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PCCA Journal|2 nd Quarter 2011 18

• Control Cost Content: Understand and forecast your cost content for both ma-terials and labor at the company and project level.

Create a full and complete under-standing of both, what and how much material, equipment, and labor you are or anticipate buying or using for projects or potential projects.

• Leverage Your Spend: Build closer relationships with your customers, distributers, and critical subcontrac-tors to jointly leverage your spend and mitigate or eliminate the risks all these stakeholders jointly face.

Building closer relationships offers the opportunity for all parties to achieve both higher value and risk reduction, primarily through higher-volume purchases that allow for leverage, pricing discounts, and the sourcing of alternative materials/ equipment to mitigate commod-ity risk. This type of collaborative relationship is one that few utility contractors have nourished with distributors or other stakeholders.

• Create Local Connections: “Think Globally and Act Locally.”

At the local level, where all con-struction takes place, contractors

must identify the labor resources, crew leaders, and trade subcontrac-tors who bring the tightest control of their labor and equipment to the jobsite. If these resources are external, it is critical to establish long-term, mutually beneficial relationships with them to drive performance improvement in the execution of construction. We refer to these more collaborative rela-tionships as an “Extended Enter-prise.” If they are internal, effective promotion, incentive compensation, recognition, and performance man-agement are necessities to motivate these individuals.

Looking beyond the tactical options available to the typical utility contrac-tor, understanding the global drivers of change is critical. One example is the perspective of the U.S.’s banker. While this writer places little faith that the Chinese governmental authorities have the best interests of the U.S. at heart, their perspectives on the quality of U.S. government debt are relevant as they are currently the largest debt holder. The Chinese ratings agency, Dagong, scorned quantitative easing as “a practice resem-bling drinking poison to quench thirst.... In essence the depreciation of the U.S.

dollar adopted by the U.S. govern-ment indicates that its solvency is on the brink of collapse.” 7 Federal reserve policy, industry regulation, financial and banking reform, and most importantly, a return to robust economic growth in the U.S. will all dictate whether the U.S. is consuming “poison” or nourishment. All in all, the quantitative easing policy is very complicated to explain, difficult to implement effectively, and speculative as there is only limited in-sight into the likelihood of the potential outcomes. Prudent contractors and owners will take action today and ensure they make a “stitch in time.”

Mark Bridgers is a principal with Con-tinuum Advisory Group, specializing in driving transformation of the capital construction process. He can be reached at (919) 345-0403 or mbridgers@ ContinuumAG.com.

NOTES

1. HyperInflation, Wikipedia, http:// en.wikipedia.org/wiki/Hyperinfla-tion, downloaded on January 2, 2011.

2. Bresciani-Turroni, Costantino, The Economics of Inflation, A Sir Halley Stewart Publication, 1931.

3. Eddings, Cordell, and Kruger, Daniel, Treasury Draws Negative Yield for First Time During TIPS Sale, Bloom-berg, October 25, 2010.

4. Swann, Christopher, and Crane, Agnes T., The Default Bet, New York Times, February 1, 2011, pg. B2.

5. The Economist, Buttonwood: Mate-rial Concerns, Commodity prices are surging at a very early state of the cycle, January 15, 2011, pg. 82.

6. Ibid.

7. LU, Sinan, and DU, Mingyan, Sur-veillance Report for Sovereign Credit Rating The United States of America, November, 2010, pg. 8

Quantitative Easing

Continued from page 17

Relative Certainties Relative Uncertainties

Increasing U.S. infation starting in 2012 Will 2012 yield job growth that drives down

unemployment? Volatile and rising construction commodity prices for 2011 and frst half of 2012

Can commercial properties secure refnancing in 2011-2014 and avoid a second foreclosure crisis? Devaluation of the U.S. dollar reducing the buying power of U.S. centric frms

Will a combination of U.S. defcits and debt unleash a disruptive impact on the economy or fnancial markets?

Lower U.S. fnancing cost during 2011 for qualifed utility contractors and their customers

Can utility contractors successfully mitigate signifcant commodity price increases via better contracting, internal process improvement, and material substitution?

Increasing fnancing cost in 2012 and 2013 in response to infation

How will regulation and energy efciency requirements afect design, construction, and life-cycle cost performance of utility assets? Increasing competition for U.S. frms for resources of all types from high growth economies of Brazil, China, India, and the Middle East

At what point will higher fnancing cost impact facility size, geographic location, and go/no go decisions strangling utility demand for capital asset construction? Very slow job growth in 2011 resulting in unemployment unlikely to fall below 8 percent

Will social and political disruptions result in more or less economic stability?

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