It’s no secret that over the last year or so businesses of all kinds have been impacted by labor shortages, supply chain disruptions, and rising material costs. The construction industry has been hit particularly hard. Many, if not most construction contracts have a fixed price and completion date. For contractors, often there are penalties for late completion and rarely is there a way to pass on increased costs (labor, material, and equipment prices). To compound the problem (risk) for contractors, projects are often bid months before they are built and sometimes years before they are completed. The current environment is a perfect storm for disappointing construction outcomes for both the contractor and the owner as costs increase and projects are delayed.
At Paragon Sports Constructors, we’ve built our business on trust, transparency, and teamwork. While these are easy standards to uphold when projects run smoothly, they become more difficult as challenges arise…but that’s also when they are most important! Here, we’ll discuss the particulars of the labor, price inflation, and supply chain situation and how owners and construction firms like us can work together as we work through this unique and challenging time.
LABOR SHORTAGE
Everyone has seen the “Help Wanted” signs in restaurant windows and other businesses following the COVID lockdowns. Dating back to the building boom that ultimately followed the 2009 financial crisis, labor shortages in the construction industry started long before COVID became a household name.
The massive job migration borne out of the COVID shutdown left restaurants scrambling for servers but also exacerbated an already tight construction labor market. Construction firms and employers of all types are paying more to attract and retain employees if they can find them at all, and the result is that costs may increase, and services may suffer.
SUPPLY CHAIN DISRUPTION
Last year we planned to replace about 25% of our fleet of work trucks. When we went to order the trucks, we quickly got a lesson in “supply chain disruption.”
We learned that many factories making semiconductor chips (many in Asia), shut down during the COVID peak while at the same time students and workers were sent home to learn and work remotely…on computers. When the chip factories reopened, they were hit with demand for all those remote working computers but also for appliances, automobiles, and everything else that requires a computer chip (everything). Apparently, there are between 50 and 100 computer chips in a typical car or truck alone. The volume of containers pouring out of Asia to Europe and the U.S. created a shipping container shortage in Asia.
Then a ship got stuck in the Suez Canal, piling up containers in Central America and west coast ports had trouble with the increased ship traffic (see Labor Shortage above), piling up more containers in the Pacific Ocean. This shipping disruption eventually worked its way into domestic U.S. logistics/freight causing increased costs and delayed deliveries as the world tried to get back into balance.
In any case, it meant that we would not be receiving any new trucks for about 12 months. It also meant that many contractors might not have the materials or equipment to complete their projects on time or within their budget.
PRICE ESCALATION
The COVID pandemic increased demand for housing, furnishings, automobiles, and goods and services of all types. Increased demand coupled with labor shortages, supply disruption, government stimulus, and a few ill-timed natural disasters, created price inflation not seen in decades. The construction industry has been hit hard as basic materials needed to construct virtually anything are more in demand and more difficult to get. The result is volatility and price inflation.
BY THE NUMBERS
According to The Associated General Contractors of America’s chief economist, July 2021 was the seventh-straight month of double-digit price increases for construction inputs and to this point, contractors have struggled to pass along even a fraction of these added costs to end-users. See below for an overview of the price escalations.
Since August 2020:
- 123% Increase in Cost of Steel Mill Products
- 15.9% Increase in Cost of Lumber and Plywood
- 45.3% Increase in Cost of Copper and Brass Mill Products
- 35.1% Increase in Cost of Aluminum Mill Products
- 29.6% Increase in Cost of Plastic Construction Products
- 22.9% Increase in Cost of Gypsum for Wallboards
- 17.2% Increase in Cost of Insulation Materials
- 15.8% Increase in Cost of Asphalt and Tar Roofing Products
These rising costs are compounded by a 14.1% increase in the cost of freight and an 82% increase in the cost of diesel fuel over the same period.
WHAT TO DO
We have been fortunate that our proactive management and strong supplier/vendor relationships have made these challenges manageable for us at Paragon Sports Constructors. However, the ongoing volatility of pricing and product availability is a problem for both owners and contractors. If the goals of any project are quality, on-schedule completion and staying within budget, the current environment presents many challenges and requires understanding and compromise between the owner and contractor.
Fixed price contracts negotiated some time ago may be or become a liability for a contractor in such an inflationary environment. Most contracts allow contractors to avoid penalties for delays outside of their control (Force Majeure) but not to recoup costs incurred from delays. Furthermore, without the ability to charge for the increased costs, some contractors may look to cut costs by sacrificing quality. A poor-quality job benefits neither the owner nor the contractor. At Paragon Sports Constructors, we look to compromise, if we must, on price and schedule but never on quality. Here is where trust, transparency, and teamwork are essential.
For projects being planned or bid (now or in the near future), prior budgets may not reflect current pricing and owners should anticipate higher costs. Additionally, project durations that were expected in the past may not be achievable now.
OUR ADVICE FOR OWNERS PLANNING PROJECTS IN THE NEAR TERM
- Find a trusted consultant, owner’s representative, architect or contractor and seek advice. Get the truth (reality) not what you want to hear (probably fiction).
- Update budgets and schedules – do not rely on older estimates.
- Question your contractor about labor, subcontractors and material availability.
- Check recent contractor references, especially as it pertains to quality of work, performance, and conflict/conflict resolution.
- Expect project delays outside of the contractor’s control and be prepared to compromise.
- In the event of a delay, have a backup plan for alternative plans/venues – be flexible.
- Include an Owner Contingency in your budget to accommodate unknowns. Given the current volatility, every project has them…they are just unknown at the onset.
A Note of Gratitude
We understand that shifts in project pricing and schedules are frustrating and directly impact the plans your school, district, or organization has on the horizon. We know that you have options for your sport construction needs. At Paragon Sports Constructors, we are committed to providing our clients with world-class products and best-of-class construction services to build the highest quality athletic facilities at a competitive price.
We appreciate your friendship and comradery, and if we have been fortunate to work with you, we appreciate your confidence in our company. Despite the challenges we have faced over the last couple of years, we are optimistic about 2022 and beyond as we look forward to growing together, moving past the present challenges, and continuing to build the finest athletic facilities in Texas.
ABOUT PARAGON SPORTS CONSTRUCTORS
Paragon Sports Constructors is a turn-key contractor of natural and synthetic turf sports fields, running tracks, and tennis courts based in Fort Worth, Texas. With over 30 years of sports construction experience, they are one of the premier sports field and running track contractors in the South-Central United States. Paragon Sports Constructors is a member of the American Sports Builders Association who remains focused on quality construction practices, choosing to partner with top brand name manufacturers of synthetic turf and track surfacing to provide clients a consistently high-quality project from planning to first use. For more information on Paragon Sports Constructors, please visit www.paragon-sports.com or follow them on Twitter @ParagonSportsCo.
