In the last two weeks, this blog has narrowed in on the subcontractor market and the remodeling market, looking at economic and technological trends for each market. Now, let’s look at nonresidential construction.
The AGC (Associated General Contractors of America) notes that the price of materials and services in nonresidential construction specifically has increased about 0.5% from March to April, which is the largest increase since January. At the same time, an index that measures bid prices declined 0.3%. All this to say, margins are even tighter than they once used to be.
Certainly, material price changes depend on the material, with some rising more rapidly than others during the month. For instance, liquid asphalt saw a 15.3% increase while asphalt paving mixtures and blocks saw a decrease of 5.9%.
Also, a diverse range of input prices continued to increase in the month. Prices rose 13.7% year-over-year for cement, 13.3% for electrical switchgear, 13.2% for concrete products, and 12.1% for gypsum building products.
Association officials add the Biden Admin.’s approach to Buy America rules is contributing to higher materials prices by limiting what materials contractors can use. First announced roughly 70 years ago, The Buy American Act requires Federal agencies to procure domestic materials and products.
In 2021, the Biden Admin., announced robust changes to the Buy American statute, which says products bought with taxpayer dollars must substantially all be made in the U.S. However, today, products could qualify if just 55% of the value of their component parts was manufactured here.
More specifically for construction, as part of the Infrastructure Investment and Jobs Act, the Build America Buy America Act established a domestic content procurement preference for all Federal financial assistance obligated for infrastructure projects after May 14, 2022. The domestic content procurement preference requires that all iron, steel, manufactured products, and construction materials used in covered infrastructure projects are produced in the United States.
Certainly, there are benefits here. Buying locally sourced products can strengthen supply chains and bring more business local—something Peggy Smedley has been saying we needed for decades. In her book, Mending Manufacturing, How America can Manufacturer Its Survival, she details the history behind outsourcing jobs and production to foreign nations, and questions whether the U.S. can sustain as an economic power without a solid manufacturing base. Certainly, we saw the challenges of this when global supply chains crumpled under the weight of the pandemic in the early days.
Still, the AGC suggests the way the act is currently written is sowing confusion among state and local officials responsible for enforcing the new measure. Looking a bit deeper, the AGC says the administration’s vague and conflicting guidance on what constitutes an American made product is adding to the problem.
All this to say, material prices are going up. Bids are stalling. And construction companies are tight for profit. Now is the time to shore up business processes and leverage technology in new ways in order to get as much out of the project as possible. Do you agree?
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