Karl Ginand, Timberline’s Executive Vice President of Preconstruction & Estimating, shares his thoughts on the shifting cost environment.
Where are we compared to this time around last year?
Most professionals in the industry, myself included, were hopeful that the rising construction costs we started to see in 2021 would have leveled by now. Unfortunately, we’re not there yet. Inflation is at a 40-year high and costs have only continued to escalate as supply remains limited. To put it in perspective: Engineering News Records showed a 13.6% rise in Boston construction costs from September 2020 to September 2021. Since then, we’ve seen a 13% rise to date. Whereas before we primarily saw impacts in HVAC equipment, lumber and steel, now we are seeing longer lead times and cost creep for roofing materials, doors, light fixtures and all kinds of electrical equipment. It’s widespread.
What can we do about it?
Fortunately, it’s not all doom and gloom. One thing working in our favor since last year has been an overall increased awareness of supply chain issues. With everyone being more informed, we are receiving more realistic bid pricing from subcontractors that account for the rising cost of materials, labor and fuel. We’re also communicating with manufacturers directly to better understand the issues they face, so we can readily anticipate and prepare for the impact.
Early planning and communication have always been key to keeping our projects running smoothly, especially during uncertain times. Having a solid procurement strategy has been critical in ensuring project materials are ordered on time and is key to keeping our clients informed of potential increases in product cost. If you’re curious how this works in action, here are 5 steps Timberline uses in our procurement plan to stay ahead of the curve:
- Decide what materials/equipment will need to be pre-purchased either because of lead time issues or because of the potential for price volatility.
- Determine how much the owner is willing to commit before finalizing the design and final cost.
- Create a plan that allows for the pre-purchase of materials/equipment and meets the owner’s ability/desire to commit.
- Categorize the risks with pre-purchasing materials/equipment before design completion or final cost determination.
- Identify the commitment schedule that the vendor/manufacturer will require and create a timeline/commitment schedule (often equipment can be purchased with staggered commitments).
Our project teams have also come up with their own creative solutions to fight back against material shortages and rising costs. For example, finding interim storage space to take in project deliveries early. In some cases, securing materials ahead of when needed (even if it means paying extra for additional storage) is worth the certainty of guaranteed supply. As prices continue to rise, getting in items as early as possible can alleviate any further cost escalation.
While inflation is showing no signs of slowing down, with more information in our back pocket Timberline is in a better position to mitigate risk for our clients now more than ever. By planning early, offering alternative solutions and keeping an open line of communication with subcontractors, manufacturers and our clients we will continue to ride this wave together.
Please feel free to contact Karl with any budgeting or preconstruction questions.