Navigating Material Challenges in the Construction Industry
We’ve all seen construction material prices soaring impacting both contractors and their clients. These exponentially rising costs are the result of continued supply chain shortages and surging demand for remodeling and new construction. According to recent research from Associated General Contractors of America, material expenses are currently sitting at a 35-year high, with prices for a variety of essential construction parts (e.g., steel mill products, steel pipes and tubes, structural metal, bar joists and rebar) having risen by more than 50% in the last 12 months alone. Adding to these woes, obtaining materials is taking significantly longer than usual as well, further delaying construction projects and exacerbating project costs. The latest data from industry experts found that lead times for certain materials are already forcing some construction projects to extend well into 2023 and beyond. For example, current lead times for items such as roof insulation, steel bar joists and metal decking are between eight and 10 months. Hurricane Ian rebuilding will cause even more shortages and lengthen lead times.
In response to these challenges, many contractors have begun sourcing their materials from alternative suppliers or ordering excess amounts of materials and hoarding them in storage to ensure availability for their future projects. Either way, these practices generate their own risks including a shortage of proper warehouse space and alternative storage solutions.
These challenges have not only compounded costs, they have also opened the door for huge potential insurance concerns. Namely, contractors may experience elevated coverage expenses and potential underinsurance complications amid various claims (e.g., material theft and fire- or storm-related damage).
While it’s not plausible for contractors to completely eliminate material challenges, here are some steps they can take to minimize the impact of these issues for everyone.
- Contractors should plan on starting the preconstruction phase for their projects as early as 18 months ahead of groundbreaking. This will allow extra time to secure materials, reducing the risk of potential delays once construction actually starts.
- Communicate. Contractors should ensure open communication with their clients, providing honest estimates on project timelines and explaining why construction will take longer than usual.
- Insure and Reduce Risks. Contractors should consult their trusted insurance professionals to review whether any coverage adjustments are necessary amid this evolving risk landscape, therefore ensuring proper protection in the event of unexpected losses.
If you have questions about risk and cost reduction for the construction industry, contact us today.
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