Vince Bailey / February 2019
The future’s not ours to see; que sera, sera… —Livingston and Evans, as performed by Doris Day
As one who enjoys reminiscing, and one who otherwise tries to live in the present, I am generally reluctant to engage in much prognosticating—too many unforeseen intervening factors. Nevertheless, with the lion’s share of the year still stretching out before us, I think it’s appropriate to make an exception. After all, projecting some of the relevant issues that can affect the lives and livelihoods of wall and ceiling quotesmiths may well prove to have some value in terms of preparedness. This year’s upcoming concerns that are starting to plague the continuity of a good night’s sleep among bidmeisters include the following: a serious shortage of skilled manpower, a rapid and dramatic rise in material prices, ever shorter construction durations, budgeted projects that never come to fruition, and the general outlook of the economy. Clearly, each of these issues can powerfully impact any or all of the others, so the solid lines between them may become blurred. Overlap notwithstanding, I will take each matter in turn.
With the current economic conditions (a healthy GDP, deregulation, tax relief, low interest rates, record low unemployment) prevailing, few industries have felt the surge of positive activity as has the construction sector. Yet, as has been stated in previous columns, prosperity can come with problems. Quantifiers who also manage projects have found that burgeoning backlogs have translated into difficulties with adequately manning the projects when push comes to shove. One critical consequence of this is an inflated cost of labor. In order to perform per schedule, managers must pay highly competitive wage levels or overtime premiums—significant costs that most likely had not been foreseen at bid time. The quick solution to this manpower shortfall would involve development and implementation of a guest worker program that would allow productive immigrants to enter the work force legally. Sadly, since the overall immigration issue has become such a partisan football, that solution seems unlikely in the short run—perhaps not to be realized at all, given the current political climate.
All bidmeisters, excepting the comatose or deceased, are aware of the ritual practice of raising material prices. One year suppliers claim it’s drywall (gypsum shortage? C’mon!), the next it’s steel. Some years it’s both. We’ve heard every mumbo-jumbo excuse from inflated fuel costs to trucker strikes, to smelter closures. It’s an annual tradition that we’re all familiar with. However, this coming year’s escalation has already been determined, and the reason actually sounds pretty legitimate. Increased tariffs on steel imported from China, the world’s top producer, will translate into price increases on metal studs and track anywhere from 10 to 30 percent over an already inflated current cost. In addition, escalating structural steel costs on columns, beams and bar-joists could deter investors/developers from moving forward on steel-framed projects, thus having an indirect but decidedly negative impact on commercial drywallers.
Many of these cost escalations occur on a quarterly basis. That’s why shrewd general contractors try to minimize the impact by shrinking performance durations on their schedules—to keep ahead of time-sensitive pricing. But this only compounds the problem for subcontractors who are struggling with manpower shortages and long lead times on products in high demand. Needless to say, the cost of any possible acceleration in schedule is a factor that drywall quotesmiths must be prepared to quantify and pass back the very real costs with a healthy markup to minimize the risk involved.
Now, with all these cost increases likely emerging over the next several months, consider the sticker shock developers and GCs who base their budgets on a testing of the waters from one or two years ago are going to experience. Shock will surely turn to outrage when it becomes crystal clear that they will never build their project with the resources they had allocated in the past. Many incredulous GCs will demand that a sub justify the increases in an item-by-item accounting of the price hikes, unwilling to accept that costs have risen so rapidly and dramatically.
Looming large behind all of these very relevant issues lies the state of the economy in general. As of this writing, an interest rate hike paired with an escalating trade war with China have prodded the stock market over a cliff. And while some crystal-ball gazers are predicting the worst possible outcome from these gloomy factors, others emphasize all the positive indicators that have prevailed over the past year (see the first sentence, second paragraph), and project the same kind of growth in the upcoming one.
Evidently, only one thing stands certain regarding the outlook for the construction industry in general (and estimators in particular) over this coming year. And, alas, Doris Day said it best.
Vince Bailey is an estimator/project manager working in the Phoenix area.