The Construction Insiders: Episode 12

Podcast Transcript

[00:00:00] Jessica: Thank you, Brad. Today we are gonna head down south and we are going to look at the higher education sector. Over the past few years, a lot of things have changed. Students are starting to think a little bit more critically about where they want to go to college, what that university campus might look like, what their needs are and how their wants have changed as well.

The mainstream press has been really talking about are these universities set for the future? How do they put students first? What does that look like from a construction perspective, and what do they need to be thinking about? As the fears of enrollment decline have been spreading a lot of universities and a lot of experts in this field have been having to take a step back and really critically think about that future and what it looks like.

So today I’m sitting down with Joe Saatkamp, our executive vice president here at Cumming and Heather Hill. She has a focus on Tennessee, but also really taps into the higher [00:01:00] education market. They are both well versed. They’re seeing those change. And thought it’d be a good time to sit down and really hash out, dive into what they’re seeing on a daily basis and how they see this going forward.

So thank you both for taking the time out of what is a very busy day for all three of us. But I think this is gonna be well worth everyone’s time today. So welcome and thank you.

[00:01:23] Joe: Thank you.

[00:01:25] Jessica: All right I guess an opening question that I have been talking about in the office. I think it’s on top of everyone’s minds when we’re talking about higher education.

So with these facilities what are you guys seeing in the early planning stages currently, especially in the south? Are you seeing a shift in these project types, and how are they trying to stay attractive to the larger demographic with this potential? I guess is at this point, it’s fear of enrollment decline. And what are you guys seeing?

[00:01:55] Joe: I think the key that we’re seeing or the key to the approach of higher education, [00:02:00] whether it’s state schools or private schools, their focus is on the students and being able to educate and provide a good education. But it’s more than that. It’s also the whole experience, it’s the quality of living and the extracurricular activities that they’re able to engage in.

So I see, especially in like student housing trends toward making that living experience and quality of life higher. That includes hiring hospitality designers or just high end luxury designers for residential housing projects. Also there’s been. Some talk of trends where instead of having a very large rec center on site, it’s breaking up that rec center or components of that rec center, fitness, et cetera and even cafeterias or food and beverage outlets into the student housing projects.

[00:02:55] Jessica: Is that something that’s particularly [00:03:00] new? Is that. A domino of what we’ve experienced over the last couple years. How did that come about?

[00:03:07] Joe: I don’t view it as something like brand new. It’s been an evolution over the last two, three years or so. What’s new is what you spoke about, which is mainstream media in general.

I don’t think it’s off base. Is higher education worthwhile? And should we be spending all this money to go and have this experience and how does it position us? And then also what’s new is just the escalation of the market. Costs and expenditures have gone up tremendously.

The important thing is to be nimble and look at various different ways and a lot of our engagement is working with the in-house facilities department or the boards to how do we spend every dollar wisely? And having a long term view, not just reacting to the short term view of what’s happening [00:04:00] right now, what these institutions are in place for, in some cases hundreds of years.

[00:04:06] Jessica: So Heather, when we’re talking about the long term view, in terms of the project types on these campuses, where are you seeing a focus and has that changed or what are you seeing in terms of their primary focus?

[00:04:17] Heather: I think, and you’ve seen this evolve, but technology in these buildings connectivity throughout the campus, throughout the different building types.

Again, it’s all about the student experience and what they’re able to get at this university versus another. Competition is heightened as we’ve all mentioned.

[00:04:37] Jessica: So across like athletics, the residential components, and you’re talking about the technology infrastructure?

[00:04:42] Heather: Yeah, arts and science buildings across all of it. The connectivity of the campus is very important.

[00:04:50] Jessica: So from construction perspective. I know we’ve talked at the office about the recruitment of students. What has to be top of mind for these [00:05:00] universities? How are they future proofing these? Is the focus still athletics?

Is there another component? How are they looking at that for equipment?

[00:05:08] Heather: It’s not all athletics. That’s a part of it and obviously that’s something. University can put is a badge forward and to bring folks in. But folks are looking at more than that. It’s the residential college experience.

It’s living on campus. That connectivity with other students and the experience of it all the labs the classrooms, those are just as important to a lot of these students as athletics are.

[00:05:36] Jessica: When we’re talking about the facilities cost of living, where are we housing these students?

What have we seen from our perspective? Is that a big focus? Has that maintained focus from previous years? What are you guys seeing on like the dorm life, the residential options and the cost it has it impacted.

[00:05:56] Joe: I think you see colleges. Quite [00:06:00] frankly, spending more money on that experience than they have in the past.

And also updating, A lot of the colleges have dorms that are very dated, so you see a lot of tearing down and rebuilding and focus on that college experience and dorms, and that can be set up in various ways. Public private partnerships or outside developers and the colleges and the universities enter into an agreement of renting dorm rooms, et cetera from them.

