Inflation and supply chain disruptions are plaguing every economic sector and the construction industry is hardly immune. During the past 12 months, the aggregate price of inputs in construction climbed nearly 21%.
The most headline-grabbing instance was a softwood lumber surge of nearly 150% between February 2020 and March 2021 (prices have since somewhat stabilized). The cost of moving materials is also under extreme inflationary pressures.
For example, transporting raw materials by sea is up 1,150% compared to February 2020. The sad fact is that everything is more expensive. Root causes of inflation are complicated, but a lot of blame can be placed on the disrupted supply chain caused by COVID. These disruptions don’t just affect cost; they also affect material availability, which in-turn leads to delays on construction projects.
Despite this, as the saying goes, “the show must go on.” Many businesses and institutions still need to build. If you are one of these, what can you do to help mitigate the rising costs and long lead times related to the lack of material availability? What can architects do to help? What are contractors like Ramsons doing to help manage the new normal?
What owners can do:
Hire Your Contractor as Early as Possible
There have always been benefits associated with early contractor procurement. In these uncertain times, those benefits are heightened. For example, when you team up with Ramsons we’ll provide estimating and preconstruction services that provide itemized realistic budgets from the earliest onset of a project. In uncertain times being certain of your budget is of utmost importance. Teaming up early with a contractor experienced in pre-construction will pay dividends.
In addition to providing estimating services, a good contractor will also provide alternatives and options through the value engineering process. Value engineering (VE) is standard practice for modern general contractors, but now VE efforts are also focusing on material availability, not just front end vs. long-term costs. In times of market instability, it is important to be flexible and open to other options. For example, a competitor recommended that his client change from a metal building to a block building for their maintenance facility. The metal building was cheaper, but concrete block was actually available and the lead time for metal buildings at the time was significant. After accounting for the lost revenue associated with the longer schedule, it actually made more financial sense to use concrete block.
What architects can do:
Question design assumptions
On one of our recent industrial projects, the schematic design called for 35’ eve heights. The building was concrete tilt-up and naturally higher eves meant taller panels. At Ramsons we have a habit of asking “why” and in this example, it paid off. Why use 35’ eve heights? The design team was matching the existing facility. But the team had a design review and we learned that the racks were never going to go above 15’. And the material stored on the racks was never going to be any higher than 4’. So, the team decided on a 24’ eve height. This naturally reduced the size (and therefore expense) of the concrete tilt walls. Good contractors and good architects should check assumptions during the early phase regardless of the economic situation. But it is more important now more than ever given current market instability.
Quickly turn shop drawings and communicate with the contactor
When the market is unstable and lead times become unpredictable, it’s important to lock costs in as quickly as possible. This means quickly turning shop drawings and submittals. Architects should work directly with the contractor and ask “when do you need these back in order to maintain price and manufacturing position?”
Be flexible but work with the owner; don’t sacrifice critical design elements
It is important to be flexible and to take lead time seriously. But that doesn’t have to mean eliminating important design elements. Remember, the owner has to live in the facility for a while. Be thoughtful of the full design intent; some things are worth waiting for. However, have the flexibility to change when it makes sense.
What Ramsons is doing:
We are in regular communication with suppliers
We keep our finger on the market’s pulse. We regularly talk to suppliers about upcoming price increases and items facing a longer lead time. This allows us to create accurate budgets and lead time forecasts.
Carry a larger contingency; but one based on data, not fear
When setting budgets, it’s important to accept the reality of the market. Since budgets are often established with very limited information, it’s important to carry a contingency. This has always been the case. We carry specific contingencies at each phase of the design. In order to account for inflation, we adjust our contingency based on the rate of inflation. We feel that a data-driven approach is better than just artificially increasing a number based on fear.
Use storage and order material ahead of price increases
Ramsons has invested in outdoor storage, covered storage, enclosed storage and conditioned storage. This allows us to pull the trigger early and avoid material delays and pending price increases. We are also buying and stocking common inventory during pricing dips and passing these cost savings on to our clients.
Ramsons is doubling down on diligently locking in prices. We aren’t waiting on contracts to issue purchase orders and contracts. Instead, we’re pushing paper on notices to proceed. The key to managing an unstable market is locking in the best price as quickly as possible.
Research and present alternatives
Can’t get product X, but product Y is available. That’s become all too common with the disrupted supply chain. Our team has responded by researching all the “product Ys” that are out there.
Communication is the most important thing in times like these.
In conclusion, while inflation and supply chain disruptions are a reality and not going anywhere soon, owners, architects and contractors are not helpless in our ability to offset inflationary effects. By simply being more proactive, flexible and working to improve communication, we can still thrive in this “new normal.”