In the Pre-Construction Department, we often get asked about when’s the best time to price a new project. I’ve recently returned to the department with my latest promotion and have already been asked this question several times. While I often joke about looking to my Magic 8 Ball for answers, we can also look to market conditions for hints of what the future holds.
RISING COSTS CONTINUE
We need to look no further than our pocketbooks to know that the costs of everything are still going up. However, the increases we are seeing today in 2023 are nowhere near as extreme as the price escalations we saw in 2021 and 2022. While we are still receiving notifications from manufacturers and distributors about potential price increases, it’s with less regularity than in the recent past. History tells us two things: the first is that not all of these increases will come to pass and the second is that there will be some annual increase on January 1, simply because the calendar says 2024.
SUB-CONTRACTORS ARE LOOKING FOR THEIR NEXT PROJECT
Our preconstruction department has recently started receiving calls, emails, and even in person visits from the sales and preconstruction managers of our subcontractors, distributors, and manufacturers.
It’s because they are feeling the slowdown that is the result of extreme price escalation, inflation, and interest rate increases. Over the last two years, they have had more projects offered to them then they could handle. With that work ending, they are looking for their next project. And when they are looking for that next project, they will be looking for it with a sharper pencil. It’s supply and demand. Increased sub-contractor capacity will lead to lower pricing for a number of reasons; the first being when we receive more sub-contractor bids, we are able to use pricing from multiple bidders to better analyze the numbers received versus our own estimate. Secondly, as was the case before, when a sub-contractor is really busy and they’re asked to do another project, their prices will subsequently increase to cover costs like additional hires or overtime.
It’s no secret that COVID rocked many different parts of the supply-chain, leading to empty shelves and warehouses. Nearly three years later, stocked materials are finally returning. While there are still some exceptions, we are seeing material lead times reduce by as much as 500% from their historical highs.
Over the last two years, delays in material lead times have led to – in some cases – costly project delays, rework, and change orders. With relief on the horizon, we can expect to see this occurring less frequently.
In Pre-Construction, it is our responsibility to help our clients make the numbers work. If the numbers don’t work, the project doesn’t move forward – it’s as simple as that. Each project presents its own unique challenges. Maybe the solution is driven by the cost per square foot, or the cost per unit, or maybe even the project’s total cost. Every day, our team performs project comparisons and uses current market pricing to strategize how to achieve our clients’ goals. So when is the best time to price a project? If the plans are ready, permitting is underway, and The Douglas Company has been assisting your team through the preconstruction process, the time is now.
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