As I write this, the coronavirus pandemic continues to rage on with new variants emerging. National employment fluctuates and yet it is still a challenge to find people who want to work in the trades. Getting financing for projects is difficult. I am still on more Zoom calls than I prefer.
These are no doubt challenging times, but we have endured similar before. Here are a few signs we are seeing and some strategies to offset them.
Rising lumber costs have been a topic since this pandemic started a year ago and there is no sign of it changing. Framing composite materials are flat, sheathing components are still rising and OSB plywood is still hard to get. For larger jobs, with a significant lumber package, suppliers are recommending orders go in 60 days in advance not only due to costs to but to ensure there will be material available.
We are seeing costs go up across all scopes. Steel is rising. Acoustical tiles are up 10%.
There is a chance that prices will stabilize once production improves. There is no indication yet when that may occur.
It is not all bad news. The one thing we have noticed is the increased bid activity on all scopes, regardless of job size. Subcontractors are engaging us earlier in project cycles to be involved. This can indicate either the usual beginning of the year surge to feed the pipeline or there are underlying market conditions that are causing concern. It is most likely a blend of both.
Knowing these challenges facing the construction industry before you advance your project will help you prepare for a successful project negotiation or bid.
- Be prepared. With prices fluctuating, the quicker you can commit to a product, the better. If you are planning on several projects, it may be better to work with your supplier and buy it ahead of time if you can store it. Also, make sure your drawings and specifications are as accurate as possible before sending to market.
- Time is of the essence. While you may want a conceptual budget, it is best just to negotiate with your partner general contractor or put it out to bid. Subcontractors are trying to bid new work and perform well on the work they have. Under these conditions, they will not be able to devote resources to a budget exercise. Plus, with prices changing so rapidly, there is a good chance the budget numbers will not reflect the actual cost when it goes to bid. For projects that are bidding competitively, an effective strategy to mitigate the risks of rising costs is to award the contract within 30 days of bidding. This ensures that the prices used for bidding are still accurate.
- Be a team player. To combat the rising costs, some developers and owners have sped up their plans for new projects to minimize the impact of price increases. Creating a project team early in the process allows you to maximize efficiency and gain a greater insight into the market from the diverse perspectives of the project team. With the contractor, owner and architect working together, they can foresee material cost fluctuations, evaluate subcontractor work load in the market, and explore different techniques to reduce costs. When the team approach is coupled with a design build or negotiated contracted to get to market faster, savings become evident. This is the most effective way to get competitive pricing from subcontractors and to save costs for the duration, since negotiated projects are often completed earlier.
Overall, these strategies, combined with careful planning, the right team of professionals and an effective delivery method, can help combat these rising costs regardless of the project’s scope or location.