Stubborn lead time issues impact projects

While the supply chain has moved past the mid-pandemic outbreak of high volatility, price spikes and interminable lead times, today’s supply chain is still presenting major challenges to contractors and altering the way projects are designed and delivered.

Chip shortages, labor shortages and other issues are driving the continued, extended lead times for electrical and mechanical equipment: 40-plus weeks for electrical panels, 52-plus weeks for switchboards, and 70-plus weeks for large generators, switch gear and transformers, said Patrick Morgan with James Posey Associates.

“Lead times on some pre-packaged air handlers are not bad right now, typically 24 weeks. But if you need a custom air handler or DOAS unit, the lead times can be double that,” said Bill Hahner of DPR Construction.

“With these lead times, designing has become a true balance of cost, availability and flexibility,” Morgan said.

To “help alleviate some of the heartache,” design engineers at James Posey have adopted several practices, including utilizing standardized gear or quick-ship programs, and designing layouts for switches and fuses, rather than circuit breakers, Morgan said.

That approach can improve a project’s schedule, but it also has downsides, he said.

“Electrical/equipment rooms may be larger since we may not have custom equipment available. Equipment is sized off of engineering judgement and may be, in the end, oversized.”

A project team may also have to modify breaker sizes mid-project to accommodate changes in the project or other equipment selections, such as a variation in the mechanical equipment, Morgan said.

All of those downsides can add to project costs, but ultimately have less financial impact on the client than the cost of delaying a project six months or more, he said.

To compensate for long lead times, “we are certainly seeing more owners that are willing to onboard a GC and select trade partners early” and approve early procurement of major electrical and mechanical equipment, Hahner said.

To facilitate that, DPR has adjusted its own processes, he said. “Rather than going out with a hard bid for procuring that work, we are reaching out to trade partners on an RFP basis, asking for a budget, rates and fees in order to get someone onboard early so we can release the critical equipment early.”

DPR’s supply chain group has expanded its services to include direct procurement of generators, switchgear and other equipment. The company has also “gone on hunts for used generators or equipment from projects that have been cancelled,” Hahner said. “There is a secondary market for those sorts of things, but typically you are looking for something specific and you may not be able to find exactly what you need.”

Long lead times have also necessitated interim solutions for some projects.

“Due to the supply chain issues with electrical equipment, we have been providing temporary means of feeding the electrical equipment or we are providing alternate materials in order to meet scheduled timelines,” said Chris Marschhauser, Vice President of Oak Contracting.

Beyond the electrical and mechanical lead times, delivery times for construction supplies have largely stabilized… with periodic exceptions.

“Some issues pop up that you don’t expect,” Hahner said. “For example, mineral wool insulation is a very specific product that is used in fire-stopping applications and masonry applications. We recently found out that its lead time just jumped. We used to get in six weeks. Now, we are looking at a six- to seven-month lead time.”

Prices have also largely stabilized since the mid-pandemic escalation. DPR, which recorded an 18 percent increase in overall construction project costs from 2021 to 2022, now advises clients to expect a 3 percent to 4 percent annual cost increase.

In April, Associated Builders and Contractors (ABC) reported that overall nonresidential construction input prices were 1.7 percent higher than a year earlier. However, ABC Chief Economist Anirban Basu cautioned that “there has been growing evidence of resurfacing inflationary pressures on the nation’s nonresidential construction segment… [Also] a new set of supply chain issues is emerging, including the cost of insuring ships and bottlenecks in the Red Sea, the Panama Canal, and Baltimore.”

Rapid recovery efforts following the collapse of the Francis Scott Key Bridge appear poised to avert long-term disruptions of construction goods through the Port of Baltimore. However, the multi-million-dollar impact of a temporary port shutdown plus a multi-year wait to rebuild the bridge could exacerbate shipping costs.

“We have not seen a direct impact on supply chain due to the collapse of the Key Bridge,” said Jonathan Goetz, President of Oak Contracting. “I think we will see an increase in prices rather than an impact on supply chain.”