Cost Fluctuations Make Tilt-up Construction a Better Choice Than Ever
contractors will be happy to hear that America's demand for new commercial and
residential building has been on the increase in 2005. According to the U.S. Census
Bureau of the Department of Commerce, as of August 2005 construction spending
was estimated at a seasonally adjusted annual rate of $1,108.5 billion, 6.1 percent
above August 2004. During the first eight months of 2005, construction spending
amounted to $723.7 billion, 9.0 percent above the same period in 2004. From July
to August 2005, the fastest growing segments of the construction industry were
highways and nonresidential private construction, outpacing the rate of growth
in residential and all other facets of public construction.
for new construction is growing at a healthy, but not excessive rate, construction
costs have not demonstrated the same measured stability. External forces have
resulted in phenomenal rate increases for a wide range of integral construction
supplies, raw materials and services. This fact has made the process for long
term cost projections more difficult now than it's ever been.
Forces Drive Cost Fluctuations in Construction Supplies and Materials
2004, Steel was the primary culprit for increased construction supply costs. The
largest factor influencing this was China's burgeoning economy, which has driven
phenomenal growth in their construction and manufacturing needs. China's demand
for steel in 2004 increased by 38 million tons; just their demand increase was
as much as the total annual steel usage for Mexico and Canada . . . combined.
This massive increase in demand, coupled with reduced supplies of raw materials
and a weaker American dollar, drove the price for steel up 66% in one six-month
period in 2004 and made long-term cost estimating for a wide range of construction
projects virtually impossible. Even tilt-up concrete construction projects were
significantly affected by steel's inflation as these buildings normally use steel
joists, beams, roof systems, etc.
As a result, in 2004 steel producers added
surcharges or renegotiated contracts to raise prices and help offset their higher
costs, or simply canceled orders they couldn't fill. Steel's spiraling prices
finally peaked and started to reverse themselves in 2005, although they remain
20 - 30% higher now (mid- to late-2005) than their January 2004 levels.
also was in high demand in 2004 and 2005, driving up prices and lead times for
this raw material as well. While concrete prices have not inflated as dramatically
as steel's, they have increased 10 - 12% between January 2004 and mid-2005. The
availability and price for concrete have long been significant advantages of tilt-up
construction, but both price and availability have presented significant challenges
to cost estimators and general contractors in recent months.
and finite supplies also played a major role in the cost of gasoline and petroleum
products over the past 12 - 24 months. In December 2004 oil sold for $37 per barrel.
In September 2005 oil cost more than $63 per barrel, following temporary spikes
in August that exceeded $70 per barrel. This resulted in price jumps of 50% for
gas and diesel fuels, as well as significantly increased manufacturing and delivery
prices for virtually every product and process in construction.
Create Construction Cost Instability for 2006
For the remainder of 2005
and into 2006, the greatest affect on construction costs may well be the result
of natural - and not man-made - forces. This year Hurricane Katrina caused at
least $125 billion in economic damage and could cost the insurance industry up
to $60 billion in claims. Estimates for damage to infrastructure such as roads,
bridges and the utility system in New Orleans alone exceed $10 billion. Thousands
of businesses and more than 300,000 homes were damaged by Katrina, most of them
beyond repair. Following Katrina was Hurricane Rita, which caused an additional
$10 - 15 billion in damages in Texas and Louisiana.
In the short term,
the repair process will place heavy demands on a wide range of building materials
like lumber, steel, plywood, electrical components, glass, roofing materials,
asphalt, carpeting, drywall and PVC piping, so costs and delivery times for these
items are likely to increase nationwide. Skilled construction labor, particularly
framers and drywall installers, will also be at a premium as far away as north
Texas. Katrina will result in a temporarily reduced demand for concrete in the
region as workers focus on repairs rather than new construction. This reduced
demand may or may not translate into price reductions, however; New Orleans is
the country's largest port of entry for imported concrete, and with that city's
diminished functionality, available supplies will be reduced as well as local
For the long term, Katrina's impact on our nation's oil supplies
and continually increasing demand may have the greatest affect on construction
costs. Several American refineries and oil delivery mechanisms were affected by
Katrina; as a result, already-tight oil supplies were further diminished by the
hurricane and the cost to manufacture and deliver products or operate construction
equipment is likely to continue its rise. Adding refinery capacity in our country
would take at least a decade so we have no short term solution to this problem.
Construction Costs Summary
When fundamental raw materials like
steel, concrete and petroleum experience double-digit inflation rates, the amount
of time for which material suppliers, tilt-up contractors, general contractors
and cost estimators can commit to pricing grows shorter and shorter. Established
commercial construction companies have outstanding relationships with major subcontractors
and suppliers, as well as the expertise to provide as much pricing information
and commitment as possible. But the fiscal reality of the global economy and the
ramifications of natural disasters shackle all participants in the building process
when it comes to projecting construction costs, long term. When prices for core
raw materials are increasing at eight to ten times the economy's inflation rate,
it is very difficult to commit to pricing several months in the future that is
Given that the costs of raw materials and supplies
will not be stabilized in the near future, the key to controlling the budget is
to control and reduce the schedule. Tilt-up construction allows for a compressed
schedule that is extremely reliable, due to the availability of locally created
raw materials and the ability to overlap skills. As construction costs continue
to remain volatile tilt-up construction will become an even better choice for
delivering quality construction projects that stay in budget.
things developers can do to compress the construction schedule and work with leading
industry partners to increase the viability of their project budget include:
like Fast Track construction have reduced the timetable for delivering a construction
- Engaging a general contractor or construction manager
earlier in the process is a good way to control time in the initial planning phases,
as these experts understand permitting and other legal requirements and can ensure
all documentation is filed thoroughly and in a timely manner, reducing schedule
delays early on.
- Some building owners are taking a more active role in
the design/bid/build process and are functioning as a team member to streamline
communications and drive faster completion of projects as well.
and business owners should leverage these approaches and work with general contractors
who have relationships with established suppliers to maximize their ability to
project and budget construction costs accurately through the end of the building's
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