Rising materials prices coupled with aggressive bidding in a down economy have raised concerns that a new wave of contractor defaults may be on the horizon. While the contracting community proved more resilient during the downturn than some had predicted, many firms that bid aggressively in recent months and slashed profit margins face considerable hardships as prices for materials and consumables continue to rise.
“The trends we’re seeing show that the vise is tightening on contractors,” says Ken Simonson, chief economist for the Associated General Contractors. Construction prices rose 6.1% between February 2010 and February 2011, according to the U.S. Labor Dept.’s Producer Price Index. During that same period, prices for finished buildings remained nearly flat, with new office, industrial and warehouse structures up less than 1% and those in education sectors up just 1.4%, according to the data.