Contractors face ‘runaway costs’

Contractors’ bid prices for constructing new nonresidential buildings in North America have finally caught up with soaring costs for the materials and service they buy, but the price increases for key materials will continue.

Analysis of government data by the Associated General Contractors of America (AGC) revealed that the prices charged by goods producers and service providers such as distributors and transportation firms rose 1.9% from April to May and 18.9% since May 2021, following 12 consecutive months of 20% or greater increases.

An index for new nonresidential building construction – a measure of what contractors say they would charge to erect five types of nonresidential buildings – rose 0.4% for the month and 19.3% from a year earlier.

“After enduring more than a year of runaway increases in the cost of items needed to build projects, contractors have finally raised their bid prices by an equivalent amount,” said Ken Simonson, the association’s chief economist. “But the runup in materials costs appears likely to continue to pressure contractors’ profit margins.”

A wide variety of inputs accounted for the increase in the cost index, making further increases likely in the near term. The price index for diesel fuel, liquid asphalt, steel mill products and aluminum mill shapes all increased sharply.

In addition, there were double-digit increases in several other price indexes that affect construction costs. The index for roofing asphalt and tar products rose 18.9% over 12 months; insulation materials by 16.6%; paving mixtures and blocks by 16.1%; concrete products by 12%; and construction machinery and equipment by 11.5%.

Association officials said ongoing increases in materials costs will continue to threaten the profit margins of many contractors. They urged federal officials to remove remaining tariffs on key construction materials, rethink newly released Buy America policies and address constrained supply chains in order to lower costs.

“Higher construction prices run the risk of forcing public agencies and private developers to rethink planned projects,” said Stephen E. Sandherr, the association’s chief executive officer.

“Federal officials need to remove remaining tariffs, support a competitive materials market, and take every possible step to support a supply chain struggling to restart after the pandemic.”