Industry Insight: Hot construction market fuels some supply chain challenges

While the construction industry continues to enjoy a sustained boom and relatively stable materials prices (at least compared to 2018), some conditions are straining project supply chains and complicating contractors’ work.

Labor

Eighty percent of contractors surveyed this summer by Associated General Contractors of America reported they were having difficulty finding enough qualified hourly craft workers to hire. In the same survey, two-thirds of firms reported they had raised base pay for hourly craft workers in the previous year, 58 percent had raised pay for salaried workers and many reported providing incentives, bonuses and larger contributions to benefit plans in efforts to attract workers.

“Even as firms are raising pay and benefits, doing more in-house training and investing in labor-saving equipment, labor shortages are changing

the way many firms bid, schedule and manage their projects,” said Ken Simonson, AGC’s Chief Economist.

“Lack of manpower is pushing contractors away from projects,” said Curtis Dalsimer, Preconstruction and Estimating Manager at Wohlsen Construction.“I’ve seen a fair bit of push back that everybody’s schedules are full and they can’t take on additional work because they are having trouble hiring additional guys for the field.

Lead Times

While most materials and equipment suppliers are performing normally, the busy construction market and robust economy has produced sporadic lead time issues.

Prefinished wood doors – once acquired in four to six weeks – now typically take 12 to 14 weeks to arrive. The situation appears to be the result of high demand and sector consolidation. Two large companies now own five of the industry’s largest door manufacturers,” and they are at or beyond capacity,” said Doug McGinnis, CEO of Bunting Door and Hardware Company. “Sometimes, it’s hard to even get delivery estimates from them. They are running late. They have back orders. It has been challenging to deal with.”

Lead times for windows have also grown from the previous norm of eight to 10 weeks to 14-16 weeks currently, Dalsimer said. “There is a bigger backlog which I think is attributed to the amount of apartment buildings going up and their use of aluminum and vinyl windows.”

Accelerated Schedules

The strong economy has also increased demands for faster turnaround on projects. “Everybody wants everything three weeks ago. Jobs are going at a faster and faster pace. But the vendors don’t really work that way, so it puts the contractors in a hard spot,” said Scott Foreman, President of Baltimore Fabrication.

Some vendors, however, have started to change their practices to adjust to high-speed market conditions, Foreman said. “Vendors are trying to jump through hoops to get materials to us sooner as a way of winning business. Every time we put in a request for purchase, our purchasing agent asks what’s the driving factor – lead time or price. Some vendors are starting to accommodate the rush because they understand this industry doesn’t always choose based on price.”

The need for expedited supplies and a higher paid workforce is reflected in one overall construction industry trend. AGC’s August analysis of construction costs concluded that overall costs have increased between 5.5 percent and 6.9 percent depending on project type since August 2018.