Pricing construction is like a game of chess. In recent years, it has felt like that game was being held outside during a hurricane with powerful forces putting pressure on labor, pricing and material availability. To win at chess, players need a combination of skills: knowledge of the rules, strategy and calculated risk. The same rings true in today’s construction marketplace.
Historically, budgets have been built from current costs, but now, that’s only half the battle. Contractors must essentially predict the future by understanding the inner workings of the market—which goods and services fluctuate, and which are leading indicators of impending economic change. And they must do so early enough to alter design decisions.
We typically expect about a three percent increase in construction prices year over year. However, since 2014, construction prices have risen five percent year over year. Some industry analysts expect this trend to continue into the foreseeable future due to a resilient U.S. economy, tightening labor markets and recent volatility within global trade markets.
Since 2016, material goods such as aluminum, copper and steel alone have escalated in price by 8 percent, 12 percent and 15 percent respectively. Since early 2018, evolving trade policies have impacted the cost of a wide range of construction materials sourced from outside the US such as cabinets, countertops, appliances, doors, windows as well a host of other miscellaneous raw and finished goods.
According to Balfour Beatty’s Mac Hoenicke, a Florida project executive and the division’s lead for the company’s national procurement program, “To put the effects of these pressures into perspective, on an average $50 million-dollar project, delaying the start just six months could result in $1.25 million in potential cost increases, even with zero changes to the scope. It is not uncommon for us to see start dates slide six to twelve months or more before being released, so gaining certainty in the development and preconstruction planning process is more critical now than ever.”
In addition, labor shortages have also led to a significant increase in competition and demand, which has inflated labor costs as well as supplier profit margins in many geographies. An expected 30% of the current workforce is expected to retire over the next decade, signaling a tight labor market for the foreseeable future.
While some pricing factors are out of contractors’ control, others can be effectively managed. At Balfour Beatty, we have developed a proactive approach to mitigate these evolving and often volatile conditions.
Listen Carefully and Plan Accordingly: Balfour Beatty understands that our partners possess unique visions for every project. By listening carefully to each partner’s perspective and asking the right questions upfront, our teams develop and value engineer plans that adhere to the overall vision.
Push for Precise Drawings and Specifications: Balfour Beatty teams believe it is critical to play an active role in providing timely, informed feedback as the design progresses, effectively balancing clients’ desire for speed-to-market and supporting design through completion. The more accurate the drawings, the more precise trade partners can be with their pricing.
Lock in Pricing: Large projects take years to plan, design and build. The timing of a project start can have as much impact on cost as major scope decisions. Balfour Beatty’s depth of relationships with trade partners allows our teams to drive early engagement and successfully lock in pricing.
Be Transparent: Successful projects always have one key dynamic: transparency. Balfour Beatty teams strive to:
- Develop realistic project schedules with attainable milestones and goals
- Involve trade partners in the decision-making process to recommend products or solutions
- Mitigate potential risks from the onset
- Communicate mistakes quickly and gather the appropriate people to develop solutions
In chess, those who play without a plan fail to advance. No matter what market forces are at play, Balfour Beatty teams serve our clients with a winning strategy that ensures successful project outcomes.