The Problems with Materials

Supply Shortages and Higher Costs

David C Phillips / January 2023

Construction materials supply chain issues have not been fully resolved. War, fuel prices, elections, and several other factors contribute to the problems. Many common building materials such as wood, drywall and steel, are in high demand and short supply. Even when available, prices are high. We wanted to find out what steps contractors are taking to obtain the supplies they need, and how prices have been affected. How are the customers taking it? Has the quality of materials suffered?

Securing Materials
We first asked contractors what they are doing to secure the materials they need and whether they have added new suppliers.

Communication and Prediction
Larry Semerikov, owner of LS Drywall, Inc. in Minnesota, says, “Communication with our suppliers and the GC is key. We have to know all lead times and convey that to the GC so there are no surprises. We recently started to quote all of our jobs, no matter how big or small, instead of just going with what our #1 supplier gives us for pricing,” he adds.
    
“We communicate frequently with our vendors on the availability of products,” says Aaron Shanks, director of project management at Western Partitions Inc. in Oregon. “They pass on advance warning from the manufacturer(s) that particular products are becoming limited. If we are unable to procure a certain product that is called out for a project in the given time frame, we propose using an alternative that meets or exceeds the requirements. For products that are limited, we have to plan ahead and let our suppliers know the quantity we need and when. We haven’t had to add any new suppliers but are always open to partnering with good quality suppliers who price competitively and provide a good, solid service.”
    
Veronica DeBonise, president of G&G Plaster, EIFS & Drywall, Inc. in Massachusetts, says, “We stay in contact with our vendors and, if we need material we don’t typically use, we inquire about lead time and availability well in advance. Our sales reps contact us if they know products will be subject to unusual delays.”
    
At Heartland in Des Moines, Iowa, Samantha Blettner, lead estimator, and Cody Woiwood and Nate Womble, project managers, put their heads together to answer the questions: “Once the job is awarded, we lock in the pricing and ask for current lead times. We then share the lead times with the customer before signing the contract. We are asking suppliers to hold the material if possible. If not, we work with the GC to store it on-site. We have had to store some (mainly specialty) items at our warehouse as a last resort. If the selected supplier isn’t able to provide a complete material package for the project, we reach out to others we are connected with to supply the remaining materials.”
    
“We’re planning as far in advance as possible,” says Dan Schnippert, procurement director at Marek in Texas. “Some items have returned to availability approaching historical norms, but there are still some issues. Yes, we have added new suppliers, specifically for cases where our usual partners do not have availability.”
    
Dusty Dahmer, CEO of Dahmer Contracting in Missouri, says, “The material supply market is improving. The summer of 2020 was when the supply chain shock started affecting everybody. I personally never thought the supply chain to be so short and fragile, assuming there’d be several months’ supply of everything.” He adds, “Pre-VOCID, procuring materials was the easiest part of the project manager’s job, compared to all other logistics. Now it is the hardest!”
    
“We are looking further and further ahead to set up vendors as soon as we obtain a Letter of Intent regarding any given project,” says Ron Karp, principal of Advanced Masonry Systems and Advanced Drywall Systems in Florida. “Even when we do, suppliers appear to be taking on more and more, whether they can handle it or not, and then blaming shortages, delays or non-shipment on the current climate, rather than on their overbooking. As far as adding new suppliers, most are taking the position that if you’re not an existing client, they are not interested in working with you until the current situation changes.”
    
Roger Olson, president and CEO of Sig Olson & Sons Plastering Inc. in Minnesota, says, “We begin materials procurement from the moment the contract is received. A portion of our reputation lies in the fact that we use high-quality materials, so we have tried with fair success to maintain the supplier relationships we have enjoyed for many years.”

Divide and Conquer
Larry Cowper, director of self-perform operations at Clark Contracting Services in Michigan, says, “The constraints on the supply chain have definitely caused issues for us all, but we have seen some very creative ideas to mitigate the risks. We are constantly working with our existing partners to create innovative solutions to the volatility of the supply chain. They are very well suited to provide substitution requests where permissible to minimize use of products known to create supply disruption. We have also expanded our warehousing capacity to enable additional stored materials.”
    
“We secure pricing from multiple suppliers and ask our clients to correspond with scheduling on a weekly basis,” says Bill Fritz, president of Mission Interior Contracting LLC in Texas. “We, in turn, keep our chosen supplier informed so we can prevent any delays.”
    
Dave DeHorn, chief estimator at Brady Company/Los Angeles, Inc. in California, says, “We are including two or three different manufacturers during our submittal process instead of just one. This allows us to switch to a different manufacturer if they can deliver the material faster. We have four major distributors that we use in the Los Angeles area who seem to cover all of our material requirements.”
    
Mike Taylor, executive vice president of Liddle Brothers Contractors, Inc. in Tennessee and past president of AWCI, says, “We have added suppliers as needed. We have increased inventory levels on most items that we stock to ensure availability when needed. This ties up more cash.”

