Contractors hoped a return to a pre-pandemic materials supply free of logistics bottlenecks would come in early 2022, but then Russia invaded Ukraine.
Oil prices are still more than $100 per barrel for both Brent crude and West Texas Intermediate as of March 22. Nickel, the key ingredient in stainless steel, saw its futures price jump 250% March 8 to over $100,000 per metric ton, only to see trading halted on the London Metal Exchange. A series of false restarts then shook confidence in the exchange as the metal sank to $36,915 per metric ton on March 18, hitting its low limit. Steel prices have jumped since the late-February invasion as well.
“In addition to high commodities pricing, we are also in the middle of a very busy market, which adds to the problem,” says Mark Duda Sr., preconstruction director at McCarthy Building Cos., St. Louis. Several other estimators and construction executives report that for projects to succeed under current market conditions, early planning and collaboration between owners, designers, contractors and trades partners are de rigueur.
Related link: ENR 2022 1Q Cost Report PDF
“We are highly recommending early contractor involvement to mitigate cost issues and control project budgets,” Duda says.
Many estimators have grown accustomed to early purchasing to lock in prices and availability over the last two years, but the supply chain and delivery difficulties that plague construction and other industries are still creating unavoidable delays. Labor is also a concern.
“We have to make sure that we have good [trades]partners and that we are not just left with whoever’s not busy at the time,” says Tom Rychlewski, market team leader at Kansas City-based firm CRB. He also advises “taking into account lead times of things that didn’t used to be long lead. The constant shift on long lead items as well as understanding how material prices are being escalated is crucial.”
Rychlewski and his team were able to save one client $500,000 in escalation by procuring electrical components before design was 100% done. “We bought just about 80% of the raw materials, such as copper wire, and went ahead and put orders in on mechanical components, reserving our spot in line and our pricing at the current price,” he says.
Both Rychlewski and Duda say keeping communication open with clients about shifting materials prices and using alternative types of delivery and contract instruments are necessary to keep their projects moving forward. “Traditional design-bid-build delivery makes many of these concepts difficult to deliver,” Duda says.
Most estimators now expect no return to pricing and delivery normalcy this year.
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