But that quality of life for the students, I think is very high on the priority list and the radar of all these institutions.

[00:06:38] Jessica: And do you think, are you seeing any difference between what’s going on in the south versus on a national level when it comes to priorities for higher education?

[00:06:51] Joe: Not a whole lot.

I Not to be too stereotypical, but we love our football in the south.

[00:06:56] Jessica: Yes.

[00:06:56] Joe: College football. So I think maybe [00:07:00] athletics and the college football and sports culture of it, culture in the south, there’s maybe more emphasis on that as far as the quality of living. And that sort of thing than say in the north, but across the board, a lot of the extracurricular activities.

And having facilities for those extracurricular activities is important. It’s a holistic view of education, sports, and what else? And giving freedom and opportunity in a high quality of life to the students while they spend. On the campus or housing, either on or off campus.

[00:07:38] Jessica: So I wanna jump to where we are inserted into these projects.

Cause I think it’s interesting right now we’re talking about inflation. We’re talking about cost going through the roof. We don’t know when material supplies, labor, you name it. There’s a million challenges going on. So in terms of complexity, obviously these campuses, they [00:08:00] have every. Nuance that we need to manage.

And you were talking about being nimble and they have all different types of facilities. How complex are we talking in terms of getting these universities to where they need to be? And how are you seeing that play out?

[00:08:19] Joe: This is something I can talk a long time about cause

[00:08:21] Jessica: Go for it.

[00:08:23] Joe: To me, the more complex the harder, if you will, or more nuance. The more, I think the more I like it, the more a challenge it is. And I like that challenge. One of the things I really love about higher education is it’s not one market sector.

It’s multiple market sectors. It’s athletics, it’s arts and science. There’s infrastructure, there’s housing. You name it healthcare, A lot of these universities have a whole healthcare department or hospitals associated with them. You get into a whole lot of different types projects and to layer a level of complexity into it.

It’s [00:09:00] an operating campus. Every single one of ’em is an operating campus, so you’re trying to layer in taking dorms out of service, building new dorms. Building a new building, providing infrastructure for those projects, redoing a stadium or building a new stadium, et cetera. It’s this huge complex jigsaw puzzle and you have to put your head in the minds and hearts of the administration and university.

That’s just a means to an end. The end is educating students and taking care of that. Figuring that out with the least impact to the university, to the students, to better the student experience, to better the faculty experience with the least disruption. While you’re going through all this very complex construction is what we love to figure out and we like to get involved and have those discussions cuz [00:10:00] we think we can bring value to the table of an expertise in Is there a different model?

Delivery method in sims we can provide phasing to look at, to do exactly that, provide the best student and faculty experience with the least disruption. And going back to the, being nimble and especially in the current market with escalation, the capital budget that was set two years ago. Doesn’t go as far as what was envisioned two years ago.

How do you make it stretch balancing, fundraising, balancing financing with the cash flow and spend of these projects, again, goes back to phasing and logistics. And what are the needs and what is the most value and what can we do to make every dollar go far. .

[00:10:52] Jessica: Have you seen operating budgets change and how have leaders on these campuses and [00:11:00] universities, how do they wanna move forward?

How are we spending their money wisely in that regard?

[00:11:05] Joe: Yes. Have seen operating budgets change Fundraising can increase budgets. Sometimes it’s layering it out over time. We’ve looked at different opportunities and being in touch with the market is important as well, where bidding out, if you’re in a very hot market, bidding out multiple projects at the same time, intuitively, you think you’d get larger value for a buy and bulk basically.

That’s turned out not to be the case in some instances because everybody is so busy and so you can get more competitive pricing, layering in and dividing up the projects actually. So incentives and what is the value if we can pay on a 15 or 30 day cycle rather than your typical 30 to 60 day cycle?

Various incentives as. So it takes being nimble, getting creative, talking with the [00:12:00] market, the contractors, the architects, architects to figure out how to best deliver the product.

[00:12:05] Jessica: So talking about getting creative. Heather, when we are talking about cost, Procurement strategies how we’re getting that value for these clients. What do you, what are you seeing in today’s volatile market?

[00:12:19] Heather: Yeah, Joe alluded to that somewhat, but getting out into the market, understanding the needs of subcontractors, contractors What can we work together on?

Is it a quicker turn on pay? If the university has that flexibility, is that something we can do? Are there different models as far as how you contract up the work? A lot of times these universities it is very important to have diversity in the subcontractor market, right?

Small business, minority owned businesses, and you can reach more of those. And if you have those quicker turns on payment or more [00:13:00] flexibility in how you can use them and how they can also find a benefit from working with you. So lots of different ways to go after it. Insurance structures, obviously that’s another one we look at.