Business (almost) as Usual
Jerry Reicks Jr., president and CEO of JARCO Builders, Ltd. in Iowa, says, “We are finding all our material without a problem, with the exception of insulation, which our normal supplier cannot provide.”
    
Pat Arrington, principal at Commercial Enterprises Inc.in New Mexico, says, “An international material dealer has moved in, purchased two large existing suppliers, and is able to procure most of our requirements in 10 to 14 days.”
    
For Michael Mazzone, president of Statewide General Contracting & Construction, Inc. in Hawaii, dealing with materials supply issues is nothing new: “In Hawaii we always had supply issues. We don’t have many choices for new suppliers, so we just roll with it.”
    
“We are 85% back to normal for drywall framing areas—carpentry finish and trim continue to run long leads,” says Rick Wagner, senior projects manager at Richard Wagner Enterprises LLC, in North Carolina. “And yes, we have expanded our list of vendor sources.”

Repercussions
Ken W Ottinger, senior field technician at Kitchell Quality Assurance in Arizona, brings up an interesting angle to the problem: “In project weatherization (building envelope; weather barrier, windows, finishes, roofing and below-grade waterproofing), compatibility is everything. A lot of prep, submittal review and product compatibility confirmation testing is needed to ensure that substrates play nicely with flashing, that sealants bond to each other, and fluid-applied products play nicely with, well, everything. In a material-shortage condition, much of this planning goes out the window (no pun intended) when you have to change materials the day of start, or worse, once you have started in that scope application. Now you have to worry about dealing with additional material transitions that are not ever planned for. How do you deal with material warranties if things fail to bond or lose adhesion a couple of years down the road?”
    
He continues, “Major manufacturers are allowing trades, under special dispensation, to use someone else’s anchors, or adhesive or plates. Where a couple of years ago, mixing manufacturer products would be grounds for voiding warranties, now they are ‘OK.’ Does this set the stage for looser acceptable practices moving forward?”

Prices
An interesting question from Wagner: “Elephant in the room: Why did we have these massive increases? And how is the stock of the materials manufacturers and the vendors doing? Because we midsize guys got hit hard!”
    
Let’s look at the details.
    
Semerikov says, “This time last year we were crushed with material prices from jobs that we landed in 2021 only coming into play late in 2022. We didn’t have a system in place for safeguarding the company from those huge material increases, and we ended up having a few loss and break-even jobs. That hurt! But we learned from our mistakes and put in new policies and procedures so that it doesn’t happen again.”
    
Blettner and the Heartland team say, “All material has increased since two years ago. Metal has decreased recently but is higher than two years ago. Gypsum board seems to still be increasing but at a slower rate. We are being asked to include material escalations on all material on all projects we are bidding.”
    
“The pricing on many commodity materials is still much higher than traditional escalation percentages but has seemed to level off through third quarter 2022,” says Cowper. “Specialty material pricing continues to rise, likely due to the continued labor shortages we are seeing nationally.”
    
“The overall supply is tight, demand is high, wages and fuel prices have increased significantly,” says Shanks. “Metal framing material prices doubled in early 2022 compared to 2021 due to the demand in our market. For the past four to six months, material prices have started to stabilize and now slowly drop as inventory has increased.”
    
Schnippert notes: “Prices are still higher than pre-pandemic. There is variation by material. Steel is down (relative to the peak price), insulation continues to increase, wallboard has been increasing but we are seeing it level out.”
    
“Metal stud price hikes were painful for contractors and suppliers alike,” says Dahmer. “We were sometimes just glad to get materials. Suppliers are good about projecting prices and allocations, both short and long term,” he adds. “They’re doing their best. Trade partner relationships really paid off with suppliers and customers—just one of many ‘integrity dividends.’”
    
DeBonise recalls, “I bid a particular project in March of this year that didn’t take off when expected. Price revision took place in October and material cost had risen 20% overall.”
    
Taylor points out another aspect: “Another huge issue is that distributors and manufacturers will not honor quotes they have given. This has caused stress in our relations with them.”
    
Karp says, “The largest increases we are seeing are CMU and concrete.”
    
“Increases have been anywhere from about 5% up to as much as 50% for some petroleum-based materials that we use,” notes Olson.
    
Reicks says, “All our materials have seen and are expected to see first-of-the-year increases. The exception is steel: After a 286% increase last year, it is coming down a little.”
    
Arrington confirms that in New Mexico, “Steel products pricing is being reduced, and current pricing looks like it may return to pre-pandemic levels.”
    
“Materials on average are 59% more than 2020,” says Fritz. “The high is 94% on fire-retardant plywood; the low is 52% on insulation.”
    
DeHorn says that steel has leveled off somewhat. “Any product that contains fiberglass is really tough to obtain,” he says. “For us, that would be glass-mat faced gypsum products.”
    
Mazzone thinks “manufacturers panicked and increased prices more than was justified and are now starting to come back down. They are still about 30% above last year’s prices.”
    
