By Construction Contractors Association
James Decker is trying to make sense of an email that he received from a supplier that is all too commonplace these days.
Decker, the Purchasing Manager for Perreca Electric Co., placed an order on October 26 for three pieces of equipment with a 45-day lead time. It was supposed to be shipped by the end of December. But on Dec. 15, he was told by the supplier that the order is being “pushed off” until Feb. 21. That’s the shipping date. There’s no guarantee when Decker might actually see the items.
“The line that we get is ‘pushed off’ and this is going on with a lot of supplies,” Decker said of what has become a routine occurrence for the company based in Newburgh. He said the delays are happening not just with commodity items but standard catalog pieces of equipment.
“In a pre-pandemic world being told 45 working days was a reasonable time frame. That’s what it takes for them to put it together and ship it. Often the shipment would arrive even earlier. So, to be told it won’t get shipped until the third week in February when it was supposed to be the last week in December, about seven weeks past its promised date—and it’s possible that date could change again, that’s not the way things were done” he said.
Contractors are, Overall, Very Optimistic About the Outlook For 2022
A recent construction industry survey found that three-quarters of respondents said they expect demand for most types of projects to increase and, as a result, contractors said they plan to continue to invest in new technologies that are designed to make them more efficient and effective. This optimism stems in part from the fact that the federal government has committed to increase investments in a broad range of infrastructure. It also reflects the fact that demand for many types of private-sector projects, including health care and warehousing facilities, have grown as a result of the pandemic.
Despite the generally optimistic outlook, contractors expect to encounter several significant challenges this year. Chief among those challenges are continued supply chain problems that are making it hard to budget for and procure key construction materials.
Decker, who has more than 40 years in the electrical contracting industry, says in many ways Perreca has been fortunate. “We started seeing delays more recently, in the last three to four months, than when this whole thing started more than a year ago. But it’s getting progressively worse, not better.”
Decker’s experience with supply shortage is a common story: A contractor is missing lumber or copper or windows that were ordered months ago.
Material shortages have kept more than one contractor from completing jobs on time and on budget this year.
According to one business group survey, more than 90% of builders said there were shortages of appliances and lumber, while 90% had shortages of plywood and 87% said they had shortages of windows and doors.
Supply chain bottlenecks, many of which stem from the pandemic, have led contractors to respond in multiple ways. Only 10% of firms report they have not had any significant supply chain problems. Two-thirds (67%) of respondents have reacted by accelerating purchases after winning contracts, and nearly as many — 61% — have turned to alternative suppliers. Almost half — 48%— have specified alternative materials or products, while 23% have stockpiled items before winning contracts.
Dan Depew, Business Development Associate for Holt Construction Corp., said that every project that the company is involved with spells out in the contract that long lead items must be identified as soon as possible and that most owners want to buy the items outright even before the contract even begins.
“An item identified as a 10-week item, it takes 10 weeks to get it and when you look at your schedule it’s a 36-week schedule and you say, ‘ah, no big deal.’ Well, if you wait on any of those things that are potentially marginally not a big deal, and you wait until the project really gets going, you can find that 10-week item is now a 20-week lead item and that becomes a problem for scheduling. We are much more aggressive in what we deem to be long lead items and looking for direct procurement from the owner of a project early on for anything,” said Depew.
According to the report in The Wall Street Journal, 71% of contractors surveyed are facing at least one material shortage. Lumber was the most-cited material shortage (31%), followed by steel or electrical supplies other than copper wire (11%) and lighting supplies (10%).
“Some suppliers are telling us things are a half a year out or a year out. We’re not going to see supplies for a year. We’re talking custom type pieces of equipment that was normally available in 12 weeks, that’s kind of a norm for a lighting or gear package and that’s after the approved drawings. Now they’re quoting 36-weeks and longer,” said Decker.
Many items may not be high on the list of being in short supply, but certainly are crucial.
