Rising material prices, supply chain disruptions becoming problematic

Rising materials costs and longer delivery times are making life difficult for contractors and their customers, the Associated General Contractors of America reports. Photo: oksanaphoto/iStock / Getty Images Plus/Getty Images

Steep price increases and supply chain disruptions are wreaking hardships on contractors, driving up construction costs and slowing projects, according to an analysis of government data by the Associated General Contractors of America (AGC).

According to AGC, the data comes a day after the association released a new survey showing materials delays and price increases are affecting most contractors.

“Both today’s Producer Price Index report and our survey results show escalating materials costs and lengthening delivery times are making life difficult for contractors and their customers, including hospitals, schools and other facilities needed to get the economy back on track,” says Ken Simonson, AGC’s chief economist. “Project owners and budget officials should anticipate that projects will cost more and have longer – perhaps uncertain – completion times, owing to these circumstances that contractors cannot control.”

Prices for materials and services used in construction and contractors’ bid prices both declined at the beginning of the pandemic but have diverged sharply since last April, Simonson says. A government index that measures the selling price for materials and services used in new nonresidential construction jumped 1.9 percent from January to February and 12.8 percent since April 2020, AGC says.

Meanwhile, the Producer Price Index for new nonresidential construction – a measure of what contractors say they would charge to erect five types of nonresidential buildings –increased only 0.3 percent last month and 0.5 percent in the 10 months since April 2020.

“The nearly 1,500 contractors who responded to our survey overwhelmingly reported rising costs, shortages and delays in receiving needed materials, parts and supplies,” Simonson says. “Eighty-five percent of respondents said their costs for these items have risen in the past year, and a majority – 58 percent – reported projects were taken longer than before the pandemic struck. This situation will intensify the cost squeeze apparent in the Producer Price Index data.”

“Contractors are caught between a pandemic market that isn’t willing to pay more for projects and materials prices that continue to spike even as delivery schedules become less reliable,” says Stephen Sandherr, AGC’s CEO. “Construction firms won’t be able to thrive if rising materials prices continue to shrink already pressured profit margins.”