Strategies for Rising Material Costs in 2021
With many articles from Bloomberg, Forbes, Reuters, and other organizations reporting rising costs in construction materials around the United States this year, general contractors, home builders and project managers alike are attempting to find solutions to cover costs for upcoming projects.
Raising Project Price or Pre-Order Materials
Raising project price and pre-ordering materials were ranked among the top strategies for affording the costs of materials for single-family builders, according to a June survey for the NAHB/Wells Fargo Housing Market Index (HMI).
Considering the use of alternative materials has also been another strategy that general contractors have been utilizing as well. Alternate materials, which are more readily available, may result in lower overall costs when compared to more common, but harder-to-find materials.
SIP (structural insulated panel) houses have been a recent solution to replacing lumber and are up to 15 times more airtight than traditional construction, resulting in more comfort and long-term durability for homeowners.
Modular construction can cut project costs by 20-30%. It also streamlines the construction process by reducing labor costs to further increase your bottom line. This type of construction means a shorter build time, which saves money on overall construction. Labor costs are less, as prefab construction uses more factory workers and fewer individual tradesmen like plumbers and electricians.
Price Escalation Clauses
If unable to lock-in prices for building materials at the current rate, a contractor can provide a contractually negotiated option to avoid bearing the additional expenses when these necessary building material prices increase before or after starting project construction.
A price escalation clause drafted in a manner that favors the contractor over the owner can provide safeguards for the contractor while shifting the responsibility to the owner to bear the increased expense.
Additionally, a general contractor may incorporate a process that involves providing notice of the cost increase to the contracting party, and then seek the contracting party’s approval for the excess cost.
Another way to counteract material cost increases is through the use of new technologies. Advanced technology like new software, drones, and 3D programs can give all parties a clearer picture of the project earlier on.
Stemming from this, there will be better coordination amongst trades, a fully evaluated design that pinpoints potential issues before they arise, and better overall material cost estimates on the project.
Communication technology is also as important as project management technology, allowing parties to make split decisions when it comes to design changes. It also allows for the project’s team to be fully informed, potentially reducing the need for further rework issues in the future and the need for more materials.
Whatever method you decide to employ, flexibility and creativity remain at an all-time high for such a volatile supply chain market. If your specialty is home-building specifically, NAHB (National Association of Home Builders) offers many webinars for members and industry professionals providing advice for how to navigate material price increases: nahb.org/supplychain.