It’s official, there is a worldwide shortage of many construction materials, causing prices to escalate and projects to be delayed. While this may not be breaking news to contractors, the continuing shortage has started to have a real effect throughout the industry. So much so, that thieves are now targeting lumber on job sites!
In an AGC survey taken in February and March 2021, over 50% of member contractors reported a delay due to shortages of equipment, parts, or materials. Ken Simonson, AGC chief economist, said that the “survey results show that escalating materials costs and lengthening delivery times are making life difficult for contractors and their customers.” He added that owners and contractors should continue to anticipate that project costs will go up and delays will continue.
Jerry Howard, the CEO of the National Home Builders Association, recently told NBC that if lumber prices continue to climb, “you will see the homebuilding sector slow down and grind to a halt.”
The materials most impacted by the shortages and price increases in the US are lumber, steel, insulation, and PVC. But the US isn’t alone, as the UK is experiencing similar problems with lumber, cement, steel, and plastics.
The UK trade association British Electrotechnical and Allied Manufacturers Association (BEAMA) stated that a dramatic reduction in steel production in early 2020 had caused a worldwide shortage. Output started increasing in mid-2020 but is still catching up. The association said that the “availability of steel remains problematic,” and is set to be a problem for months.
The cost of lumber alone has priced many home improvement projects out of people’s budgets. The cost of a new home has risen $36,000 just because of the rise in lumber. Lumber future prices on the Chicago Mercantile Exchange surged above $1,500 per thousand board feet in mid-May. That’s a 300% rise from the same time last year.
Why are there shortages?
The shortages were created by a perfect storm of conditions, mostly caused by the COVID pandemic.
There’s a backlog of materials waiting to be shipped to job sites and distributors, but it can’t get anywhere because there are no trucks or truck drivers to move the materials. The lack of drivers and shipping containers is creating a real crunch and causing delays in material deliveries that are impacting project completion timelines.
There has also been an increase in demand for construction materials, especially in the residential sector. Homeowners stuck at home with nowhere to go have decided to remodel or renovate to meet the changing needs of working at home and homeschooling. As businesses start to reopen, commercial construction is also expected to continue to increase, as it has been over the last few months.
Since most construction was considered an essential service, the industry never completely shut down, although parts of it were affected by localized outbreaks. Manufacturers were forced to shut down during local stay-at-home orders or if the workplace was affected by an outbreak. This has led to a shortage in backstock material, creating higher prices.
What contractors can do
Many of the shortages are beginning to work themselves out, as lockdowns are lifted and people are returning to work. However, many believe that delays and higher prices may continue for several months as the industry and businesses that support it get back to normal.
Here are some things that contractors can do to proactively address material shortages on their projects.
1. Look for material alternatives
Identifying possible alternatives can help keep work flowing. Contractors can approach project owners and designers about using alternative materials in place of those that are in short supply. Many alternatives are similar in quality and price and may not be affected as much. For example, in place of lumber or steel, contractors can suggest concrete or masonry for structural components.
2. Stock up
It may be beneficial for contractors to order materials they use often in larger quantities, to have more stock for future work. Since prices are forecasted to continue going up, purchasing at today’s prices is essentially an investment. If contractors don’t have room to store additional materials, renting temporary storage facilities or warehouses to keep the materials protected and safe is good option.
3. Lock in production
Contractors should be looking to lock in production slots with manufacturers as soon as possible. This may mean ordering materials or equipment ahead of schedule to guarantee the production time. Expediting the ordering process will require cooperation from the design team and project owners to review and approve submittals quickly.
4. Expedite submittal review
In order to place orders as quickly as possible to meet project schedules, project teams may need to expedite the submittal review process. Collaborative platforms that allow several team members to view documents simultaneously can help speed up this process. Contractors should remind owners and designers of the consequences of delaying approval and the effect it will have on the project schedule.
Contractors need to make sure clients, general contractors, designers, and project owners are aware of the effects of the material shortages on specific projects. If everyone is aware of the situation, they can work together to come up with solutions to mitigate effects on the project. Open and honest communication is can help the flow of information and allow planning to proceed more smoothly.
6. Review contract terms
Contractors should review all their contracts, for current and future projects, to see how potential delays and added costs should be handled on each project. Some contracts have an escalation clause that allows contractors to request a price increase when material cost increases reach a certain threshold. Contractors will also need to know what costs they can recoup if the project is delayed due to material shortages. Changes in price and schedule can be addressed through a change order request on current projects once the impacts are quantified.
Material shortages may be here for a while, so contractors need to adapt to avoid losing work. By looking for alternatives, stocking up on materials now, expediting submittal reviews to lock in production slots, and increasing communication with customers and GCs, contractors can proactively address the current situation and we can all hope that things will return to normal as quickly as possible.