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Now more than ever, it is critical for contractors to closely monitor materials and labor costs and deploy effective means to help stay competitive as prices remain at historically high levels amid the ongoing COVID-19 pandemic, supply chain disruptions and surging fuel costs.

Unprecedented Materials and Labor Cost Trends

The construction industry is dealing with historic price increases in a short period of time based on what has happened over the last two years. Data analyzed by Verisk reveals the average cost of lumber materials surged 69% from January 2020 to January 2022, peaking in July 2021.

A key reason behind this massive price surge is that lumber manufacturers anticipated COVID-19 would cause a drop in demand and, as a result, cut back on production. However, the opposite turned out to be true as new construction and do-it-yourself remodeling activity soared. Stymied by the need to follow enhanced sanitation protocols and labor shortages, lumber manufactures struggled to keep up with demand and the result is the historically high costs we see in the accompanying chart.

Lumber costs have become the poster child for COVID-19-related price surges, but they aren’t the only construction costs that rose. Drywall prices increased nearly 17%, paint increased 14.5%, carpet increased 10% and roofing materials increased 16.7% between January 2020 and January 2022.

Labor shortages brought on by COVID-19 played a key role in driving up hourly wages. Data analyzed by Verisk shows the hourly rate for a framer, drywaller, electrician and plumber increased 10%, 14%, 12% and 11%, respectfully from January 2020 to January 2022. Among the trades monitored by Verisk, plasterers (43%), wallpaper hangers (25%) and cleaning technicians (22%) experienced the highest percentage increases. Hourly rates for these trades typically rise 3% or 4% in a typical year. 

The ability to track these cost changes is invaluable as contractors develop strategies to help remain competitive in today’s market. Advances in pricing research and database analytics found in estimation software provide contractors with a trusted means to determine the fair market price for building costs, which can help guide critical business decisions, enhance customer services and safeguard long-term financial stability.

Basing Job Bidding on Vetted Pricing Data

Any sound job-bidding strategy must be based on current, thoroughly vetted, local pricing costs for building materials, equipment and labor. Contractors can offer quality workmanship and rapid project turnarounds, but if they don’t keep a close watch on currency of the costs that they use to bid jobs, they run the risk of underbidding or overbidding and losing out on potential jobs.

Tracking materials and labor costs can be an insurmountable chore because these prices can change rapidly, as the last two years have demonstrated.

Contractors who monitor these developing trends and adjust based on reliable data are often better able to appropriately bid jobs, communicate with customers, right-size inventories and anticipate future changes.

Innovations in research methodologies and pricing data technology form the basis for highly scientific research processes that give contractors a strong degree of confidence in the quality of costs used to bid potential jobs. These approaches include surveying materials and labor providers to learn what costs are currently being charged for specific building products and services. Software can also be used to analyze live estimates as they are processed to identify market pricing data points and pricing variances. Once collected, the survey results and pricing data are combined and analyzed to determine where competing market prices are converging and to identify a mid-rate price point that best reflects what is happening in the market.

This extensive data can be used to communicate project costs to customers and help set expectations.

Using Pricing Data to Aid in Customer Communication

Communication with customers is paramount to providing quality service and maintaining high satisfaction ratings. When costs rise, contractors should discuss these developments with customers immediately. Having independently research pricing data can serve as documentation that aids in these conversations. It can also help contractors manage their inventories more effectively.

Employing Effective Inventory Management Strategies

Effectively managing inventory amid rising materials costs is equal parts art and science. Buy in bulk and you risk leaving materials on the shelf to expire. Buy too little and you risk having to pay extra for expedited shipping costs. Modern estimating systems help contractors simplify inventory management by automating parts of the supply sourcing process. 

Leading estimating solutions can automatically calculate the appropriate quantities of materials required for projects and allow contractors to seamlessly connect to their preferred materials suppliers. The materials can be quickly added to order forms, and contractor discounts can immediately be applied, saving time and money during the order process. Not only does this streamline supply sourcing and inventory management, but it also shortens workflows and improves customer satisfaction.

It is difficult to predict how construction costs will trend in over the course of 2022. Lumber prices continue to rise as have the cost of other key building materials. The one certainty is that contractors who actively monitor construction costs will have the knowledge and tools they need to help them appropriately bid potential projects, communicate effectively with customers, manage inventory responsibly and remain competitive amid a volatile and uncertain construction market.

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