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CSG President Jim Giuliano is always thinking about his clients. Turner’s most recent study of construction market conditions summarized and validated a lot of the issues he and others at CSG are grappling with – and will continue to face . The bottom line: supply is not matching demand, and it hasn’t for some time. It isn’t much different from today’s housing market, or trying to buy a car.

“Today’s construction market is seeing an extraordinary rise in material costs due to supply chain challenges,” says Jim. “We’re seeing historic price increases on nearly a daily basis, and that’s starting to take its toll on project budgets which are typically set well before bidding.”

A volatile labor market, congestion at the ports, and a reluctance from manufacturers to overextend their product lines has caused the price of copper, concrete, steel, aluminum, lumber, and even gasoline to soar to historic quarterly price increases — in some cases upwards of 40% — creating an environment where some of these essential materials are taking 6-9 months for delivery as opposed to 6-7 weeks.

The cost of roofing materials is skyrocketing, with estimates ranging from $18 to $35 per square foot. HVAC equipment is backordered. Even common building materials once thought to be widely available can’t be taken for granted.

“We ran into a situation recently where we were wrapping up construction of a smaller project, and we had to put it on hold because we couldn’t get any circuit breakers for the kitchen,” Jim says. “Something as simple as that can throw off project timelines.”

This volatility has impacted contractors’ ability to effectively purchase the materials they need. The process of presenting, negotiating and finalizing a contract can take weeks, and there is an understandable hesitancy associated with pre-purchasing materials prior to contract execution as well as a push to get commitments sooner so they can lock in the escalating price for materials.

What concerns Jim most is the impact on his clients. Project budgets are generally set a couple of years in advance and are heavily influenced by historical cost data from similar jobs. Inflation is always considered during the budget development process, carrying escalation that extends typically through the midpoint of construction to cover the anticipated material purchase periods.

But cost estimating trends and best practices of the past have been rendered useless in today’s climate.

For instance, a project with a five year construction duration carries escalation that extends approximately 2.5 years into the project when contractors start purchasing materials. This escalation was generally set around 3% per year and is now rising to as much as 7-10% a year – nearly triple the average amount that had been carried in the past. This variable understandably takes a big hit on project budgets that were established years, or even months, ago.

“These are unprecedented times in the construction industry,” says Jim. “What we’re going through today is nothing that I have experienced throughout my entire career in the industry and is therefore impossible to predict.”

Facing more urgency from owners, Jim believes these tough conversation are important to have.

“It’s important for people to understand how inflation affects construction. When these budgets balloon, people will sometimes think it is our fault – that the job was over designed, or that we made a mistake. The truth of the matter is that we’re trying to manage a situation beyond our control. We’re trying to figure it out as well.”

Despite the uncertainty and the fluctuation in cost, Jim doesn’t think putting projects on hold is the answer.

“Do we wait it out? We could, but it’s dicey,” says Jim. “We don’t know what the future will hold, and I’m advising clients to move as quickly as possible if they can because materials are not getting any cheaper.”