Rising materials costs outpacing what contractors charge for work

November 10, 2021

Contractors are charging more in order to make up for the rising costs of construction materials, but there is still an imbalance that threatens profitability.

According to an analysis of government data by the Associated General Contractors of America, rising construction materials prices appear to be starting to drive up the price of construction projects.

Association officials noted that despite a big jump in what contractors charge for projects, the rise in materials prices is still much higher.

“After being battered by unprecedented price increases for many materials, contractors are finally passing along more of their costs,” said Ken Simonson, the association’s chief economist. “Meanwhile, supply-chain bottlenecks and labor shortages continue to impede contractors’ ability to finish projects.”

The producer price index for new nonresidential construction - a measure of what contractors say they would charge to erect five types of nonresidential buildings - jumped 7.1% from September to October and 12.6% over the past 12 months. But an index of input prices - the prices that goods producers and service providers such as distributors and transportation firms charged for inputs for nonresidential construction - climbed by an even steeper 21.1% compared to October 2020, including a 1.3% increase since September, Simonson noted.

Many products, as well as trucking services, contributed to the extreme runup in construction costs, Simonson observed. The price index for steel mill products more than doubled, soaring nearly 142% since October 2020. The indexes for both aluminum mill shapes and copper and brass mill shapes jumped more than 37% over 12 months, while the index for plastic construction products rose more than 30%.

The index for gypsum products such as wallboard climbed 25% and insulation costs increased 17%. Trucking costs climbed 16.3%. The index for diesel fuel, which contractors buy directly for their own vehicles and off-road equipment and also indirectly through surcharges on deliveries of materials and equipment, doubled over the year.

Association officials urged the Biden administration and Congress to do more to address supply chain backups that are crippling construction firms and the broader economy. These measures include additional tariff relief for key construction materials. They also urged federal officials to explore other options, like waiving hours of service rules so shippers can tackle freight backlogs.

“Supply chain backlogs are clearly one of the biggest threats to the economy recovery,” said Stephen E. Sandherr, the association’s chief executive officer. “Washington officials need to be more aggressive in taking steps to get key materials moving again so construction firms can continue rebuilding the country.”

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