Business Tips

Rising cost of construction materials

What the rising cost of materials means for construction

While the construction industry has seen a surge in projects and demand in recent years, there’s also been an uptick in something far less favorable: construction materials costs. From 2017 to 2018 alone, the cost of diesel skyrocketed by 29%, steel piping increased 22% and asphalt jumped 11%. With all of the hikes in cost, business owners and operators will need to adapt and evolve swiftly to keep up with the market. Here are the changes you can expect to see across the industry, and what you can do to stay ahead of the curve.

What’s causing the increase?

There are a lot of factors at play involving the increasing costs of construction materials, some being easily identifiable and others less obvious. One key reason for the surge is the recent tariffs placed on international trade in the United States. The 20% tariff placed on Canadian lumber, the steel tariffs and the 10% tariff slapped on Chinese goods have all played their part in making materials more expensive to import. Another reason is the increased demand for construction materials in emerging markets coupled with an overall decrease in supply from Chinese mills. Lastly, the price bumps of base items like crude oil and energy have, in turn, made the creation of all other materials more expensive.

The 20% tariff placed on Canadian lumber, the steel tariffs and the 10% tariff slapped on Chinese goods have all played their part in making materials more expensive to import.

Worst of all, due to tight bidding competitions, most contractors aren’t able to pass these added costs over to the client—digging into their profit margins further.

What this means for construction.

  • The rise of modular construction: Defined, modular construction is a process where pieces and structures are built off-site in manufacturing plants before being transported to a job site. A recent study by McKinsey found that modular construction can deliver projects anywhere from 20% to 50% faster than standard methods, while cutting costs by as much as 20%. Some noteworthy companies, like Marriott, are already using this style of construction. By essentially handing off the actual creation of many materials to third party manufacturers, your company will be able to save money across the board.

  • An increase in construction software adoption: There’s a reason venture capital funding for construction technology recently exceeded $1 billion 2018—software helps cut costs and streamline business operations. With the right mix of apps on your job sites, you’ll be able to slash costs, make workers more productive and line your pockets with more profits as a result.

  • A race to the bottom: When reviewing bids, many clients and general contractors will award the project to the lowest bidder—forcing contractors and subs to accept the lowest margins possible in order to win a contract. This all comes at a time when skilled labor is growing more scarce, forcing salaries up and making employee retention that much more expensive. And because most contractors aren’t always able to pass along the cost increases to the client, they’re taking the hit on their own earnings.

What can you do about it?

  • Invest in BIM software: BIM (‘building information modeling’) software allows key stakeholders to visualize, manage and share data about a building or other kind of construction project. This software will ensure everyone is in sync and working on the same plan on a project—minimizing the likelihood of errors and speeding up the building process overall. You can also check out other project management software solutions—from Procore to Autodesk’s BIM 360—to increase margins.

  • Take advantage of time tracking solutions: If you’re involved in the construction or field service industry, then you’re no stranger to buddy punching, hour rounding and other forms of time theft when it comes time for payroll. With proven time tracking software like ExakTime, you’ll be able to track and monitor how long your employees were actually working across all your job sites, with 100% accuracy. Customers like Advantage Flooring continually save approximately $75,000 per year on payroll alone using our system, while Cooper Drywall saves around $50,000 per year. By not paying for exaggerated hours from dishonest employees, you’ll be able to apply those savings to other parts of your business.

  • Create employee training programs: These mentorship programs can provide workers with hands-on, effective instruction on the day-to-day tasks that will keep your business running smoothly now and in future years. By showing your employees the ropes with crucial business processes and administrative tasks, you’ll have workers in your company you can trust when it comes time to promote them to higher positions. This will help reduce the damage caused by the labor shortage for your construction business.