Spoke about delivery methods a little bit. . Again, it’s knowing the market that’s out there and working with them to figure out the best way to get that scope accomplished and get the most for the dollar for the university.

[00:13:30] Jessica: So I know on the last episode we talked about contracts and how important those are in today’s world.

Are there things that you’re seeing on kind of this higher education? Level with contracts specifically that people should be really double checking, really keeping an eye on maybe something they would focus on a little bit more than before as it relates to higher education and contracts.

[00:13:57] Joe: So in higher [00:14:00] education, there’s state school versus private.

And there’s some requirements and different requirements in each state of how institutions contract work. I think looking at what is the best fit for what each institution is important. But insurance is a big one. Insurance provisions builders risk, especially if left up to the contractor, usually doesn’t cover soft costs or business interruption insurance, either adding that in or taking the insurance on for the institutions themselves. Owner provided insurance. I think liquidated damages as well with delays and in institution, is it football season? Is it basketball season? Is it the start of a semester to get a dorm done? schedule becomes critically important. So looking at scheduled provisions.

[00:14:52] Jessica: And that’s something we haven’t really talked about, is the importance of schedule when you’re dealing with this type of , [00:15:00] multi-use in use, facilities.

[00:15:02] Joe: Yeah, absolutely. Schedule drives a lot of different things. It drives cost as well, but also just impact to the university.

in operation all the time. So how do you do the work? And you have to be able to be predictable about when dates or when these buildings or projects are gonna come online. Meeting schedules, planning that out, the infrastructure tied in with those as well is hugely important for institutions. An I and an emphasis on schedule.

In all the contract provisions that relate to that is usually important.

[00:15:37] Jessica: With capital planning for these institutions in terms of prioritizing your investments, we’ve talked about of spending wisely. How are we doing that? What are we seeing? You were talking about decentralizing some things.

Are others being centralized or what are you seeing in terms of kind of those priorities and just really spending those dollars? They do have wisely?

[00:15:59] Joe: I think it’s [00:16:00] different for each institution. Each institution, you have to do an assessment of yourself meaning the institution or the university, where are they most lacking?

Where are they doing decently at and looking at. The budget. So where do you want to spend the money? And that’s gonna be different for each institution with an eye on student experience, whereas the most value for dollar not related to some of those subjects we talked about earlier of kind of waste contract or incentives you can provide and that sort of thing.

But as the institution itself, where are the priorities? Where are the deficiencies related to those priorities currently and where to spend the money because. , no one has an unlimited checkbook, at least that I’ve run across so far. And so it’s where is the most value and some things may have to be deferred or dropped off, but it’s where to spend the money that is the most value for that [00:17:00] institution specifically.

[00:17:02] Jessica: So before we close out, one question that just popped into my head, and it seems to be a topic that just doesn’t go away in our industry, and that is labor.

Heather, are you seeing a different scenario play out with these institutions in labor that we’ve been seeing across all other sectors and in construction, Or how is that playing out for these institutions this time that we’re the world we’re in this, these times we’re facing.

[00:17:29] Heather: Absolutely. The, talked a little bit about escalation. Obviously the second part to that is labor. And it impacts these types of projects just like it does others. But what you see a benefit to universities or an ability for them to connect with the city or the area around them, is to reach out to some of these smaller subcontractors.

Those might be small businesses, minority owned businesses. These universities and these types of institutions [00:18:00] typically are looking for that kind of partner. And it can be a benefit for the community as well as fill in some of those gaps that we’re having with the labor market.

[00:18:10] Joe: I think to add to that provides, and we’ve seen benefits to the university in multiple different ways. Yes, we’re engaging and the subcontractors and the n WBE subcontractors are engaging to execute a capital project. But that relationship with the university has so many spinoffs that are benefits to both those small businesses as well as the university itself, and really ties the university to the environment that it’s in which sometimes can get a little bit separated.

I think one other point I’d like to make, which is another reason why I mentioned the complexity earlier, but of why I personally like these projects and like the challenge. It’s also these institutions are viewed to long term. It’s a different [00:19:00] mindset. You’re able to explore ROIs that are 20, 40, 60 years.

So the view on sustainability, the view on environmental impact, you’re able to take a longer view because it’s not. Build it and roll out of it and sell it. It’s a build it for build it, live it. Yeah, build it, live it, build it for a higher purpose in higher education and for the long term. So it really changes your set of glasses you wear when you’re looking at what are we trying to achieve and what are the options and what can we bring to the table to achieve these things over a longer period of time and a longer point of view Interest.

[00:19:45] Jessica: Okay I don’t wanna keep you guys, but I think we’ve learned a lot. We’ve talked about several different topics that have been circling the media lately, so I wanted to make sure you had time to please dive into those topics. But once again, thank you guys and I hope I can sit [00:20:00] down with you again shortly.

[00:20:01] Joe: Thank you. Absolutely. Thank you.