- Material prices are rising fast, with big increases in commodities and finished products made of metal.
- Contractors who work with low volumes of materials might find it better to follow good contracting practices rather than trying to outguess the markets.
- If you can get a handle on materials management by conserving, ordering, receiving and storing properly, you can cushion yourself from rising materials prices.
Construction materials prices are rising, and fast, for the first time in years. Lumber was up four percent in June along with a 2.2 percent increase in OSB prices. Engineering News Record reported that material prices were up 1.6 percent month over month in July, and 4.7 percent for the year. Residential materials prices have now been increasing for six months in a row.
In July, ENR’s Construction Cost Index posted a three percent increase over the previous year, and its Building Cost Index was up 3.3 percent. Meanwhile, tariffs increased aluminum prices 20 percent, followed by copper and brass mill shapes up by 17.5 percent and milled steel products up a little over 12 percent. Benchmark steel was up almost 40 percent in July over the first of the year, according to ENR’s second quarter cost report.
According to Ken Simonson, Associated General Contractors of America chief economist, the increases are outpacing what many contractors factored for their underway projects, causing their profits to shrink as they absorb the higher costs. Here are tactics for staying ahead of quickly rising materials costs.
Manage the Supply Chain
Whenever materials prices get volatile, the first response for contractors in need of large amounts of specific materials like steel is to review the supply chain for depth and breadth of availability.
Tariffs have added an element of confusion to that process, making it more important than ever to keep as many doors open as possible. What is more, relying on products coming from companies that have applied for tariff exclusions might backfire. Exclusions take a long time to process, and products competing with U.S. products are less likely to get excluded. There’s also likelihood that tariffs will get extended to fabricated imports that rely on the tariffed commodity.
Increases in prices of aluminum, copper, and steel are outpacing what many contractors factored for their underway projects.
For the long game, planning is one tactic for beating the rush, especially when it comes to prefabricated items that depend on commodities under tariff. Remember, though, producers of products that rely on tariffed commodities face the same price volatility as you. This makes it essential to consider tactics like informing the design-side of ways to avoid materials with extreme volatility, and keeping purchasing options open across more than just a few countries.
While contractors with smaller needs who purchase off their local markets will also feel the heat from tariffs and inflation, trying to out-maneuver the market could be confusing, and might even work against you. Pricing your work with the cost risks in mind, sharing the cost risk with clients and subs, and using contract language that allows project cost increases for rising materials prices are three tactics to help cushion projects against inflationary costs.
Many inputs are not directly consumed by the project. Gasoline, diesel fuel, framing braces, form stakes, concrete forms, and materials for temporary structures help build the project, but they don’t stay as a part of the finished product. Think carefully about ways to conserve these inputs to create a cushion for the price increases on materials you can’t anticipate. It all trickles down to the bottom line. This is especially true on projects underway where you didn’t have the option of planning for rapid price increases.Think about ways to conserve on certain project inputs like fuel, framing braces, and other temporary structures to create a cushion for other price increases you can't anticipate. Click To Tweet
Manage Materials Efficiently
Poor materials management saps costs in at least two ways. The first is when materials get wasted, lost, stolen, or damaged. The second cost is the time and money spent replacing them. In your planning, think about how you will move and stage materials. Consider on-site storage containers, off-site storage, or just-in-time delivery to protect your materials investments.
Part of managing materials efficiently includes inspecting them upon delivery. When they don’t meet quality standards or fulfill the specification, mark them for return. If you don’t, you’ll have to absorb that hundred board feet of warped lumber somewhere else down the line.
You should also investigate at the ordering stage. Reviewing requirements before placing the order can often prevent double ordering. Be careful of overlooking available materials on site that could fit the bill, and consider reclaiming used materials that can go on to serve the same or similar function elsewhere. While you’re at it, assess your theft risk and put systems in place to prevent it.
When you order materials for specific functions, you order certain sizes and lengths to reduce waste. You also spend much time making sure what you source fits the specifications. However, when people use the wrong item in the wrong place, all your planning to minimize waste is lost. Spend a little time with your team leaders and foremen to make sure they enforce the use of the correct right materials for the right job. Include steps in your processes to help people identify the right materials for the application, and confirm they’re using specified materials in the right places.