In late June, Turner Construction Company released its updated cost index for the second quarter of 2018. Turner has studied this data for decades, taking into account labor rates and productivity, material prices, and the competitive condition of the marketplace. This makes it unique to the many other indices available to our industry.
The data from this month continued the quarterly trend of rising costs since 2014. In fact, costs were measured at 5.63% higher than where they were for the second quarter of last year. The quarterly increase from just three months ago is 1.68%. While these numbers don’t show a change in trend, they remind us of an important reality: It is very difficult for contractors to hold pricing in these market conditions. That’s also not to mention the volatility the recent tariffs have introduced to our marketplace, of which the impact is yet to be fully understood.
Our only defense against these increasing costs is proper planning during preconstruction. There are a few strategies we recommend to developers:
- Be upfront with your contractor about the status of your drawings, permits, and start date. Otherwise, you risk receiving pricing with an expiration date that won’t be met.
- Talk to your contractor about pricing guarantees. The Douglas Company sets a limit on price variance between budget and firm estimates that we work very hard to, and often do, achieve.
- Allow for contingencies in your construction and development estimates so your financing is properly secured for the actual construction cost, once finalized.
- Ensure that your design team is properly coordinating and completing drawings. Failure to do this delays the contractor’s buyout process, which may hurt their ability to hold prices for you. The Douglas Company generally completes all buyout for a project, regardless of duration, in 45-60 days.
- Enter into a lump-sum contract agreement. If your contractor doesn’t give you a lump-sum agreement, you could be at risk for changing prices. The Douglas Company almost exclusively contracts on a lump-sum basis so the risk is ours to control for our developers.For more information on the Turner Building Cost Index and to see this quarter’s results, follow the link below:http://www.turnerconstruction.com/news/item/9887/Turner-Building-Cost-Index-High-Level-of-Construction-Activity-Continues
Bruce Douglas, PMP, PMI-SP, LEED AP BD+C
Senior Project Manager
The Douglas Company
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