Newsletter - Volume 127

 

     In this issue:

Inflationary Items in Construction

   By Paula Scales

High energy and material commodity prices continue to fuel construction industry inflation, which broke into the double digit realm after the surge in steel prices during 2004 and has remained near those levels.

In fact, according to the U.S. Dept. of Commerce, the selling price of new construction projects increased another 2.3% during the second quarter after climbing 2.5% during the first quarter of the year.

Three indexes used included productivity, overhead and margins along with labor and material costs. The latest gain keeps the average annual increase for this group of indexes at 10%.

Indexes that measure only labor and overhead indicate only a 6% increase compared to a year ago; material costs on the other hand are skyrocketing.

Copper was the champ in the surge of commodity prices, which in the second quarter of this year are up 94% over a year ago.

Energy prices are inflation’s other main driver. The producer price index for May shows diesel fuel prices rising 40% above a year ago. Rising crude oil costs and refinery costs are giving asphalt prices a steady push up-ward as well. In May, asphalt costs were 29.8% higher than a year ago.

Rapid escalating material costs cause Contractors frustration in their inability to get firm material quotes. Suppliers used to hold prices for 30 to 60 days and in some cases as long as 90 days. Now those same suppliers are only holding the price quotes for 7 to 10 days!

Contractors therefore need to find methods to protect themselves from price escalation during the period from when they quote a project until the time that they receive a commitment from the project owner.

One way is to make the statement on all proposals that the quoted price can only be held for a specified number of days – perhaps as few as 10 days.

Another option, which has become standard in many contracts over the past twelve-to-eighteen months, is an escalation clause.

This clause allows the contractor to be paid for material increases providing that the contractor presents the appropriate documentation verifying the cost increases.

The effects of inflation are felt in all industries. Fortunately, methods such as those described above enable construction firms to continue doing business with reduced risk.

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Tilting Towards Lower Costs!

The soaring price of steel brings tilt-up construction to the forefront.

The buzz about skyrocketing construction costs has forced those in the industry to get creative or die.

Tilt-up is like any other construction method, because the foundation is placed and the floor slab formed before the walls are built.

The difference is that walls are cast out of concrete panels lying flat on the ground and then lifted all at once to accept the building’s roof.

In the 1940s and ‘50s, the “tilt-up” method became popular in California and Texas for large warehouses and industrial facilities. In the ‘70s, it spread to the Midwest and Florida.

But not until recently has it been used for other building types, such as churches, retail centers, schools and office buildings.

There are several benefits associated with this method, including:

But the most important benefit is cost. The average cost of a tilt-up wall is $8 per square foot compared to $12 per square foot for a masonry wall. The time it takes to construct the wall is 25 percent less as well, and only half as much labor is needed.

In addition, when compared to a metal building, a tilt-up building requires less maintenance because it can withstand storm damage, will not dent and won’t rust.

Features can be added to the concrete such as color and texture to provide visual appeal as well.

Tilt-up walls also hold heat better because of the massing of materials in concrete. Concrete is a recycled and reusable material.

These elements are important to sustainable design, and certifications by US Green Building Council’s Leadership in Energy and Environmental Design standards are becoming widespread.

Given the cost and logistic advantages, tilt-up makes sense, and we expect to see the trend towards its use continue to grow in most, if not all, regions of the United States.