“Toilets that were once two-to-three weeks out are now probably 12-14 weeks,” said Charlie Milich, president of RAL Supply Group, one of the Northeast’s leading suppliers of plumbing, heating, air conditioning and generators. “They’re imported. We never had a problem. But now the demand is up. And the materials. People are staying home, and they have the money to fix things up. A lot of folks made the mass exodus out of the city for suburban areas. They want to live upstate, but they can’t do it without four bathrooms.”
Material shortages can interrupt cash flow, affecting costs, timing and budgets. Contractors are lucky if they can overpay for materials and stockpile. Supply-related project delays have contractors scrambling to extend expiring builders’ risk policies.
Joe Pacione, Operations Manager at Perreca, said no one wants to invest that much into stocking everything because of what’s going on and how long it takes to get.
“Copper wire went up 120% in six months. Last December it was $3.51 a pound. Today we’re at $4.25 a pound. Up nearly a dollar a pound. We buy per foot. Today it’s $13 a foot. Used to be $4-6 a foot. We order by the thousands. It adds up. An order that cost 10 grand is now $100,000. That’s just one run of wire,” said Pacione.
While supply chains were behind this year due to natural disasters and the delta variant of the coronavirus, these disruptions are expected to continue into 2022. The key to mitigating supply chain issues comes down to resilience: engagement with suppliers, creating materials reserves and developing backup suppliers. It’s also important to reconsider reliance on foreign-made supplies and just-intime materials sourcing, making it important to establish local and regional suppliers when possible.
“We have to think of better ways to provide for our customers that are on tight deadlines and don’t have time to wait for products,” said Robert Kaehler, President and Chief Operating Officer for Perreca.
“We’ve been able to go out and find refurbished equipment and materials that we can get in half the time and in some cases half the cost. Our customers in most cases have accepted that,” he says.
Kaehler emphasizes that sometimes cost is not the issue but getting to the job site is.
“The longer a customer can’t open up a business or a new product the more money they’re losing. If we can’t get the lights on for them, they can’t move into their new building or a refurbished building. More so than money, it’s important that we find ways of getting materials here quicker,” said Kaehler.
He adds, “We’re bidding jobs right now and we’re qualifying all our bids, that we can’t commit to a date when we can receive these things. Customers are asking, ‘give us a list of all your equipment and what’s the lead time on them.’ So, we’re telling them outright, ‘hey, you might not get this for 30 weeks.’ They respond, ‘But we gotta be open in 20.’ It’s become a real dilemma. Unless we can come up with an idea and find a refurbished something that’s sitting someplace that we can go and retro fit and bring it in that way…a lot of owners have accepted that. It’s more about timing rather than dollars.”
In 2021, stressors on the construction supply chain seemed to be endless. It was a cyclical chain of events, each of which caused greater strain on other parts of the chain.
While a softening in the U.S. economic recovery has impacted construction activity post-pandemic, a 19% hike in construction materials prices and the notable decline in the U.S. workforce—which drove up construction labor costs—have proven to be far bigger factors in slowing construction project growth and the industry’s recovery, the report found.
“Labor is the only thing that is set,” said Todd Diorio, President of the Building and Construction Trades Council of the Hudson Valley and Business Manager for Laborers Local 17. “We have three-, four- and five-year contracts that are set at maybe a 3% or a 3.5-% increases yearly, we’re the only thing that’s holding steady. Labor is becoming less and less of a project cost. We used to run 40% of a project cost. Now we’re a lot less.”
Decker turns back to his two computer screens, one that keys on supplies and the other the cost of materials.
“My guys will keep bidding the job. They’ll come in and ask me, ‘what’s going to happen’ and I tell them, ‘I don’t know.’ I tell them, ‘I work on West Street—not Wall Street.’ It’s a crapshoot. When we quote projects, we have to say our price is good for a shorter period of time than we normally would have been able to extend ourselves. We’re starting to put clauses in with our proposals. We must protect ourselves from what could happen because we don’t know if it’s going to get worse.”
