The Rising Cost of Construction: How to Maintain Control and Ensure Success

In the construction world, there seems to be much conversation over the fearand uncertainty of rising project costs and the effect on budget and production. With politics and the current healthy economy playing influential roles, rising prices for materials and a seemingly everpresent shortage of workforce availability have led many to regard the industry’s future with nervous anticipation. In this atmosphere, clients with pending projects are adapting a proactive approach to mitigate their exposure. Meanwhile, selection committees are increasingly referring to the builder’s expertise, looking for ways to avoid cost escalation and minimize the  potential impact on the front end by achieving the GMP at the earliest date possible. Additionally, the workforce shortage has hit design firms, many of which are working at full capacity. This often results in delays of issuance of construction documents, thereby pushing bid solicitations and procurement dates out further than originally anticipated.

Tariffs and Transportation

We believe there is a dramatized, yet real fear that recent tariffs and legislative action cause a surge in material costs. This fear is blown out of proportion when suppliers react to news of a tariff with an automatic protective response, due to uncertainty about the actual long-term effects. In reality, many products have not seen substantial increases in cost because free market competition remains a natural regulator. And, many incidences of cost increase this year for building materials seem driven by rising fuel costs and a shortage of transportation services.

Economy and Market Conditions 

Rising material costs are often indicative of a growing economy and anticipated prosperity. In the current market, many subcontractors and material suppliers alike report they are extremely busy, yet deficient of the adequate labor force to promote the controlled growth of their firm. It is common that quotations are only valid up to 10 to 15 days. More critical than ever, a good construction manager must plan for and commit to subcontractors early on their projects, giving careful assessment to the subcontractors’ availability and workload. Excellent subcontractor relationships is crucial in our market as subcontractors will always choose to work with preferred general contractors whenever possible. Today’s market conditions have hindered subcontractor resources such that bid solicitation and procurement can be very challenging. Many subcontractors cannot increase their workload without including a premium in their bid to incorporate additional resources.

Efficiency & Timing of Contractor Selection 

The most effective move for a client is to hire the right construction manager as early as possible by making their selection in tandem with, or even before, selecting a design firm. In many ways, the construction manager is the client’s best defense against rising construction pricing. The construction manager should act toward the project’s success and serve as a trusted representative of the client. A good construction manager will remove much of the client’s burden, vetting options, and determining best steps. When unified by a shared purpose and vision, the owner and construction manager can take advantage of every golden opportunity to control pricing and positively impact the project. Sadly, some clients realize too late that time was squandered in a multi-phased selection process of their team, all the while subjecting their project to cost escalation.