Managing Rising Construction Costs 04/29/21
Most of us in the construction industry have seen the not so funny memes about the soaring prices of lumber but all jokes aside the rapid rise of the cost of construction materials has been driving up overall construction costs and at times slowing projects. In an ongoing survey conducted by the National Multifamily Housing Council, 93% of respondents saw a hike in construction material costs during February 2021 up from 82% in October 2020. Lumber and steel costs have been the most volatile with the Associated General Contractors tracking a 62% increase in plywood and lumber and a 20% jump on steel products from April 2020 to February 2021. On a stick-built project, these hikes have a significant impact on the overall pricing. Due to the record high pricing, many distributors of construction materials across all trades are not honoring price quotes for more than 24 hours due to the volatility in the supply chains.
While Boston’s local CRE market has remained fairly stable throughout the pandemic, developers, contractors, and their subs should not overlook the gravity of these price increases and if members of a project team are not planning for the price issues of 2021, there can be serious consequences. Owners relying on contractors and sub-contractors to handle the issue could face significant change orders and even run into potential work stoppages. If contractors and subcontractors look to owners to pay whatever increases come their way the contractor may be sorely mistaken when they are over budget and stuck in the red at the completion phases of the project. With a record jump of 12.9% in the cost of construction goods since March 2020, it is incumbent upon project teams to put procedures in place to deal with these rising costs.
To deal with these steep price jumps Hemenway Construction, a local general contractor specializing in renovations and new construction multifamily projects, works to provide each client with open transparent materials take-offs and estimated costs for the project for each line item of each construction trade. For any items where the GC is seeing volatility, which right now is almost all of them, the Hemenway Team separates out a contingency allowance for potential increases in materials. These are then presented to the clients for review and approval prior to any agreements being made. Hemenway keeps in close contact with their strategic partners, sub-contractors and vendors, to stay on top of what news is coming in from the supply chains to ensure these allowances are as realistic as possible given the ever-changing conditions in the market. Their goal is to create enough of a buffer so that the client’s expectations are reasonable. When the materials are ordered and arrive at the site all invoices are carefully checked against the estimates and differences are submitted to the client for a charge against the pre-established allowances. Hemenway will only charge clients for the actual increase, nothing more. This approach allows clients to make detailed risk assessments on their investments and determine how to best move forward with construction design and production.
Through this open and transparent communication process, Hemenway has managed to move several projects, including a multifamily development on Lubec Street in East Boston, to groundbreaking in the past few months. With supply chains still adjusting from COVID-related delays, and many developers reevaluating projects put on hold due to the pandemic, construction project teams will need to continue to discuss supply pricing and adjust plans accordingly now and into the foreseeable future.
Contributor Bio
Hemenway Construction Management has been developed as a new and up-and-coming general contracting and full-service construction management company for the 21st century. We strive to provide “back to basics” service with a modern sustainable platform. The combination of innovative research, cooperation with local, state, and federal organizations and programs, and willingness to stay on the cutting edge with the latest in software and integration, separates Hemenway from other companies in the industry.
Hemenway Construction Management >>