“Rising inflation exacerbates already high prices caused by supply chain issues,” said Scott Kincaid, owner and project manager of Facility Development Company, a general contractor and construction management firm in Santa Rosa. “Combining this with fuel surcharges or minimum charges for site visits are also putting upward pressure on wages, which at some point in time will result in layoffs.”
He observed that higher interest rates, coupled with long lead procurement of materials, equals more front-loaded financial commitments and higher interest costs for each project. At the same time, long lead items are causing delayed starts on construction projects.
An example would be a project with a nine-month physical construction timeframe, but the electrical, lighting and windows for the project require 12-month order lead times. This results in clients having to make sacrifices on product choices to avoid further delays by adopting a take-what-you-can-get approach.
Kincaid declined to reveal them, but said he surveyed several suppliers and subcontractors to get their take on the extent of industry supply chain delays. They replied under the condition of anonymity offering the following:
- Some firms require a minimum of three weeks for initial architectural design work, 3 weeks for each revision, and based on job size, followed by about 34 weeks for fabrication work based on their designs.
- “We bought joists for $1,200 a ton, now they’re $5,000 a ton and lead times are roughly 12 month from when orders are placed,” a supplier said. “In the past, the cost was $10 a square foot for joists, deck and steel. Now the same project would cost $28 a square foot.”
- A major window vendor says the lead time for new orders stretches is out six to seven months making it worthwhile to look for other manufacturers.
- Another supplier said it could only hold pricing for 30 days and required a purchase order and approved submittals to keep pricing in place – with an add-on of 2% escalation per month if the approval takes longer.
- “The roofing industry is crazy right now, prices are skyrocketing, lead times are insane. Manufacturers are no longer honoring quotes, and material pricing is based on time of shipment not on order dates. We are giving our best guesses on what prices could be per quarter,” a roofing contractor said.
Looking to the second half of 2022, unfortunately Kincaid sees much of the same continuing, and does not believe project costs will come down.
“I look at it this way, we still have supply chain issues constricting construction supplies. So even if we head into a recession led by a lack of demand, what is the incentive for manufacturers to produce more inventory?” Kincaid said.
