Tariffs could weigh on construction costs

TARIFFS ON imported building materials have caused healthcare providers to start rethinking construction projects as they look to mitigate higher costs.

The Trump administration on Sept. 24 placed a 10% tariff on 5,745 items from China worth $200 billion, including concrete and lumber. That will rise to 25% in 2019.

That’s in addition to $50 billion worth of Chinese imports subject to tariffs implemented in August. A 25% levy on steel and 10% on aluminum imported from a handful of countries already kicked in earlier this year.

While healthcare construction projects haven’t been delayed or canceled yet, the tariffs could have a material impact next year, according to Andrew Quirk, senior vice president and national director of the Skanska USA Healthcare Center of Excellence.

“This is going to start weighing on the marketplace soon if it is not resolved shortly,” he said. “Clients understand that this an oncoming wave. It’s starting to get peoples’ attention.”

Healthcare providers have been asking Skanska if they should go to the capital market, put in pre-emptive orders for building materials before tariffs increase next year, delay projects or alter designs to minimize costs.

Healthcare uses a significant amount of building materials like steel, concrete, glass and specialty finishes that come from outside the U.S. Building material costs account for 30% to 70% of the total budget, Quirk said.

“Steel has gone up 10% to 18% in some markets, which can significantly add to a project,” he added.

Healthcare provider clients of architecture firm NBBJ have not yet seen a quantifiable increase in material costs related to tariffs, but people are talking about it and think it could have an impact in the future, the company said.

Economists have long warned that engaging in tariff wars would be a net loss for the U.S. economy. The amount of tariffs U.S. businesses paid in August rose by $1.4 billion, or 45%, compared with August 2017, according to new data from Tariffs Hurt the Heartland, a coalition of about 100 U.S. industry groups.

The silver lining in all this, Quirk said, is that it’s bringing contractors, architects and their clients to the table sooner. They are having conversations that could add value to projects and ultimately save providers money down the road, he said. ●