Construction Costs Are Going Through the Roof

Construction Costs Are Going Through the Roof

Sorry, I couldn’t resist the pun! Recently I have been visiting with several general contracting clients regarding the challenges they are facing. Both complained of the dramatic rise in construction costs in the face of a softening economy. Over the past 6 months construction costs have been increasing 1% – 2% per month for an annualized inflation rate of 12% to 20%.

What It Means For Construction Costs

These increases have made it difficult to manage the budgets for their projects. Projects that were awarded 6 months ago have seen dramatic price increases in almost every area. Steel prices, as we mentioned, have seen the most dramatic increase. In some projects the steel component has increase 50% over the past six months.
But that is not the only area. Equipment rental, PVC pipe (made from petrochemical feedstock), copper wiring and other basic material have all seen increases. Finally, delivery costs to get the material to the job site have followed the price of gasoline.
So how are they managing the situation? One strategy is to lock in their subs prices within seven days of being awarded the contract. One contractor notified the sub on the eighth day and received a price increase of $20,000. He later negotiated it back down to $2,000 (which he couldn’t pass on to the customer.)
Other strategies include negotiating price increases with customers or factoring in modest price increases in their original bid. Either way it will be interesting to see how rising replacement cost vs falling demand affects real estate values.
Download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.
Construction Costs
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Construction Costs

ARTICLES YOU MIGHT LIKE

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

Product Life Cycle Stages

See also: Product Life Cycle Company Life Cycle Why You Need a New Pricing Strategy Increasing Pricing on Products What is the Product Life Cycle? A product life cycle includes stages the product experiences throughout its lifetime – from conception of the idea to the decline and abandonment of the product. Some products experience longer

Read More »

Increasing Pricing on Products

Recently, Netflix – streaming service giant – increased their pricing on two of their products by more than 10%. At first, media and customers displayed anger and backlash. But after the pricing increase, many customers remained at the increase was approximately a $1 difference. Plus, you have to factor in that many people are “cutting

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022