Shortages of labor and commodities, high material costs, supply chain issues and ongoing COVID restrictions are enormous hurdles for the construction industry to overcome.
Risks to owners are not as immediate but, if not proactively addressed, may come in the form of defaults, delays or disputes. The risks are apparent: lower — and sometimes no — profit. Collaboration between members of a project team, along with risk-sharing and involvement of contractors are critical to bring construction projects to successful completion.
Increased costs due to supply chain issues are accompanied by greater competition for building materials and labor. According to a recent Associated Builders and Contractors (ABC) analysis of federal price data, construction input are up 24.4% from a year ago. The rise in costs is causing owners to reconsider and rescope projects and some are delaying projects or canceling, altogether.
In addition to raw material availability, supply constraints with steel products include shop and fabrication delays, which should be a focus of consideration during preconstruction and early construction, with efforts made to achieve early commitment for material procurement. This means it is more critical than ever for owners to involve their contractors early. Early decision-making can accelerate relationship-building with vendors, subcontractors and suppliers, and it is the trusting relationships between contractors and suppliers that can mitigate some supply chain issues.
Early contractor involvement (ECI) enables more accurate constructability reviews and the presentation of alternatives that help ease supply constraints, because industrial contractors are skilled in balancing competing considerations across the entire building timeline. Regular communication with reliable third-party sources and vendors can help fill in the knowledge gaps. Cost volatility isn’t limited to materials; labor availability and the need to manage schedule impacts to limit overtime costs go hand-in-hand with rising construction costs.
By prequalifying subcontractors and vendors, owners and GCs can reduce project variables by confirming a company’s safety and quality records — and it is more important than ever to assess a company’s financial strength. Subcontractor prequalification also allows efficiencies associated with division of labor. Contractors who remain friendly competitors with others in the market differentiate themselves in the current environment, improving results by partnering to combine strengths.
Early planning and contractor involvement fosters transparency and timely supply chain feedback for team-wide communication and proactive decisions for effective cost management and forecasting.
Brian Gallagher, CPSM, has served in strategic, marketing, sales and technology leadership positions with architecture, engineering and construction organizations. Gallagher holds a bachelor’s degree in Marketing from Towson University and an M.B.A. from Loyola University in Maryland. He also has served as an Adjunct Professor at Loyola University in Maryland. Contact Info: brian_gallagher@graycor.com
