Volatile Construction Market Impacts Your Next Capital Improvement Project

Earlier this year, the president proposed tariffs on steel and aluminum imports. According to the Commerce Department, imports make up about one-third of the 100 million tons of steel used by American businesses every year.

Following implementation of the tariffs, many industries across the nation, including the construction industry, are experiencing shifts in metal prices and major impacts on infrastructure spending.

One major factor that the construction industry is facing from the tariffs is price volatility.

A Firsthand Look

The following are just some examples of what we are seeing within the construction industry as a result of the tariffs:

• Many pipe vendors can no longer provide quick pricing estimates without first confirming the current day’s price with their vendors due to continual changes in costs.
• Process equipment vendors hold pricing for 30 days or less, while owners require contractors to hold prices for up to 90 days from the bid date. That translates into additional risk costs being passed from contractors and vendors to owners through larger contingencies.
• Metal building suppliers are usually able to estimate 12- to 14-week delivery times, but due to a skyrocketing number of projects, many lead times are now well over 36 weeks.
• Standard unit prices aren’t applying as much anymore. Miscellaneous structural steel shape prices have increased by 30 percent or more due to tariffs. For example, within one month, 2-inch structural pipes went from 50 cents per foot to $3 per foot.
• With an oversaturation of projects in the industry, municipalities are seeing minimal bidders on their projects.

The Design-Build Approach

Until the market stabilizes and local manufacturers can keep up with demands, the construction industry and communities considering new projects will have to be able to navigate the uncertainty in pricing for metal supplies. One way to better navigate price uncertainty is to utilize a design-build delivery approach for your next capital improvement project. Typically, between 60 percent and 90 percent design, the owner can determine the best value for cost and schedule, and the design-build team can formulate a guaranteed maximum price.

Under the traditional construction delivery system, design and construction are treated as separate activities, each requiring its own contract. This means market pricing by the construction industry does not occur until the design is complete. By the time construction contracts are signed, interest rates may have significantly climbed, and the cost of materials may have grown, driving up the project’s total cost.

But with a design-build delivery approach, some of these concerns can be prevented and the costs can be confirmed earlier. Design-builders can apply the concept of “speed to market” to lock in pricing early and avoid cost escalation risks. The owner, design team and construction team are also brought together from the start of the project to determine the most cost-effective custom strategies to deliver the project.

See how others have utilized the benefits of design-build in their projects.