2001 Plant Construction Survey

March 22, 2003
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Designers and builders refine their project delivery methods in order to better serve food industry clients



History may have turned a page with the millennium's dawning, but the story remained much the same for food companies undertaking plant construction projects last year: build it fast, build it cheap and build it well.

There were a few notable plot twists, however. While food companies still found much to like about the design/build method of delivering their facilities -- notably speed, economy and single source responsibility -- they also began rethinking the structure of such arrangements, which have traditionally relied upon the general contractor to lead both the design and construction effort. "Owners are seeing time advantages to traditional contractor-led design/build, but they are also seeing lower quality/cost ratios," observed Joe A. Shaffer, president of Columbia, Pa.-based engineer Facilities Design Inc., a designer of dairy plants, among other project types. "Too often, everyone homes in on the contractor's guaranteed maximum price when the issue should be the absolute best price based on quality."

The result, Shaffer said, is "a fast-growing trend to go with engineer-led design/build in order to raise quality cost/ratios." He noted that his own design firm added construction expertise to its ranks three years ago and spun off its expanded capabilities into a separate corporate entity. "We're about to break ground on our fourth project," he said. "We're doing well." He acknowledged that a number of owners still adhere to the more common design/build paradigm, with the builder contracting for the services of an outside design firm and the two entities functioning as a single entity.

Among other benefits, uniting the contractor and designer under a single contractual umbrella promotes a non-adversarial relationship between the two parties. With both on board from the project's inception, they can also address cost and constructability issues at each juncture of design, thereby ensuring more cost-efficient plans and an early jump on construction, particularly for activities such as demolition, excavation, foundation work and erection of structural components.

This "fast-track" approach is particularly appealing to food companies anxious to bring new products to market, according to Tom Dennis, president of the Dennis Group, a Springfield, Mass.-based engineering and construction management firm specializing in pasta, soup, meat, beverage and packaged salad plants. And, of course, it doesn't hurt that an expedited construction schedule often translates into a less costly project.

More or fewer change orders?

Besides promoting an earlier groundbreaking, design/build projects are also less prone to change orders, proponents say, since the contractor presumably has participated in the selection of products and systems throughout the design phase. Others have argued the opposite: Because early contractor involvement all but guarantees that the project will break ground before design work is completed, change orders are more -- rather than less -- likely to occur.

Less debatable is that change orders -- particularly those that occur at the eleventh hour -- can send costly ripples through projects as complex and demanding as food plants. In light of this complexity, the concept of design/build is being stretched to encompass a broader spectrum of services and practices, according to Darryl Wernimont, director of business development with the Haskell Co., a Jacksonville, Fla.-based design/builder of bakery, beverage and snack food plants with both design and construction expertise in house. "The food industry is now seeing the benefit of adding supply chain analysis, real estate acquisition and process design/procurement/commissioning to the single-source scope," he explained.

Many design and construction firms have expanded the scope of their in-house expertise to provide these and related pre- and post-occupancy activities. This restructuring comes at a time when many food companies are thinning the ranks of their operations and maintenance staffs to reduce overhead, and designers and builders are all to happy to pick up the slack in the areas of facilities engineering and management, property management, equipment and plant training, furniture procurement -- even sales/ leaseback arrangements in which the designer or builder provide financing for the facility, and establish lease terms for the client/occupant. Under such arrangements, the rent essentially goes towards paying for the facility, with the occupant ultimately assuming ownership of the facility once the lease expires.

As designers and builders assume responsibility for many tasks formerly performed in-house, the benefit to the food processor is a reduced labor force and, hence, reduced operations costs. For their part, design and construction firms view these services as a natural extension of their core practices and a means of diversifying -- the better to buffer themselves from the cyclical downturns in manufacturing construction.

A construction slowdown

Their concerns are timely, since there is rampant speculation that construction activity in the food sector will begin to slow soon if, in fact, it hasn't already. Respondents to Food Engineering's 24th Annual New Plant Construction Survey -- the majority of them design and construction firms -- reported a total of 627 food plants planned, built or renovated in the last year -- a 15 percent decline from survey results of the previous year. Industry consolidations, a slowing economy and uncertainty over the direction of a new White House administration have all, apparently, played a part in the decline. So, too, have other factors. "Interest rates are high," said Shaffer. "That means many capital expenditures, including construction, are being put on hold. A lot of food companies are talking about projects, but they haven't quite commited to funding them." He added that food plant projects customarily account for two-thirds of his company's volume, and that business has been off since the last quarter of 2000. "We'd like to think it will pick up this year," he said, "but at this point, no one is sure."

