Contractors are feeling the heat as the cost and availability of construction materials escalate. As contractors face unprecedented challenges, they all want to know how everyone else is dealing with this crisis. Material costs at this time show no sign of slowing down for at least another year.
An article in Construction Dive states that the COVID pandemic disruptions devastated global production and supply chains; but these are not the only factors that are causing prices to escalate. Other factors include:
- China's new emissions-reducing limits on metal production
- Factory closures throughout Asia
- A disruptive winter storm in Texas
- A natural gas shortage in Europe
- Global transport problems
- Labor shortages
"Contractors have the most difficult job in America today because every decision is fraught with risk and uncertainty. Material costs will continue to soar well into next year."
Chief Economist for Associated Builders & Contractors | Anirban Basu
Construction firms that are really feeling the heat are ones that locked into contracts based on 2020 and pre-2020 prices.
"We are seeing many projects right now trending over budget. Everything costs more - if you can get it. There are certain air-conditioning units that, I don't care if you have millions to offer, you can't get. These are things you can't overcome. Flexibility is critical to overcoming these challenges. Partnerships are more important now than they ever were before. In the preconstruction relationship, we can come up with fresh new ideas that don't necessarily compromise the job but allow you to crunch the math several different ways to come up with alternatives."
Director of Preconstruction Services for PCL Construction/Orlando FL | Donny Smith
Contractors are doing whatever they can to cope and are finding unique ways to keep their projects moving. Over the past six months, PCL helped one client slash costs by suggesting a shared fitness facility for two buildings instead of two separate gyms and helped another eliminate two floors of a downtown Orlando high-rise by incorporating micro-apartments.
Communication and transparency between contractors, subcontractors and clients is now CRITICAL.
"Contractors need to get multiple perspectives by talking constantly with subs and keeping up with construction news so they have all the information they need to create relief valves and course corrections well before high costs or lack of materials cause delays. It's not just about spending more money. The solution is more work."
Chief Estimator for BOND Building Construction | Justin Aubuchon
According to Globe St, when it comes to inflation supply chain management and rising materials prices in the construction industry, many agree that the repercussions of what has been seen over the past two years could be long-lasting, reports Fixr, according to a survey of 100 construction firms in September.
Sarabeth South, home design expert for Fixr.com stated that given the labor shortages, she predicts that the biggest cost increase in the future will be labor, rather than materials.
Both homebuilders and homebuyers are facing unprecedented price increases in building materials as one of the many ramifications of the pandemic. Hopefully, the next few months will shed some light on what we can expect for building projects moving forward.
No. 2 diesel fuel and particleboard and fiberboard products increased the most from their lowest to highest point during this time frame by 201.02% and 190.30%, respectively.
Both lumber and plywood increased over 100% in the same tie frame (121.08% and 139.89%, respectively). Other notable materials that saw high increases were steel mill products (123.14%) and copper wire and cable (101.05%).
Diesel fuel's use in the construction industry is predominantly tied to transportation. This includes the transportation of other materials to lumber yards, suppliers and job sites. This fuel is also used to power heavy equipment, such as excavators and bulldozers, making it more expensive to run these machines.
Homebuilders have taken a multi-prong approach to dealing with the building material price increases. Here is a breakdown of how they are dealing with this:
- The majority of homebuilders surveyed said that the main way they are coping with higher costs is by increasing their prices to cover it; 66% of respondents revealed they have raised their prices accordingly.
- Some construction professionals say they are using alternative materials (23%). This way they can do the same job but at a more acceptable price.
- Some are reducing their waste of materials to maximize the bang they get for their buck. (23%).
- Some are including price escalation clauses in a fixed-price contract. One fifth have introduced these clauses to deal with the price hikes of materials. While this may protect them from rising prices, it could also lead to lost contracts if homeowners are not will to take on the risk of a potential price change mid-project.
- 18% said they are optimizing designs to use fewer materials. Some are pre-ordering and paying for lumber at today's price, in the fear that it will rise higher at a later time.
- Many are opting to secure price guarantees from their suppliers for a period of time.
- 15 % have cancelled or postponed projects as a way of dealing with this issue.
- 12% have opted for using advanced technologies.
- 8% revealed they have had to lay off staff.
Construction Dive reports that Anirba Basu stated that partnership at all levels is the key to success in these times. He believes that we have had this dividing line between project owners and general contractors and another line between general contractors and subs. This has to be one happy family. Everyone has similar challenges and everyone has the same objective. It makes sense to have some risk-sharing moving forward. Having a good attorney is a really good idea at a volatile time like this.
Many contractors were unfamiliar with material price-escalation clauses which allow construction firms to pass on a percentage of procurement price increases to owners so they can build smaller contingencies into their bids and also give owners an opportunity to share in savings if prices drop. These clauses specifically address volatile price increases as opposed to force majeure clauses, which excuse parties from contractual obligations due to catastrophic or unforeseen events but may include only time extensions, not monetary relief.
Editor's note: This is, indeed, a confusing time for the construction industry. DataBid is working tirelessly to report and distill the news that can help you and your company make the right decisions and keep you up to date on the constant changes as they are made. We hope our coverage brings some clarity amid all the confusion.
