Inflation – What Does That Mean To A General Building Contractor?

When you ask a Building contractor what is keeping them awake at night, the reason they will give you is almost always the rise in Inflation for Construction Costs and when it will end.

They have good reason to feel anxious.

The Construction Leadership Council’s Product Availability Statement in May reported that “price inflation remains a critical issue … the latest data published by BEIS shows that annual material price inflation increased to over 24% in March for a basket of materials. With further restrictions on Russian gas and oil imports across Europe we expect that energy price movements will continue to be unpredictable.”

According to the SCSI/PWC Construction Market Monitor 2022, “There has been a wide variation in material price increases”, with one surveyor describing it as “a year like no other with unprecedented inflation in building costs. Totally unsustainable”.

The latest figures from the BEIS, published April 2022, “costs for some critical building materials are climbing to record highs. For example, in February 2022, the costs for rebar had increased year on year by 44%, fabricated structural steel by 36% and a 45% increase in particle board. Imported plywood has grown by 29% and pre-cast concrete products have grown by 26%.”

The reality of these pressures cannot be ignored and it should not be the job of the contractor to absorb or mitigate against the event.

There are many factors that affect the construction industry. Increased demand for infrastructure, a growing and shrinking labor market, coupled with scarcity of basic materials, has had a major impact on ongoing construction projects and new tenders, often resulting in higher costs and delays.

Rapidly growing prices are complicating the bidding process. Higher expenses for everything from material supplies to labour costs eating into the typical general building contractors’ already very limited margins. Therefore it is becoming more difficult to precisely predict future fees in order to efficiently bid for new projects.

Some Steps General Building Contractors Should Consider:

Engage Early: It is important to discuss the small print and manage any pressures that are identified before delivery. This needs to be an open and sincere conversation, that will assist to identify any manageable challenges early and as a team, detect the best-fit approach to move forward.

Projects Specifications: Examine the specifications of your project and the changes in the market which you are exposed to. Are there different approaches that you could take in order to limit these risks but that will still give you the expected outcome?

Materials: The costs of materials are not set to decrease any time soon according to the experts. Therefore if you consider projects early and buy in bulk this could help in limiting your exposure to future price increases.

Identifying fluctuations: It is important when entering a contract to carry out a risk assessment, which should include fluctuations and the timing issues around the availability of materials and labour. Such an assessment will guide you in the most appropriate means of dealing with the risks.

What does the future look like:

At the moment is it difficult to predict what is going to happen in the future for the construction industry but according to the SCSI/PWC Construction Market Monitor 2022, “The outlook for the construction sector in terms of activity levels looks positive, with multiple industry stakeholders predicting to see the sector grow by approximately 15%-20% in 2022”.

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