The past year and a half has been a wild ride for everyone. Normal patterns of life and business have been off the table as we have all adapted to new and unanticipated challenges. Some areas of the economy have seen incredible opportunity. Others have experienced incredible hardship. For better or worse, our typical moorings have pulled loose, forcing us all to think differently about plans and aspirations.
At Warfel, we have had the privilege of walking with our Clients through these challenges. It’s our responsibility to ensure Clients have the best market information to make confident, informed decisions. In a climate that continues to reinforce anxiety, Warfel strives to overcome anxiety with information and robust, preemptive planning. As you contemplate your own construction projects, here are some important factors to consider and planning strategies to put in place:
Market Considerations
Escalation is Local – Escalation indexes are traditionally able to be tracked on a national or market sector level. In the post-COVID economy, different states, cities, regions and market sectors are emerging from the crisis at different paces and with varied lingering impacts. Depending upon your project’s location and construction type, escalation factors can vary wildly. Recognizing the uniqueness of this moment, Warfel has taken a project-specific approach to construction escalation, developing customized, hyper-local escalation risk profiles for each project.
Lead Times are Fickle – Interruptions at multiple levels of industry supply chains, coupled with unforeseen levels of construction activity, have created an ever changing and challenging supply network. Commodity building materials are facing enormous challenges keeping up with demand. Large buyers rushed to scoop up commodities in late 2020, leaving smaller distributors in a precarious position (think toilet-paper crisis, except with 2×4’s). As material backlogs increase dramatically on one material, projects are shifting strategies to utilize alternate materials, increasing backlog in new categories. We have witnessed this in steel, framing, lumber, insulation, and plastics. To mitigate risk of material shortages or long lead times, Warfel has advanced procurement schedules, negotiated material reservations and worked with suppliers to identify alternate equivalent options, providing flexibility if a supply impasse is encountered.
Labor Shortages and Wage Correction – During the early part of the pandemic, construction work ground to a halt. As time progressed and the industry found ways to work through the pandemic, demand rose to unanticipated levels. Workers lost during these early months have not all come back to work, or back to construction, leaving subcontractors woefully short on labor. Competition for labor has led naturally to wages rising. While the construction workforce is still short of pre-pandemic levels, limited manpower and rising wages are contributing to project escalation and limiting subcontractor ability to service projects in a timely manner. To address these labor shortages, Warfel has doubled down on our subcontractor backlog reviews, making sure our partners are able to provide services in keeping with the project schedule. Our longstanding relationships with our trade partners, based on mutual respect and trust, ensures that our projects are a top priority within the subcontractor market.
Additional Project Planning Strategies
Regular Market Checks: With conditions changing constantly, keeping a close eye on emerging trends is critical. Warfel is providing real time updates to ensure Clients have the best information available. This ensures the project team can collaborate on alternative path solutions early in the project and act swiftly when conditions demand.
Prepare for Procurement: Subcontractors and suppliers are facing regular price increases and are reluctant to hold pricing for 30-60 days, as they might have previously. Any delay in release to procurement after a bid can result in immediate escalation penalties. To mitigate this risk, Warfel is working ahead with subcontractors to clarify price expiration, material reservation costs and significant lead items which may prioritize purchasing. Our estimating team carefully reviews each bid, and breaks out bid packages to confirm lead times and minimize out-of-pocket costs to our Clients. We are also working with Clients to button up permit, contract and insurance paperwork, ensuring the team is ready to proceed swiftly into construction following a bid.
Indexing: Commodity pricing has varied substantially due to supply chain and material shortage challenges. Using market indexes for wood, steel and other commodities as a contracting tool can be a way of managing uncertain pricing at the time of construction.
Warehousing: Early purchasing and storage can be useful strategies to locking in pricing and avoid unanticipated manufacturing delays. Warfel is constantly reviewing and utilizing a combination of in-house, on-site, supplier and subcontractor storage capacity to make sure we can avoid costly delays and interruptions to project sequencing.
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