Be Prepared: Material Price Increases Happening Now
Earlier this year, Hixson released the latest issue of our Cost Trends newsletter, which provides overviews and insights on the key factors that influence construction project budgets, using data from the industry’s most reliable sources. As noted in that issue, volatility in material supply and costs were both distinct possibilities due to the continued impacts of COVID-19, particularly for mill steel, lumber, and aluminum.
Today, just two months later, we continue to see more evidence that the construction industry is experiencing higher-than-normal material price increases and some supply disruptions which may affect schedules. However, we are also seeing other material increases, such as for Insulated Metal Panels (IMP). For example, one IMP manufacturer announced a 17% material increase, something we discovered through our network of industry contacts and confirmed from bid results on a recent project.
In addition, we are seeing an acceleration of the rate of construction price increases in the Engineering News Record (ENR) magazine’s Construction Cost Index (CCI) over the last three months to levels that we haven’t seen in decades:
- The annual rate of the ENR CCI in December 2020 was 1.6%, but had increased by April 2021 to 3.76%.
- Over the last three months, the ENR CCI has increased from 11,628 to 11,849, a rate of 7.6%.
Why does this matter? Although we at Hixson continue to monitor prices and adjust our cost estimating to reflect the latest cost information, older cost estimates from several months ago may require use of some of the project contingency or require a review of the impact of cost escalation.
Hixson will continue to closely monitor where material prices go from here, as this may simply be a reversal or may be a “catch up” from the pause in inflation that we saw last spring when COVID-19 hit. For now, these increases are happening and will likely impact construction project costs. Therefore, we suggest that all projects include the recommended cost estimate contingencies to keep project schedules and budgets on track.
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