Construction disruption Supply chain, labor shortages impact local contractors and vendors
Construction in Yuma County hasn’t let up during the COVID-19 pandemic. However, supply chain and labor shortages have deeply impacted the industry, resulting in project delays and overbudget costs.
A virtual lunch-andlearn on the local construction market hosted by the Greater Yuma Economic Development Corp. featured Yuma Southwest Contractors Association representatives who shared how these factors are affecting residential, commercial and industrial projects.
Speakers included Felipe Gonzales of Foxworth-Galbraith Home Improvement Center, John Kovesdy of McCarthy Building Companies and Kirk Perkins of Yuma Valley Contractors.
“We’ve been having a lot of issues either with jobs wanting to stop or they’re incredibly over budget and there’s massive delays,” Gonzales noted.
“We’re talking about a market that has gone 350% from before the beginning of COVID,” he added.
On the labor shortage, COVID-19 has brought projects to a stop. It only takes one worker to get sick and infect the whole crew. Even if they’re not all sick, they have to quarantine themselves for at least five days.
However, “lumber has been one of the biggest culprits that has hit the supply chain. Lumber has been unpredictable,” Gonzales said.
The issues start at the mill level, the companies that produce the lumber. “These mills found out they can make serious cash with their product. Because the last two years, even though we’re going through a pandemic, people never stopped (building, renovating and doing home projects). They just kept going and demanding more, and the mills got a little taste of it,” he said.
When you combine all the factors, it’s creating a “bottleneck of material shortages,” Gonzales added.
Over the winter, mills decided to shut down for maintenance and wouldn’t take any offers or accept any purchases from secondary markets because they wanted to deplete the materials on hand.
“The pricing of the materials went through the roof. Anybody in a secondary market was wanting top dollar pricing for their product,” Gonzales said. “It looked orchestrated. We don’t know that for sure, but that’s what it looks like and that’s what it feels like.”
As predicted, once the mills opened up again, lumber prices increased another 25%.
“The main reason, though, is that people
continue to build, they keep wanting to build. We keep giving out these prices and they’re extremely high. Some are double in price. These jobs are now a million, two million dollars over budget, but these people we deal with are finding a way to continue,” Gonzales said.
“Who’s paying for these increases? It’s the end consumer,” he noted.
The sale, rental and booking prices for apartment, assisted living and hotels reflect the increases. “The people paying for the increases are the people who are going to rent these apartments,” Gonzales said. “People are getting cornered into it, people need a place to live.”
Prices would drastically drop if contractors stopped building for a month or two. “It would really control the situation, but nobody has the ability to stop because we all have bills to pay and everybody has something to do,” Gonzales said.
When it comes to bidding, contractors and vendors can only guarantee pricing for a week. “You can’t really make a decision in a week or two if you’re going to greenlight a project. You have to run it through your finance committee. There’s just multiple steps. So by the time a job gets approved, the market has changed. There we go again, with the price increase,” Gonzales
explained.
One workaround is paying for materials upfront and storing them. “If you’re financially sound and you can afford to do that, it’s a way to do it,” he noted.
“The day of buying things and expecting them to be on the shelf is gone,” Kovesdy said. “In the past, we shied away from stored materials because it carries a lot of risk.”
But now contractors are ordering materials early
and storing them “just so we know that we’re going to have them on site,” Kovesdy noted.
Some subcontractors can’t front the money “so we’re going to have to pay a little upfront so we can keep our project moving,” he added.
When contractors can’t find the materials they usually work with, they are having to come up with alternative solutions. Sometimes it’s cost effective, sometimes it’s not.
Historically, following a hurricane or other disaster that interfered with a production run, producers of materials such as plastics and pipes usually caught up within a quarter.
“We’re not seeing that because they’ll run a production and as soon as they jump the next line, that’s all bought up. So there’s no backfall, there’s no inventory to keep that stock gap while you’re waiting,” Gonzales said.
Another complication is the logistics crisis. Trucking costs, such as the cost of fuel, have gone up exponentially. There’s a lack of drivers. Unionizing limits who can pick up materials.
Consequently, contractors
are asking for flexibility. A lot of projects come with a very specific scope and materials contractors can use. Now they’re trying to get clients to approve multiple options, for example, different species of lumber or the lowest possible grade that still gets the job done.
“Flexibility has allowed us 100% to keep moving forward. You’re not going to get everything you want on your project. That is a guarantee, and you’re also not going to get it at the exact time you want it. Even if I can find it, I can’t get it to your jobsite because of logistics,” Gonzales said.
Kovesdy added: “It doesn’t mean it’s the wrong way to build it. We just
have to challenge the paradigms that we know. We built it one way years ago, doesn’t mean it’s the way we should build it today.”
For instance, steel beams are tough to get and super expensive now so maybe a shift to wood joists or some other component might happen. “It doesn’t make it a bad structure. It just makes it a different structure,” Kovesdy noted.
Perkins mentioned that contractors must have frank conversations with customers. “This is not business as usual. Please do not think it’s going to go how it usually does,” he said. “We can’t count on that anymore. I apologize for that. It’s out of our hands.”
Contractors have to warn customers of the obstacles they’re facing. “We have to be upfront, if not, you’re going to get yourself into some real trouble because people are going to schedule based on the information you present upfront,” Gonzales said.
Perkins noted that they’re doing their best to deliver as quickly as possible and meet expectations, but at the same time, there are a lot of moving parts and things don’t always go as smoothly as possible.
“They know it’s not just us trying to shirk our duties to deliver something. We really make an effort to not take on more than we should,” Perkins said.
Sometimes it means saying no to projects. “We would love to sign everybody up for a house. Unfortunately we can’t,” Perkins said. “It’s not ethical for us to continue to take on things we know we can’t deliver on.”
The price increases don’t translate to more profits. “This is a real misconception. A lot of people think because these markets are so inflated that we’re making more margin dollars, that it’s a bigger sale. The reality is it’s taking a lot more money to do the same job, and it’s even harder work just to get everything pinned down. The labor side has increased and we’re so short handed,” Gonzales said. “So in all these crazy increases, I know for a fact we haven’t made extra dollars.”
The situation has forced companies to change their way of thinking and doing things. “The short of it, scarcity creates creative thinking. If you’re short on something, you have to start thinking creatively. We’re in the construction industry. We like thinking on the fly,” Kovesdy said.
The construction industry does have one request from customers: “Be patient and be kind. We’re already feeling it,” Gonzales quipped.