By Christine Graf
Economists and industry experts predict that the construction industry will continue to be plagued by rising material costs, material shortages and supply chain disruptions throughout 2021.
“The price increases are pretty drastic,” said Sara Turoczy, manager of business development at MLB Construction Services in Malta. “Along with lumber, we are seeing steel pricing skyrocket.”
MLB is a commercial builder. When the pandemic hit, they were working on projects for several customers including Saratoga Performing Art Center. The work at SPAC included construction of a two-story concession and venue space, as well as a smaller concessions building and an outdoor pavilion.
In addition to continuing work on projects that were underway, MLB took on numerous last-minute projects.
“We’ve been able to take on emergency calls in everything from medical to the hospitality industry,” said Turoczy. “In the beginning, when no one really knew protocol or what needed to happen, healthcare was really scrambling to try to do the best that they could to section people in the right areas and keep everyone safe.”
When company president Jim Dawsey received an emergency call from Wesley Health Care Center in Saratoga, he and a crew of workers were there the next day to build a space for the center to house COVID patients.
“Jim took the call on Friday, and he was up there on Saturday morning building it out himself with a small crew of people,” said Turoczy.
MLB, a company with 66 employees and a second office in North Carolina, works in many different sectors of the construction industry and frequently bids on large projects. According to Turoczy, an increasing number of these projects are being postponed. She said state agencies are not currently awarding contracts.
“There is some uncertainty of whether some project will move forward at all. We haven’t had any projects that have been specifically canceled. They have just all been postponed—at least the ones we were looking at,” she said. “For the most part, we are just being told that these projects are being postponed and reevaluated.”
These postponements can have major implications for companies that are bidding on jobs. If the owner of a project delays the awarding of the contract, there is the potential for material prices to increase dramatically during that time frame.
“Since we have to hold our (bid) number, it becomes a challenge when the prices keep increasing between the bid due date and months later when the project gets awarded,” said Turoczy. “We are nearing the third month of being asked by one owner to hold our price.”
Residential home builders don’t rely on the bidding process to secure contracts, but estimators face similar challenges. Some contractors incorporate escalation clauses into contracts to account for unexpected price increases. The clauses allow a contractor to be reimbursed for higher material prices if the rate of increase rises above a certain percentage, typically around 3 percent.
According to Jim Sasko, owner and president of Teakwood Luxury Building and Remodeling in Saratoga Springs, his company prefers not to use escalation clauses.
“Nobody ever wants to hear that there is an escalation clause in their construction contract,” he said. “We as a company tend to avoid those and gamble a little bit with the market, which can be dangerous in some aspects. Lumber tends to be the biggest number that changes.”
Teakwood is part of a market research group that uses data to forecast future lumber prices. They rely on these forecasts in the estimating process.
“We’ve gotten lucky thus far,” he said. “We tend to come out pretty darn close to where we need to be. It’s rare in my industry to say we didn’t spend all of our budget on lumber material. We usually find that number is quickly consumed with the homes we are building.”
Although lumber prices have seen the biggest increases, material costs have been rising across the board. Sasko estimated that rising material costs have led to a 10-12 percent increase in the average price of a home.
Despite the rise in prices, sales at Teakwood are at record high levels in both new construction and remodeling segments.
“Our business had never been stronger, and we are keeping 25 people employed,” said Sasko. “We are planning for a very busy 2021 and are already booking in 2022.”
Supply chain issues have impacted material availability and materials that aren’t able to be purchased locally are sometimes taking many months to arrive. These delays apply to everything from appliances to bathroom faucets.
Hilltop Construction owner Thomas Albrecht Sr. said his Glens Falls residential and commercial construction company has faced similar issues with material shortages.
“Expectations of delivery are non-existent,” he said. “My biggest challenge is educating our clients that you can have contracts and you can set dates, but we can’t necessary meet them because of the challenges we are faced with. What you could get in 4 weeks max could now be out 8 to 12 weeks. That means our planning has to be much more extensive.”
Hilltop Construction has 30 employees, many of whom have had to quarantine due to COVID exposure. As a result, the company has to absorb additional labor costs.
By Christine Graf