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Rising Materials Prices and Supply Chain Disruptions Are Hurting Many Construction Firms

Another round of steep price increases and supply-chain disruptions are wreaking hardships on contractors, driving up construction costs and slowing projects, according to an analysis by the Associated General Contractors of America of government data released March 12. The data comes a day after the association released a new survey showing materials delays and price increases are affecting most contractors. Association officials urged the Biden administration to end a range of trade tariffs in place, including for Canadian lumber, that are contributing to the price increases, and to help uncork supply-chain bottlenecks.


“Both [the March 12] producer price index report and our survey results show escalating materials costs and lengthening delivery times are making life difficult for contractors and their customers, including hospitals, schools and other facilities needed to get the economy back on track,” said Ken Simonson, the association’s chief economist. “Project owners and budget officials should anticipate that projects will cost more and have longer—perhaps uncertain—completion times, owing to these circumstances that contractors cannot control.”


Prices for materials and services used in construction and contractors’ bid prices both declined at the beginning of the pandemic but have diverged sharply since last April, Simonson said. A government index that measures the selling price for materials and services used in new nonresidential construction jumped 1.9% from January to February and 12.8% since April 2020. Meanwhile, the producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—increased only 0.3% last month and 0.5% in the 10 months since April.


“The nearly 1,500 contractors who responded to our survey overwhelmingly reported rising costs, shortages and delays in receiving needed materials, parts and supplies,” Simonson added. “Eighty-five percent of respondents said their costs for these items have risen in the past year, and a majority—58%—reported projects were taken longer than before the pandemic struck. This situation will intensify the cost squeeze apparent in the producer price index data.”

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