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The Cause and Effect of Construction Material Shortages and Price Increases

The Associated General Contractors (AGC) published its latest Construction Inflation Alert that offers insight on the most recent construction material shortages and price increases. There’s a lot to unpack in the edition, so we’ve highlighted some of the most important key points for you.

Seismic Pricing Fluctuations

This isn’t the first time that the construction industry has faced rapid material shortages and increased costs. In 2004, materials rose from 3.6% to 10.0% and “remained above a 5% annual rate for a total of 31 months, before subsiding to a 3.2% rate in October 2006.” Other dramatic increases came in 2008 and 2017, however, COVID-19, natural disasters, and transportation issues have caused the most significant disruptions.

From May 2020 to May 2021, the price of:

  • materials and services used in construction skyrocketed 24.3%.
  • lumber and plywood rose 111%.
  • steel mill products climbed 76%.

While some material prices have come down since mid-May, they are still higher than what prices were a year ago.

If Only Construction Projects Were Like Buying a Car

When you buy a car, the cost to build it is already factored into the total price. In construction, the cost of work isn’t realized until after material purchases are made or the work is completed. This presents a huge risk to commercial general contractors and business owners, especially when large material price increases happen after committing to a project.

If you are an owner considering a new build, addition, or renovation, here are some things to keep in mind:

  • reserve funds for additions or modifications to your project’s scope of work to mitigate risk. This can be accomplished through an owner contingency fund.
  • ask your GC about an early procurement strategy for materials such as structural steel, reinforcing, and roofing.
  • be mindful of oil prices as oil and its by-products are used in manufacturing steel, PVC pipe, roofing material, and more. When oil prices go up, so do materials and the cost to transport them.

While we cannot control the global supply chain, we can ensure your experience remains positive through open, honest, and transparent communication. Our team strives to keep clients informed of fluctuations in pricing due to forces beyond our control.

If you have any questions on how today’s pricing fluctuations might impact your project, feel free to contact us using the form below.

To read AGC’s report, click here.

The post The Cause and Effect of Construction Material Shortages and Price Increases appeared first on Bush Construction.

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