More certain is that projects receiving the green light will likely involve renovations or expansions rather than new construction. According to FE survey results, such projects once again far outnumbered greenfield projects. And with good reason. "Historically, the food industry has not grown explosively," explained Mark E. Redmond, president of Cincinnati-based architect/engineer Hendon & Redmond, Inc., a designer of meat, bakery, produce and dairy plants. "Hence, the need to add production capacity is usually done incrementally."

"Renovations and expansions enable processors to respond to the market faster, and with incremental investments in capital," agreed Mike Steur, director of client development with Cincinnati-based architect/engineer Hixon, which specializes in dairy, meat and frozen food plants. "Greenfield projects represent a much larger investment with greater risk. Will the company actually generate the volume necessary to support the new plant? How will an unknown workforce perform? Will projected productivity rates be achieved?" However, Wernimont reminded that renovation projects can likewise be iffy propositions, particularly if the modifications and enhancements won't accommodate anticipated production and technology demands beyond the short term.

While most food companies expand or renovate to accommodate the growth of their product lines, Wernimont noted that a number of other variables are also currently driving such projects. Among them, he said, are production enhancements that provide quieter, safer, faster and more accurate production lines; new or alternative packaging types such as PET, pouches, extended shelf life and hot fill; and new technologies, aimed at improving food safety (irradiation, high pressure, aseptics).

The recent spate of industry mergers and acquisitions is also prompting renovations and expansions, added Wernimont, who explained that as newly joined companies consolidate products and personnel, "older facilities become obsolete and newer facilities expand or renovate to accommodate the merging of products." Jim Thonn, vice president of food sales for Suitt Construction Company, a Greenville, S.C.-based builder of snack food, poultry, salad dressing and dairy plants, agreed, noting, "The year 2000 saw a large number of major acquisitions in the food and beverage industry. The short term will see these acquiring companies merging new facilities with their own -- streamlining their operations and taking advantage of synergies in production technologies and geographic locations. For the short term, there will likely be a limited number of plant closings and a great deal of consolidation."

Spotlight on HACCP

Two other phenomena are driving construction projects of all kinds: the industry's current emphasis on automation and food safety. "Food processors are investing in systems and controls that provide more information about their operations and the cost of producing products so that they can make faster - and better decisions," Steur said.

However, far greater numbers of survey respondents weighed in on how HACCP and other food safety initiatives are reshaping the design of food plants. "The decision process to upgrade aging facilities has been expedited by HACCP and the news media's increased attention on food safety issues," Redmond observed. One result is that "HACCP initiatives have expanded the lines of communication between the client and design/construction team," added Wernimont, explaining that "an understanding of the client's critical control points often has an impact on material selection, finishes, accessibility and facility layout. The more we understand the client's needs, the better off we are in providing the proper structure and layout."

While any number of process innovations can impact facility design, the spotlight is currently on irradiation. "We can expect similar interest from pulsed energy, microwave and ultra-high pressure," Wernimont predicted. Meanwhile, many clients are only in the beginning stages of evaluating irradiation -- not surprising, considering the technology is only in its infancy in the U.S. Given the uncertainty about how the technology will ultimately evolve -- where it will be used, the size of its components, its production speeds and efficiencies -- processors who are only considering it would do well to consult with their designer or builder on the matter if they also happen to be contemplating a greenfield project. "That will help ensure that the design provides the flexibility to accommodate change as the technology evolves," Wernimont said.

FE's Plant Construction Survey results are compiled from several sources, including Conway Data of Norcross, Ga.; FE's own survey of architectural, engineering and construction firms serving the food industry; state economic development centers; and corporate financial reports; interviews; news releases and clippings.

SIDEBAR

What impact are regulations having on construction?

"We are providing flexibility in several of our designs to permit future X-ray or gamma irradiation operations."
Tony Pitrone, Vice President, The Facility Group

"An understanding of the client's critical control points [in HACCP] can impact material selection, finishes, accessibility and layout. The more we understand the client's needs, the better off we are in providing the proper structure and layout."
Darryl Wernimont, The Haskell Company

Why are renovations outnumbering greenfield projects?

"Cost. Cost. Cost. A well-chosen existing building costs much less."
Tom Dennis, The Dennis Group

"The U.S. has held zero population growth for two decades now...Existing capacity, for the most part, has not reached the end of its useful life."
Jim Thonn, Vice President, Suitt Construction Co.

"Renovations and expansions enable processors to respond to the market faster, and with incremental investments in capital."
Mike Steur, Director of Client Development, Hixon

Trends in construction

"More money than ever is being spent on automation."
Scott Pribula, Vice President, Stahlman Engineering Corp.

"Owners are requesting more accountability from a single source."
Fran Skwira, General Manager, EZM, Inc.

"Clients are increasingly concerned with how facility layout and design affect food safety. The Mega Reg has had a lot to do with this, and so has the media's coverage of food safety issues."
Mark E. Redmond, President, Hendon & Redmond, Inc.

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