structural Iron Workers

Bricklayers Plumbers

Carpenters Common Building Laborers

REMARKS: Anything pertinent to local construction costs and use of nonunion labor:

MATERIAL

Please check one or state size when a choice is given. Substitute alternate size or weight if not available, and note change.

ZIP CODE (Area Surveyed)Red Mesa, AZ 86514

10/10/23

Home Depot (505) 327-0710, Page Steel (928) 645-31664, Corners Ready Mix (505) 324-3900, D-Mac : (770) 664-7120

$250.00

$4.00

$227.00

$880.00

$499.38

$87.05

$306.00

$120.00

$32.98

$111.38

$355.00

$430.00

$932.81

$689.14

6.9%

42.00 46.44

42.26 $ 22.11

35.10 17.54

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