Wagner says “all materials are up from 35% to 90%—FRP at the high end and drywall soft goods at the bottom.”

Covering Price Increases, Customer Response
So how are contractors dealing with the price increases, and how are their customers taking it?
    
“In a perfect world, the owner should cover the price increase,” says Semerikov. “But we live in a far-from-perfect world when it comes to commercial drywall. So we have to brainstorm and communicate with vendors, owners and GCs—how do we make this work without having to pass the buck to the owner? Can we store some material at the job site? Perhaps the vendor has an area where we can pre-order material and have it sit until it’s our time to shine on the project.”
    
The folks at Heartland share their thoughts: “It comes down to being transparent with the GCs/architects/owners—being upfront with them and trying to work with them makes them more likely to work with us and help cover the costs. Our suppliers are providing us with estimated material escalations at time of bid. We are including these in our proposals to cover us for the duration of the project. If it doesn’t cover us, we either need to provide the GC with documentation or cover the cost ourselves. GCs/architects/owners consistently refer to the contract, as they should.”
    
“We notice the most pushback on pricing change orders, as customers are seeing prices that are well outside what they have experienced in the past,” says Cowper. “We have needed to provide extensive backup to validate the increased pricing.”
    
Shanks says, “We try to lock in material quotes right away when a project is awarded, hoping customers make decisions rapidly, as we do not know where the market will be in one to six months.”
    
“When small changes take place, we cover the change,” says DeBonise. “However, when projects are delayed or have gone on longer than anticipated through no fault of our own, we let the owner/GC know of the increase and make a request to cover it. I think we all are working together to manage the changes as best we can.”
    
Taylor points out, “This is a complex issue that is addressed on a case-by-case basis. We are sometimes able to pass some of the increase along to the customer. It is causing a decrease in margins across the board for all contractors. Combine this with higher labor costs and there is no doubt that increased pricing will slow construction.”
    
Karp says, “When we have terms in our contract that address price increases and availability, the GC has no choice but to pass it on to their client, the owner. However, if the GC doesn’t have terms in their contract with the owner, they are the ones who have to absorb the additional cost, leading to battles and claims. With older contracts that were executed before the current environment, our clients refer to the subcontract agreement and don’t offer any assistance, placing the burden of any material price increases on us, the subcontractor.”
    
“We absorbed the initial increases and generally honored our bids through the pandemic,” says Olson. “We have raised our prices as necessary to cover costs. Of course, our overhead has increased due to cost increases that have been passed on to us as well. It seems the most important thing in these times is getting the job, so price doesn’t seem as critical as it has been in the past.”
    
“We pass the additional cost on to the client when bidding the project as there is no other reasonable choice,” says Fritz. “We find that even long-term clients are taking other bids now. We do not obtain nearly the percentage of projects we did prior to 2020 for this and other reasons.”
    
“We cover our material price increases from our distributers with our bid price and then tell the client to accept our bid within 30 days so we can ‘lock in’ the cost with our distributors, who in turn lock in their prices with their suppliers,” says Dehorn. “If the client does not award within 30 days, we ask our distributors if their price is still good. If not, it is repriced and those costs are passed on to the client. No one likes to be blindsided with price increases. If you are upfront and notify your clients early and then provide them with good back-up, they tend to take it much better than sending them a cost for material increases at the last minute.”
    
Mazzone says, “We are fighting on every project to get material escalations that were not covered at the time of bid. The process is long and takes a lot of administration time to put together documentation to justify the increases. Most of our customers are government and they are making it as difficult as possible.”
    
“On a few jobs, we had to buy out way ahead and take delivery to assure pricing,” says Wagner. “We are doing that right now on a 4-story project, pre-stocking all metal and board by Christmas to beat the new year’s increase.”

Product Quality
We asked our AWCI contractor members if they had noticed a difference in the quality of construction materials. In general, there has not been a change. But there are a few exceptions.
    
Cowper says, “The quality of materials continues to drop and the level of errors in packaging to increase. We are forced to spend much more time auditing and inventorying product when it hits the job or warehouse. Regardless of the size of the order, we try to have kick-off meetings with the vendor to set expectations and ensure a solid partnership for each project.”
    
Taylor says, “I do not see a material quality issue, but I do see customer service deteriorating at a rapid pace.”
    
“The quality of ready-mix concrete appears to be worse, but otherwise most material quality remains the same,” says Karp.
    
“During the last two years we have had more factory defect drywall, but we realize the COVID labor issues affected them also,” says Wagner. “Manufacturers’ reps are always fair with money adjustments.”
    
On a positive note, Blettner and Womble report product quality is improving “because manufacturers/suppliers are having to become more creative in solving problems—either having more people work to create more products, or creating a new product that is more efficient/effective.”
    
The material supplies issue is definitely real all across the country. What is particularly interesting is how contractors take these problems on board and deal with them sensibly and effectively. And the show goes on.

David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.