As materials prices continue to rise, contractors are struggling to find ways to keep costs in check. The construction industry is facing a growing number of projects that have been delayed or cancelled due to high bids.
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Construction firms, manufacturers, and other businesses that submit bids to obtain contracts say the process has become more unpredictable as material prices rise, putting them at risk of losing money.
Some construction and industrial executives said they are sacrificing earnings on contracts or paying out of their own pockets to meet materials prices that exceed their estimates as projects and orders pile up in a recovering US economy.
According to executives, rising costs for steel, copper, brass, timber, laminate sheets, and plastic-based components like PVC pipe are especially difficult to anticipate and incorporate into bids. Because of manufacturing and transportation constraints, as well as rising demand, material inventories remain limited. This has pushed certain prices to new highs, such as the spot price for coiled sheet steel in the United States, which has risen by more than 80% since the start of the year.
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Jeff Harper, president of Harper Construction Co., a San Diego-based construction company that specializes in federally financed projects, said he had spent approximately $2 million this year on materials prices that surpassed his bids.
Mr. Harper stated, “It’s a real gamble.” “It’s difficult to get employment against a dozen rivals and not lose your tail in the process right now.”
Mr. Harper’s firm builds office buildings and other facilities for government organizations including the military. He claims that after a proposal is approved, government contracts generally do not allow contractors to recoup increased material prices.
Months may pass between the time bids are filed and the start of work for manufacturers and builders. Executives stated that in the past, materials suppliers would usually promise rates for 60 to 90 days and would frequently stick to those pricing if orders arrived later. As costs continue to rise, suppliers are now quoting rates for just a week or two, and many aren’t fulfilling them beyond that.
“Right now, I’m not providing any estimates on steel that I don’t own or am very sure of owning in the next 45 days,” said Lisa Goldenberg, president of Delaware Steel Co. in Philadelphia.
“ ‘It’s difficult to acquire work against a dozen rivals and not lose your tail in the process right now.’ ”
― Harper Construction’s Jeff Harper
As a consequence, CEOs claim to be predicting materials costs more than ever before. When prices are rising, this may be dangerous. Companies that include too many price increases in their bids risk being outbid by rivals that do not. Underestimating expenses exposes construction and manufacturing firms to greater expenditures in the future, which their clients are often reluctant to pay after a contract is signed.
Cathedral Builders Inc., located in Jackson, Wis., builds cabinets and countertops for commercial buildings, and its president, Jody Giacomini, said her firm often waits months to get on a project site while the building’s façade is being built. Prices for plywood, adhesives, laminate sheets, and other components have recently risen so quickly that they have surpassed the company’s offers. According to Ms. Giacomini, laminate sheets increased by 3% in June and another 3% in July. According to her, laminate costs usually rise by 1% to 2% each year.
She said, “How can we price bids for two months down the road and remain in business?” “There is no way to know what the price will be.”
Accu-Swiss Inc., located in Oakdale, Calif., is swamped with orders for tiny metal parts for medical equipment and aircraft components. But, according to Sohel Sareshwala, the company’s president, Accu-Swiss is losing money for the first time in its 21-year history. He claims he won’t be able to recoup much of the increased expenses for stainless steel, aluminum, and brass, which has more than quadrupled in price in the last seven months.
Construction and manufacturing executives say it’s difficult to anticipate rising costs for steel, copper, brass, timber, laminate sheets, and plastic-based products.
Paul Christian Gordon/Zuma Press/Zuma Press/Zuma Press/Zuma Press/Zuma
Mr. Sareshwala said that customers usually give Accu-Swiss set pricing for batches of numerous components. By resisting price increases, you risk losing orders.
“Repeat clients make up the majority of my business,” he added. “You can’t survive in a world where costs are continuously changing.”
Some businesses have built out provisions in their contracts to shield them against increasing expenses.
Surcharges for materials, similar to those used in the trucking sector to protect drivers from rapidly escalating fuel prices, are increasingly appearing in contracts for manufactured products.
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Sean Gibbons, CEO of Kings Mountain, N.C.-based upholstery fabric maker STI Fabrics, said he has been paying a premium on polypropylene resin since March, when a winter storm shut down output at resin factories in Texas. Rather of increasing prices, Mr. Gibbons said he is passing along the cost of the surcharges on the Revolution-brand synthetic cloth he supplies to furniture manufacturers.
“We don’t raise prices very often, and none of us have the margins to sustain these costs,” he said.
Keats Manufacturing Co., a manufacturer of brackets, clips, bushings, and other metal components for the automotive, electrical, and appliance sectors, has lately begun adding surcharges to its contracts as metal costs, especially stainless steel, have risen. Wade Keats, the company’s co-chairman in Wheeling, Ill., said he’s purchasing more steel than he needs right now in expectation of much higher costs in the future.
Mr. Keats said, “It’s the only way we can keep up.” “We have more inventory than we have ever had.”
This essay was written with the help of Austin Hufford.
Bob Tita can be reached at [email protected]
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The asml euv is an article about the construction industry. It discusses how escalating materials prices are turning bids into a gamble for contractors.
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