Climbing Construction-Related Costs Outpacing What Contractors Can Charge
By William Atkinson
The Associated General Contractors of America, Arlington, Va., released a report in June 2021 discussing the rising cost of construction goods and services, which increased by a record-setting 4.3% in May and 24.3% over the last 12 months.
According to Ken Simonson, AGC’s chief economist, “The 24.3% increase in prices for materials used in construction from May 2020 to last month was nearly twice as great as in any previous year.”
The AGC added that these increases jeopardize contractors’ solvency and construction workers’ employment. In response, the AGC urged the Biden administration to end tariffs and quotas that are intensifying the cost and availability problems for construction materials.
Meanwhile, the producer price index for new nonresidential construction, which is defined as a measure of what contractors say they would charge to erect five types of nonresidential buildings, increased only 2.8% in the last year, as contractors maintained low expectations for profit to compete for a limited number of new projects.
In other words, “The increase in producer prices for construction materials over the past year far outstrips contractors’ ability to charge more for projects,” Simonson said. “That gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”
The AGC noted that a wide range of materials have experienced especially steep price increases over the past year. For example, the producer price index for:
Lumber and plywood increased 111% from May 2020 to last month
Steel mill products climbed 75.6%
Copper and brass mill shapes rose 60.4%
Aluminum mill shapes increased 28.6%
Plastic construction products rose 17.5%
Gypsum products, such as wallboard, climbed 14.1%
The AGC noted that contractors are also being hit by rising fuel costs for operating their own trucks and off-road equipment, as well as by surcharges on freight deliveries.