Construction Material Pricing Fluctuations: How to Mitigate Risk

We’ve all seen how much construction material prices have been increasing recently, with reports of steel and lumber taking an especially hard hit. And while there’s not a lot you can do to stop or control pricing fluctuations, you can protect yourself from the fallout. We’ll discuss some strategies for mitigating the risk that stems from constantly changing prices for raw materials.

What Causes Construction Material Price Fluctuations?

The COVID-19 pandemic has disrupted supply chains worldwide for over a year and will likely continue to have a negative impact for some time. From labor shortages due to sickness to lockdowns to manufacturing plants struggling to come back to full capacity, the pandemic has wreaked havoc on the industry.

But it’s not the only factor – some problems are arising from tariffs on materials from countries like China, and environmental events like wildfires and hurricanes that have delayed shipments significantly. Even freak accidents, like a single ship getting stuck in the Suez Canal, have caused serious issues, adding to shortages and price hikes.

The main takeaway is that even once the pandemic is over, price fluctuations are here to stay in our global economy – so it’s essential to have plans in place to mitigate the risk they bring with them.

How Material Price Fluctuations Affect Your Projects and Bids

So you won the job: great! But if the price of materials increases between your estimate and the start of work, you are on the hook for that extra cost – unless you’ve taken care to protect yourself. Additionally, if you make mistakes during preconstruction, those will cost you even more if prices go up.

Worse-case scenario: you’re essentially now doing the job for free or even paying to do it by covering those material costs. Protect your profit margin and don’t let this happen to you.

How to Combat Material Price Increases Proactively

Try these 4 tips for mitigating your risk due to pricing flux.

1. Increase your bid accuracy from the start.

Mistakes that would have been minor can become major problems when prices are on the rise. It’s more critical now than ever to invest in preconstruction tools that complement your team’s talents and support accuracy of takeoffs and estimates. Now is not the time for paper plans and manual measurements – nor is it wise to rely on your staff to manually transfer data between platforms to create estimates.

The best preconstruction platforms allow you to perform lightning-fast, extremely accurate takeoffs, convert that data directly to a detailed estimate, complete with items and assemblies attached to your measurements, and generate a proposal directly from your estimate, closing the loop on potential typos or other small errors that can add up. They’ll also save you time, which you can use to bid on even more jobs.

2. Choose a tool with a safety net.

STACK’s unique and sophisticated proposal tools alert your estimators to takeoffs that have been performed but that do not have items or assemblies attached with the associated costs. If someone has missed including a particular measurement in the estimate, they’ll be alerted to the oversight and can correct it immediately.

This seemingly small feature can save your team from serious problems. One missing wall or section of foundation could cost you double what it would have in the past, so you need your software to have your back.

3. Update your terms and conditions and include them with every proposal.

Because pricing can change quickly, so should your terms and conditions. You can include a price escalation clause indicating that your prices are only good for a set time period, or that pricing is subject to a percentage increase if payment is not made by a specific date.

To be sure these terms are clearly visible, make sure they’re included on every proposal that goes out the door. You can easily do this via templates in STACK so that you only enter terms and scope once and can apply them to each project, saving you time and ensuring this critical step is never forgotten.

4. Adapt your estimates and customize your markups.

If you tend to add markup on a full-project basis, now is a good time to reevaluate – or at least supplement – that tactic. With STACK, you have the ability to not only mark up an entire project but also to mark up by line item.

So, if you know or suspect a specific material to become more expensive than your catalog indicates, you can add that extra cost directly to that product, getting more detailed and granular with your estimate.

Other Strategies to Offset Added Costs

Here are a few other actions you can take to set yourself up for success in the midst of fluctuating material prices.

  1. Reduce your overhead. If you do have to absorb some rising material costs, take steps to cut back extraneous expenses you might not need. Find tips here.
  2. Be more cognizant about waste. In a world with high material cost, every square foot counts. Use these ideas for cutting back on waste.
  3. Maintain strong relationships with suppliers. Not only will good suppliers do their best to get you the best possible pricing, but when costs spikes happen, they are an excellent reference for suggesting other types of materials you might be able to substitute. Use them as a resource!
  4. Obtain better financing. If you’re able to pay upfront for materials, you may have more leverage to negotiate better deals. A service such as Billd can cover your material costs while allowing you a longer repayment cycle, which can make all the difference to your business when costs are high.

By implementing these strategies, you’ll make it easier for your crew to handle fluctuating material costs, and your company will be in an excellent position once things settle back down – and you’ll be fully prepared for any future market disruptions that come along.

Ready to increase accuracy and save time? Create your free STACK account today.

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