Over the past few years, there have been frequent discussions with our clients related to what we are seeing in the market when it comes to material and subcontractor pricing.
Since the pandemic, material pricing has been an extremely volatile part of our industry. These changing conditions have required everyone to adopt various strategies to get deals done. These strategies range from forms of procurement to combating escalation and much more.
As you can see in the table below from US Bureau of Labor Statistics, pricing is up substantially from where it was pre-pandemic. Overall project costs are up over 34% depending on type of construction. The table also indicates that continuous inflation has had a heavy impact on construction costs. According to the US Bureau of Labor Statistics, the dollar had an average inflation rate of about 5.53% per year between 2020 and today. The result has been a... Read More >
Twenty years ago everyone would ask me why I didn’t do development on a personal basis. Development is different from construction. I understand the risks of construction, but I don’t understand those of development very well. So I would Forest Gump my way through it, thinking “Stupid is as stupid does,” knowing I am not an expert in development. It was meant to add humility and levity, not to intimate that those who do development are stupid. A better quote would have been from Clint Eastwood, who said “A man’s got to know his limitations.” I did, and I do.
About fifteen years ago a good client and friend asked if I wanted to invest in a project he was developing and we were building, so I did on my own, not as The Douglas Company. I have since invested personally in several projects, always as a relatively small percentage, with... Read More >
This week basketball practice started for my son’s 1st-grade team, The Clippers, whom I get the opportunity to coach. At first glance, outside of the very dissimilar physical differences, I thought I was in one of our weekly subcontractor progress meetings. Four kids locked in and focused on having a productive practice. One kid did not want to be there, two kids wanted to complain about everything, two showed up for the snack at the end of practice and one kid showed up 10 minutes late. Yes, this season will be the constant herding of cats but then I laughed, went home, and told my wife I do this every day. Our job as the general contractor is to take the constant chaos and charter a path for everyone to follow. Below are the eight principles The Clippers are focused on this season followed by a description of how each... Read More >
Thanks to the surge in attention to construction technology over the last few years, our once dark and analog industry has benefited from many tools that help produce higher quality projects more efficiently. Here are some of the solutions The Douglas Company is making a focus this year:
- Scheduling Software - Supply chain issues and workforce shortages are expected to continue in 2023, and without a detailed and outstanding project schedule any project is going to suffer from inefficiency and lost time. As schedules get more complicated, tools that help understand their data and the effects of one task on another. The Douglas Company uses SmartPM, a web-based tool that tracks changes between schedule versions, availability of float, compression, and overall health of a schedule. This gives our project managers more information to help prioritize work on-site and focus on the right work areas.
- Project Photography - Pictures tell a thousand words,... Read More >
Some of the best teams in sports history had some Hall of Fame individual players on them. But if you don’t have a collaborative group working toward the same goal and carrying their weight, finding success can be elusive.
The same goes for preconstruction planning and execution. Owners/developers first need to align with the best partners/teammates they can regarding design, engineering, construction, operations, etc. Best practices dictate having as many members of the development team as possible present for O/A/C calls. When this happens everyone is up to speed on what their deliverables are and when they are due; decision-making is more efficient; brainstorming resolutions to hurdles is more productive and it also makes the next call more efficient without backtracking on items that have already been discussed. Preconstruction coordination should not be done in a vacuum. When we see that not all the key team members are present on... Read More >
A recent article shared in Construction Dive contained some great information we wanted to share. Just when it seems like we are all exhausted with pricing news, more comes available that pulls us right back in. The article features five charts that give some indication of the state of construction today, and where it might head. Take the time to read it ̶ it’s worth it ̶ then take a look at our commentary below.
From our standpoint, we are seeing the following on these issues:
- Architectural Billings - Our design partners are still quite busy in certain areas and sectors, particularly multifamily, yet we do know firms that have already incurred staff reductions. This is an index we watch closely.
- Construction Backlog - We have had a record backlog in 2022 like many contractors, and talk of our trade partners becoming more available hasn’t come yet - Especially the specialty trade... Read More >
Have you found yourself saying “It’s just not like it used to be”? I hear this a lot lately and if I am being honest, I have said it a couple of times myself. It seems like challenges just keep on coming. First, we had the Covid lockdowns, then the lumber shortage, now inflation, and as I write this we are on the brink of the next crisis…the rail line strikes. One thing is for sure, it’s NOT how it used to be.
But that is why I love construction. It’s never the same. If I wanted to do the same thing day in and day out I would find another occupation. New challenges are what make us grow and the ones who can adapt are the ones who will succeed.
No two projects are alike. It doesn’t matter if it’s senior living, multifamily, or commercial construction. It doesn’t even matter if... Read More >
Developers understand the many reasons construction projects get delayed. Financial challenges can bring a project to a standstill in the face of interest rate increases and material and equipment price volatility. There is also the ongoing challenge of finding sufficient manpower to get the job done and the weather is a factor here in the Midwest.
In the current economic environment, you may consider delaying your construction project. But before you make that decision, consider the compelling reasons to forge ahead. Being a developer is always risky and challenging. With the volatility affecting the industry today, it is important for developers to thoughtfully proceed, as opposed to delaying projects. Some perceived challenges can actually present opportunities.
Longer lead times can provide greater flexibility, which enables you to source building materials at the best possible cost. Lead times for many construction materials remain longer than normal, so think months versus weeks. Lead times... Read More >
It has been 60 days since Hurricane Ian hit Southwest Florida and left its path of destruction across the state. Ongoing surveys estimate that 20,000 homes in Lee County (Fort Myers) have been destroyed with another 2,500 in Collier County (Naples). The City of Fort Myers alone estimates their storm damage to be $600M! Lee County has reported they have reached the milestone of 1 million cubic yards of debris removed and estimates another 3 million cubic yards of debris remains. The magnitude of these numbers is staggering and doesn’t include any after-effects from elsewhere in the state.
The observed short-term impacts on the Florida construction market have ranged from labor and materials becoming more readily available as those resources have been diverted from stalled or destroyed construction projects to the exact opposite, a disruption in labor and materials originating from Southwest Florida.
The question most directed to us is what will be the hurricane's... Read More >
I am hearing different stories from clients in my discussions. There is no doubt that occupancies in Senior Living are down. There is no doubt that projects are requiring more equity, and equity demands a higher return. There is no doubt that staffing is more difficult to find and more expensive. There is also no doubt that construction prices have risen dramatically in the past six to eight months due to supply issues caused by a myriad of factors.
A client said to Bob Ritter, our Director of Business Development, the other day that he couldn’t look at new construction projects because construction costs were too high. I wonder if that is accurate. My experience in owning Senior Living projects is that capital costs are a minor part of the total operating budget. Operating costs are the vast majority. So if construction costs go up 10%, as an example, it... Read More >
It is the question everyone is asking in the construction industry right now, “What’s happening with prices, and when will it come back down?” The short answer is, no one can say for certain.
What we do know are a few key principles that can help all of us be more discerning consumers of current information:
- Commodity Prices do not Equal Actual Costs - Many people have taken to following publicly-traded commodity indexes to understand where things are going. While this can give us some insight; many things affect the commodity indexes besides just the actual cost of the materials. For material markets that have been hit extremely hard, turning to trusted suppliers is the only way to know where prices are and what is to come.
- Supply Trumps Demand - In certain markets, such as lumber and PVC, an extreme shortage in supply is driving the price and... Read More >