Report: Material Costs Driving GCs to Prefabrication

Originally published by: Construction DiveApril 21, 2021

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Dive Brief:

  • Construction vendors and subcontractors are relying on technology and offsite fabrication to help work around material shortages and other challenges brought on by the COVID-19 pandemic, according to a new market outlook from Consigli.
  • The Boston-based firm found that the pandemic has motivated subcontractors and vendors to implement technological advancements into their shop and field processes. "Cost saving material management software, tool upgrades and robotics are improving efficiencies which is allowing subcontractors the flexibility in managing on-site workforce restrictions," says the report, which is based on a survey of the company's partners in the markets where it operates, from New England to the Mid-Atlantic.
  • Respondents said they are prefabricating 20% more than before the pandemic and 71% of them have noticed an increase in requests for design-assist proposals, which Peter Capone, Consigli's director of purchasing, said confirms the fact that speed to market is a priority for many clients. 

Dive Insight:

The outlook noted rising material prices, especially in metals like copper and steel, and predicted increases in items such as PVC, hard woods and insulation.

The reasons for the material price increases are many, but all point to effects of the COVID-19 pandemic, Associated General Contractors of America Chief Economist Ken Simonson told Construction Dive. They range from factories that pulled back production when demand dropped in early 2020 still not running at capacity, lingering supply chain hiccups that have caused ships to stack up outside of ports, tariffs on lumber and even last summer's wildfires in the West.

Consigli is employing several tactics to mitigate the effects of rising material prices, including locking in subcontractor pricing as soon as possible to avoid future price escalation, holding contingencies for material escalation in estimates and budgets and watching for supply chain disruptions from products sourced overseas, the report states.

The rising cost of materials is causing owners who want to get back to work to reconsider if now is the best time to do so. At Fort Worth, Texas-based Century Mechanical Contractors, secretary and treasurer Diane Mills told Construction Dive that the recent explosion in prices is inducing sticker shock in her clients, especially those who priced their projects before the pandemic, but then hit the pause button at its outset.

As those owners re-enter the market, they've had to adjust their expectations or re-consider their projects all over again, she said.

"Owners are coming back and saying they want to build, but they set their budgets two years ago," Mills said. "What might have cost $100,000 if they started last June is now probably closer to $160,000. So they're even having to pull back again and rethink what they're doing, because it's out of budget."