What Contractors Can Do About Construction Material Shortages and Price Increases
A perfect storm of sorts has created a construction material shortage, which has driven prices skyward. From lumber to vinyl, contractors are finding it difficult to find materials, and if they do find them, they’re having to pay much higher prices.
The storm that has created the shortage is made up of several parts: wildfires, COVID shutdowns, trapped homeowners, and a shortage of shipping options.
Wildfires in 2020 have greatly reduced the amount of lumber that is available for processing and finishing. This has created not only a shortage of materials but has also forced lumber and wood prices up 180%.
Factory and production facility shutdowns due to the pandemic have also led to a shortage of several types of materials. Many factories are working extended hours and added shifts to try to make up lost ground.
Homeowners trapped in their homes during stay-at-home orders have turned to remodeling projects to change things up and as an alternative to taking a vacation. Many homeowners found that their current living arrangement didn’t fit their needs for working and schooling at home, leading to an uptick in home remodel projects.
A shortage of trucks and shipping containers has further compounded the problem, causing transportation delays for construction materials.
From lumber to appliances, vinyl windows, copper, steel, light fixtures, and other building materials, contractors are having difficulty getting the materials they need when they need them.
What can contractors do
The current material shortages and price increases are expected to continue for the foreseeable future. Contractors need to change their purchasing habits so they can continue working and provide their customers with a quality experience. Here are some things contractors can do to mitigate the effects of the current material situation:
Increase prices
It sounds obvious but contractors need to raise the prices they are charging their clients. Contractors shouldn’t be expected to absorb these material price increases and delays without compensation. This can easily be done when bidding new projects, but the struggle comes with ongoing jobs that are already under contract.
The first step to raising your pricing on an ongoing project is to review your existing contract to see if there are any terms that prohibit requesting additional funds for price increases. Even if there are, you may be able to get around them due to the unprecedented nature of the pandemic. Consult with an attorney if you aren’t sure whether your contract allows you to ask for additional costs. Contractors should submit change order requests for the price difference and any schedule delays, providing evidence from your suppliers to back up the claim.
Extend schedules
Many contractors are suffering from delays due to material deliveries, which can impact schedule milestones and project completion. Contractors should let their customers know that there may be delays in receiving materials going forward, which could impact the overall project schedule.
Contractors on ongoing projects should communicate with their customers, submitting change orders or other schedule extension requests based on anticipated delivery dates. If your contract has liquidated damages, discuss with your client how to mitigate the effect to the schedule, and negotiate a fair compromise when it comes to the damages.
Maintain communication
All contractors need to communicate with their customers about potential production delays or price increases. Keeping your customers in the loop reduces the surprise they’ll feel when a price increase or schedule extension is requested. Communication is important on projects that are in progress and those that are just beginning. Contractors can work with their clients to come up with the best alternatives for their projects on a case-by-case basis.
Choose trade contractors early
General contractors and project owners can engage trade subcontractors earlier in the project to give them more time to order and receive the materials they need to complete their work. By using alternate project delivery methods, such as integrated design or design-build, subcontractors can be hired earlier, giving them more time to order materials before production starts. In traditional design-bid-build or hard bid projects, subcontractors are chosen just before a project starts, and delays in material production and shipping may have a profound effect on the scheduled completion time.
Expedite submittal review
By shortening the timeframe for approving product information, contractors can order materials earlier, which helps prevent potential delays from affecting the schedule. In commercial construction, submittal review can often take weeks, or more, to complete, depending on how many layers of approval a project has. By expediting the process, or starting sooner, teams can reduce delays caused by material production shortages.
Lock in production slots
Contractors can work closely with material suppliers and production facilities to lock in production slots for upcoming projects. By ensuring a production timeframe, potential delays are reduced. This may require contractors to issue purchase orders before submittal reviews and approvals are complete. Contractors should talk to their customers about the need for expedited review and how to best handle any changes in product selection.
Look at alternate materials
Contractors can ask their customers to consider alternative materials to reduce the potential for delay and reduce costs. For example, instead of lumber, an owner may consider concrete or masonry as an alternative for exterior wall structures. Selecting alternative materials may save customers time and money over standard materials that are in short supply.
Stock up now
Contractors can buy commonly used materials in larger quantities now to stock up for future projects. By purchasing materials now, contractors can save money over future price increases, as well as know they have the inventory to draw on for upcoming projects. If you don’t have storage capacity, look into temporarily renting a storage unit or warehouse space to hold materials until production and supply levels return to normal.
Escalation clause
Contractors should consider adding an escalation clause to any contract they sign going forward. These clauses allow the contractor to recover cost differences when they are increased significantly. The use of this clause can be tied to a delay in the project or when prices increase by a certain percentage.
Remuneration is usually based on the difference between the contractor’s budgeted cost and the actual cost. Contractors may have to provide proof to their customers, revealing their actual budgets and costs.
Communication and teamwork offer best hope
Although the current shortage of building materials has been frustrating for everyone in the industry, contractors do have some options to mitigate the effects. Communicating with customers and general contractors about the state of the supply chain is the best way to address the issue. Think outside the box to offer your customers alternatives to those materials that are in scarce supply. Contractors should not be shouldering the burden alone.
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