|By: Melissa Klaw|
For Developers and Owners, the cost of raw materials can be as unpredictable as a heart attack. Similar to a heart attack; when material costs are on the rise they affect the vitality of your projects, which causes distress and pain (primarily to your wallet). The fluctuations come without warning and can be threatening to Owners and Developers. According to Ken Simonsin, chief economist for the Associated General Contractors of America, the cost of construction materials has increased by 41 percent since late 2003. Because natural disasters, changes in demand, and transportation costs will inevitably alter throughout the years, the raw materials market will continue to be erratic. How owners and developers respond to these changes can mean life or death for their projects.
The instability of materials such as copper, steel, cement, and petroleum-based products can have severe negative impacts in the construction industry. The inconsistency of just one material can affect multiple resources. For example, if the price for petroleum increases, consequently the price of asphalt, shingles, PVC piping, plastic, and steel production will also increase. As an owner or developer, you must be able to properly manage your risk and budget accordingly. Unprepared companies that fall victim to this issue can jeopardize the success of their portfolio. A.T. Kearney, a management consultancy, stated that “for companies with significant raw material exposure…mastering raw material volatility has become essential to short-term growth and long-term competitive advantage.” So how do you become a shark in a school of fish?
In a world of uncertainties, how can you effectively limit your exposure? Partnering with the right General Contractor can be the solution for most Owners and Developers. How do you know which contractor is the right General Contractor? Determine the traits the company portrays; can they mitigate threat, limit your vulnerability, and improve your assets? Are they prepared, aware, and flexible? Affiliating your company with a general contractor with these three qualities can drastically improve the way owners and developers cope with the volatility of raw materials in the construction industry. Let’s explore why:
Preparedness. Being prepared to handle an explosive market is the first step to being successful. In order to mitigate unexpected cost increases, Owners and Developers should hire a general contractor who tracks current material prices and project trends in the market. When partnering with Taylor Commercial, Inc., you will find the purchasing process to be effortless. Taylor will purchase raw materials while the market is low, ensuring no surprise change orders due to volatility. Additionally, during the proposal procedure, we will assist with installation methods and product selections that will reduce exposure to inconstant materials.
Awareness. Being aware of market fluctuations and planning accordingly is vital to the long-term success of the project. In order to do so, Owners and Developers should enter into a suitable contract. Many contracts have a disclaimer on them that is referred to as a price escalation clause. This clause allows contractors to increase the price that was originally agreed upon. Construction contracts with price escalation clauses allow unexpected change orders and increases in project costs. Fortunately, Taylor Commercial, Inc. does not include these clauses in our contracts; allowing our customers to have confidence in our pricing without apprehension of lurking material price increases.
Flexible. Because the market is always changing, hiring a contractor that is able to adapt is essential to overcoming obstacles. In fact, by doing so, you can completely erase the risk of an unstable market. Taylor Commercial, Inc. is always willing to make adjustments to conform to the current market. Taylor adheres to our original contract value regardless of a poor market. Even through a long-term application and sales cycle, Taylor honors the original proposal price. While other companies may only honor a proposal for 30 days, Taylor has honored them for up to a year. When partnering with a flexible General Contractor, such as Taylor Commercial, Inc., Owners and Developers can eliminate any risk presented by a volatile raw materials market.