ASPE Panel: Construction Demand Driving Prices Sky High

Credit: BEX

By Rebekah Morris for AZBEX

On Tuesday, October 19th, the Arizona Chapter of the Associated Society for Professional Estimators held its first-ever Construction Conditions Panel discussion to bring forward firsthand industry accounts across a broad perspective of manufacturers, materials suppliers, specialty and general contractors, along with an owner’s viewpoint. The panel dug into the nuances of current conditions, including skilled labor, cost of materials and labor, and ability to deliver projects.

The panel consisted of: Bill Smith, Senior Project Executive for Banner Health; Trevor Brown, Director of Preconstruction for Clayco Corporation; Rick Karber, President of Karber Corporation; Tom Van Ort, Senior Estimator/Preconstruction Manager of Suntec Concrete; Brad Blissit, President of Integrated Structural Concepts; Marc Reid, West Coast Sales for Canem Steel Corporation; and Moderator Rebekah Morris, President and Founder of BEX.

Starting the panel was a quick overview of the state of the market by Rebekah Morris. While construction activity has not yet reached the frenzied levels of 2005-2006, statewide construction volume has reached $18B and has seen 10%+ YOY increases since 2017. Industry employment, however, is still 26.68% shy of the 2007 peak level of 240K workers.

Cost of materials was a major theme of the discussion, with steel currently seeing the most dramatic spikes in the last few months. One slide illustrated a 300% increase since August of 2020. Lumber was the crazy commodity earlier in the year but has come down off its peak – down 200% from the high point, but still 100% above the ‘norm’ according to Blissit. Transportation costs have increased 40% as well since July of 2020, impacting nearly all construction materials.

Availability of materials was discussed in depth, with the panel noting the following:

  • Lumber mills are few and far between, causing pinch points;
  • Importing lumber from Canada is restricted due to government regulations and tariffs;
  • Resins that feed a plethora of construction materials are manufactured in only a couple plants, which were severely impacted with the January freeze in Texas and a hurricane in Louisiana;
  • Allocations across the board are restricting production, and
  • Imported materials are backed up due to supply chain issues.

Labor remains a challenge, but not just the skilled labor required to build. Labor shortages at manufacturing facilities, trucker shortages, and even shortages at design firms are creating ripple effects, slowing down the ability to deliver construction projects. All the panelists acknowledged the tight labor market. It was noted workers are able to demand extraordinarily high wages and jump ship easily to ‘the guy down the road’ who pays $1-$2/hour more.

Understating this impact, Trevor Brown and Brad Blissit went on to describe how they receive and handle calls and inquiries for projects that have poor quality documents and demonstrate a lack of thoughtful planning on the part of the Owner – they are declining to review or bid on them. While everyone on the panel gets excited about a great project opportunity coming their way, they all acknowledged the current market is driving down quality of planning and design efforts in much the same way construction quality declines when too many unskilled workers are on site without enough training and supervision.

Bill Smith with Banner Health provided the Owner’s perspective on every aspect of the discussion. Banner has been the largest player in the healthcare market sector for some time, and that does enable them to demand higher quality from their consultants and contractors. Despite this status, Smith acknowledged the market is forcing them to plan further out in order to get the highest quality teams under contract and to secure enough materials and labor to complete their projects. He is currently soliciting GCs for a project that will not break ground for at least 18-months in Northern Arizona.

Ending the panel was a discussion of how to handle the current market conditions. Some basics included: Working overtime, escalation contract clauses, increase wages, ordering materials earlier, proactive client communication, lease a warehouse to store materials and push more projects to use offsite manufacturing and prefabrication.

Some higher-level, more sophisticated concepts brought forward included:

  • Document and diligently defend why a previous bid was reasonable and how it is an extraordinary circumstance that could not have been predicted in order to justify an increase in contract price;
  • Wisdom and cooler heads prevailing – panelists were open about turning down significant work opportunities due to capacity and ability to execute well;
  • Negotiate contracts instead of using low bid, even adding a ‘below the line’ hold for materials escalation;
  • Studying significant design change ideas specifically to design into a system that is more available, e.g., panelized roof systems instead of joist & decking;
  • Train and invest in people, allowing enough time to adequately perform on project commitments, and
  • Outsource when possible.

While this is the first panel of its kind ASPE has put together, attendees seemed to be in agreement this sort of open dialogue and sharing of specific examples is needed in the industry.

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