The level of construction activity nationwide slowed signifi cantly in the fi rst quarter of 2007, representing, for much of the country, a reduction from the extremely high growth rates seen in 2005 and 2006 and a return to a more stable and sustainable rate of growth. In other areas, however, most notably the northeast and central states, it was enough to tip the regions into flat or negative growth. This reduction in the level of activity increased the divide between the two distinctly different segments of the US construction market: the areas with strong activity, and demand-led infl ation, and the areas with weak markets, and cost-led infl ation.

Overall, escalation and bid volatility remain serious concerns in the construction market nationally, although there are indications of a cooling in infl ation, and a reduction in the degree of volatility in pricing in most areas, particularly in the weaker markets and in smaller and less complex projects.

For the remainder of 2007, we anticipate that escalation will continue to be a major concern, but at a reduced level from the past two to three years. Material prices are beginning to stabilize, and in some cases fall. In addition, it appears that the extreme volatility in commodities and strategic materials is beginning to abate, reducing the pricing uncertainty for bidders. It will, however, take a long time for price stability to develop into long term confi dence.