Survey: Vast majority of contractors affected - but mostly unbothered - by materials pricing
By Jenny LescohierOctober 13, 2021
A survey of contractors, engineers and owners shows 92% of civil contractors have had projects impacted by fluctuating materials prices this year. And yet, most report being optimistic for the near future.
The latest issue of the Civil Quarterly (TCQ) from Dodge Data & Analytics reveals a dramatic increase in supply chain challenges faced by civil contractors. However, contractors remain optimistic about the state of their industry in the near future despite adversity.
The report, based on a quarterly survey of civil contractors, engineers and owners, shows that the vast majority of civil contractors (92%) have had projects impacted by fluctuations in the cost of construction materials in 2021.
The latest report also found that 89% expressed concerns about cost increases for materials over the next six months, including prices for steel, piping, paving materials, lumber and aggregates.
Echoing those survey results is a report from Associated Builders and Contractors (ABC) from its own survey which noted the ABC Construction Backlog Indicator fell slightly to 7.6 months in September. The reading is down just 0.1 months from August 2021, and is up 0.1 months from September 2020. The organization is not ignoring the downward trend and its broader implications, however.
“Nonresidential construction backlog declined for a second consecutive month as skills and input shortages hammer the industry,” said ABC Chief Economist Anirban Basu. “A growing number of contractors are indicating shortages of materials such as copper and PVC pipes.
“Input prices also continue to increase as global supply chain disruptions persist,” said Basu. “Rising shipping and trucking costs are further exacerbating the situation by placing additional upward pressure on input prices. Working in conjunction with skills shortages and attendant higher wages, rising input prices are resulting in lofty bids, inducing certain project owners to delay work and even cancel projects altogether in some instances.”
Despite these concerns, the Dodge survey said over half (53%) of respondents expect to see increases in revenue and nearly two thirds (63%) expect to see their profit margins hold steady or grow in the next year. This is likely due to the fact that nearly three quarters (71%) are highly optimistic about the volume of work they expect in the next year.
“The good news is that demand for construction services remains elevated,” said Basu. “Many projects, whether those in health care, public education or data management, must move forward, and the data indicate that this is disproportionately benefiting larger contractors.
“For the most part, recent declines in backlog have been registered among smaller construction firms. Low interest rates and abundant liquidity have created the capacity for many investors to deploy substantial capital, and that helps support investment in real estate and construction projects.”
Basu added, “Despite all the challenges facing the nonresidential construction industry, contractors collectively expect sales, staffing and profit margins to expand over the next six months, though the level of confidence has been diminished in recent month.”
Not everyone sees construction through rose-colored glasses. According to the 2021 Marcum National Construction Survey, contractors’ top three priorities cited for 2021 include strategic planning (57%), finding solutions for skilled labor shortages (41%) and seeking new markets/organizational planning (both with 39%).
Concerns about lack of work and material costs edged up in this year’s survey - 22% versus 19% in 2020 and 12% versus 5%, respectively.
“Labor and material costs are the blocking and tackling of the construction industry,” said Joseph Natarelli, national leader of Marcum’s Construction Services practice and office managing partner in New Haven, CT. “Finding skilled labor, managing price volatility, and mitigating the risks that come with rising costs are top priorities for many respondents.”
For tips on how to keep projects on track, despite price fluctuations, click here.