Trenton, NJ (April 11, 2005) - New Jersey's historic schools construction program has faced some challenges meeting its obligation to the state's children, but is making significant progress, John F. Spencer, CEO of New Jersey Schools Construction Corporation (SCC) told legislators today.

At a meeting of the Joint Committee on the Public Schools, Spencer cleared up a number of misconceptions and misinformation about the program, particularly in the areas of building costs, the role of project management firms and additional work assignments, or "change orders."

"We have worked hard to live up to our commitment to build 21st Century schools in the safest and most cost effective manner possible, and we're making great progress," Spencer said. "However, there were a number of factors not fully considered at the outset of this process that have had a noticeable impact on our financial resources."

Project Costs for SCC Managed and Non-SCC Managed Projects

In response to a request from legislators to provide them with a thorough understanding of the key differences between building in dense urban areas and in suburban locations, Spencer detailed how those differences have had an impact on the costs of the SCC's urban construction efforts. Several of the elements affecting building costs in urban school districts include:

Location - About 60 percent of the SCC's projects are in the counties of Hudson, Essex, Union and Passaic where labor costs are higher-5-10% more than in the south. Inflation -Recent comparisons on building costs that have been made did not take into account inflation and the timeframe for when the schools were built. If a comparison is going to be made, it must compare schools that were built in the same year in order to have a meaningful cost comparison, not within a 4- to 5-year time span. The Engineering News Record reported an annual average inflation rate of 3.5% in the construction industry. Site restrictions- Delivering construction materials, the complication of limited staging areas, and providing site security are more costly in an urban setting than in a suburban setting. Urban schools are often built right up against sidewalks and property lines where scaffolding, pedestrian protection, retaining walls, rerouting utilities, and underground shoring of adjacent buildings are often required. Urban districts are also limited in land, unlike some of the suburban districts, so the SCC builds vertically rather than horizontally. Multi-story facilities are more expensive because of items such as elevators, mechanical shafts, and more stairwells. For example, two elevators for the four-story Newark Science Park HS will cost over $800,000. Stricter safety standards - For SCC managed projects, the SCC often exceeds federal and local code standards. For example, the SCC requires fire sprinklers throughout the school, radon detection, and because the SCC builds community schools, every school is also provided with emergency power generators so they can be used as a shelter in times of need. Longer-lasting schools - The SCC uses materials that may have higher up-front costs but have long-term sustainability, such as block and brick, as opposed to sheetrock and vinyl siding.

Other factors like land acquisition, site remediation, homeowner, tenant and business relocation, demolition and historic preservation also impact the cost of school projects that SCC manages. Spencer said that land acquisition in urban areas has become very expensive, and sometimes, business and residential relocations must occur. Once the SCC acquires land, it often requires some type of environmental remediation.

"But, let me be clear. The SCC does not build a school on a site if it is not safe for children. The SCC, working with the DEP, thoroughly tests these sites. If the DEP says that it is not suitable for a school, then we will not use the site, plain and simple," added Spencer.

In comparison, school districts in suburban areas often own the land on which a school can be built. Suburban communities often don't have the same level of difficulty in finding sites, which often include open space, rural areas, or farmland that present fewer relocation or environmental challenges.

Spencer also detailed the role of Project Management Firms (PMFs) and architects. Both the PMFs and the architects work with the SCC from the earliest phases of a project, through planning, design, and development, to the construction and opening of a school.

On suburban projects, construction management firms are typically limited to the construction phase of a project. Also, districts usually have one architect on retainer, which can take on multiple projects, so districts can "bulk-buy" their services. The SCC uses one architect per project to make the program as inclusive as possible and create additional opportunities for small, minority and women-owned firms.

Change Orders

Spencer explained that it is inaccurate to characterize "change orders," or additional work assignments, as "cost overruns." A change order is used to assign new projects to a PMF after the projects are approved by the DOE. Spencer said that change orders for additional required work only account for approximately 3.7% of the overall design and construction activity, which is well within any acceptable industry experience.

Factors Not Included in Original $8.6B Allocation

Spencer also told legislators that the SCC would not be able to commit to the start of construction of school projects beyond January 2006. He explained that the SCC's financial resources have been impacted by items that were not included in the original $8.6 billion allocation for this program, including: land acquisition, relocation, historic preservation and demolition; stand-alone pre-k facilities; temporary classroom units and "swing space"; inflation and the increased cost of labor and raw materials; the addition of new Abbott districts; and DOE regulation requirements like computers.

Spencer also noted that when the law was drafted in 1998, the $6 billion for Abbott districts was based on construction cost estimates of $125 per square foot. In 1998, the DOE estimated $8B for the 30 Abbott districts, calculated at $125/ sq ft.

"The estimate was unrealistic," said CEO Spencer, "First of all, land acquisition and relocation of homeowners, tenants, and businesses were not included in our funding. The cost of historic preservation, remediation and demolition were also not considered. Second, the allocation did not include the cost of building stand-alone, pre-k facilities that operate all day, as opposed to half day. Thirdly, the cost to provide temporary classroom units and "swing space" were not considered. Fourth, the allocation did not take into account inflation for the increased costs of labor and raw materials over the course of the program. Fifth, the original legislation did not foresee the addition of new Abbott districts, and instead of building schools in 30 districts, we're now responsible for 31 districts. Sixth, the allocation did not account for regulation requirements set by the DOE such as providing computers and associated technology in the classrooms we build. And finally, the cost of our programs or administrative costs-like DEP, DCA, DOE and our Attorney General-were not considered."

"The SCC takes very seriously its mission to build high-quality, safe, state-of-the-art schools in a cost effective manner, and we believe we are doing just that," Spencer concluded. "We've already taken a number of steps to become more efficient, but we also welcome any productive idea that will help us do our jobs better, because we're all working together toward the same goal - to build 21st Century schools to meet our obligation to New Jersey's children."

The SCC was formed in 2002 to streamline the building of much-needed quality schools throughout the State of New Jersey. The $8.6 billion program is the largest public construction program ever undertaken by New Jersey and represents one of the largest programs of its type ever undertaken in the nation.

CEO's Joint Committee Presentation