The cost of construction materials has surged in recent years. This increase in prices is predicted to cause a 1 percent rise in the cost of construction. The increase is not solely attributable to material price increases but has been further exacerbated by the shortage of laborers. A lesson is basic economics, a shortage of supply coupled with high demand for labor has driven up labor costs. In this article, however, we would be focusing on the increase in material price. We will look at the reasons for the increase and how one company has been able to keep its costs low during this period of inflation.
The company under focus is Stronghold Engineering. A design-build construction company that has been in the construction business for thirty years now. It started as an electrical company in 1991 and since then it has expanded its operations significantly to become one of the prominent construction companies in California. Like every business, Stronghold Engineering went through a period of testing because of the pandemic. Like everyone else, it was not immune from the impact the pandemic had, from a shortage of laborers to a hike in material prices. The company, however, was in the midst of multiple projects when the pandemic hit and completing those projects on the stipulated deadlines was a top priority.
The Price Hike
In a survey completed in 2021, it was found that sixty-five per cent of the people included in the survey expressed their concern over the shortage in demand owed to material price increases. According to seventy per cent of the respondents, this hike in prices had also resulted in a loss of profits. A lot of building companies had lost out on contracts and earnings because owners of various projects would wait it out rather than pay for higher costs. While this may seem like a sensible decision for project owners, it spelt disaster for construction companies as they saw a dip in their profits, struggled to pay wages, and risked losing employees. The negative effects have not only impacted home construction but also non-residential and commercial construction.
From April 2021 to June 2021, material prices increased by more than 10 percent. This sharp rise was on top of the existing upwards trends in the preceding months. Lumber saw the highest price increase, with some people reporting a 25 per cent increase. The pandemic is not the only reason for a price hike for lumber. There has been a significant increase in home construction and the sawmills have not been able to keep up with the increased demand. Despite production in sawmills being higher than pre-pandemic levels. It has been a similar case with steel products; however, steel mills have struggled to match their production to pre-pandemic levels, unlike the sawmills. It does not help that high steel tariffs have further driven up the prices. Stronghold reported a 41 percent increase in prices across the board, this includes materials such as copper, PVC, steel, cement and concrete.
Keeping Construction Costs Low
A page can be taken from the playbook of Stronghold Engineering to keep the construction costs low despite hikes in material prices. At the most basic level, it is Stronghold’s core values that have been able to help keep costs low. The construction firm values quality, safety, teamwork, integrity, and commitment above all else. Each value has played a pivotal role for Stronghold Engineering to remain among the top construction companies in California. The company is committed to building excellence and that has led to continuously exploring and incorporating best practices in their operations. Despite increases in prices, the company has not compromised on the quality and its commitment to integrity has allowed it to retain projects during the most uncertain times. While relying on teamwork has allowed the company to come up with unique solutions to any problems they face. Below are some of the practices the Stronghold team has been able to incorporate in their operations to keep construction costs low.
Before starting a project, numerous hours are put in to painstakingly plan the whole project from the ground up. This allows Stronghold to significantly increase its productivity and decrease unnecessary wastage of building materials. Cutting down also involves identifying safety hazards so that safety is ensured, this results in a dramatic decrease in costs for all parties involved. Research has found that effective planning can lead to a 64 percent reduction in the waste generated.
If companies continue to rely on traditionally sourced materials, they would inevitably be faced with high construction costs. Prefabrication greatly reduces material waste. Various building components are made offsite, and companies only end up paying for what they use. As opposed to buying raw materials in excess and building components individually. It also reduces labor costs as no additional workers are needed to first transport raw materials to the construction site. It is also far easier to transport prefabricated materials rather than huge logs of wood, for example.
Construction Field Management Software
Incorporating the latest technologies is always a good idea and leads to quick results. Using Construction Field Management Software (CFMS), companies such as Stronghold have been able to plan their projects down to the minute details. Leading CFMS utilizes cloud-based storage which gives access to all parties involved. It greatly increases transparency and helps keep everyone on the same page. The higher connectivity afforded by such technologies allows better communication. Any last-minute changes can be quickly relayed to workers. This increases productivity, decreases wastage, and lowers costs.
Building Information Modelling (BIM)
Another useful technology is BIM software. It combines construction design and graphics technology so that project managers have a visual concept of the building project. By utilizing computer-aided design (CAD) construction companies can gain far more insight into their projects instead of the 2D models drawn on paper. BIM software takes CAD a step further, as it can inform its users of the operational steps and construction logistics. If the customer wants to change any part of the design, the software will automatically update the materials that would be needed. Being able to estimate the amount of materials needed significantly reduces construction costs.
By employing these changes companies can greatly expect to lower costs. Given the unpredictability of the situation, there was widespread non-performance of contracts. Stronghold’s suppliers relied on force clauses as circumstances beyond their control rendered them incapable of completing their side of the contract. In turn, Stronghold had to renegotiate some contracts with its clients too. This was however limited to very few projects. Despite increased timelines, Stronghold has been able to largely stay on track and retain its projects. Effective planning and best practices have allowed Stronghold to stay afloat when it has been difficult for most to survive.