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AGC: Higher labor costs, materials prices showing up in bids.

Byline: Nate Beck,

Long-rising materials prices and a labor shortage are pushing up the price tag for nonresidental buildings, according toan analysis by the Associated General Contractors of Wisconsin.

And trade disputes are among the biggest causes of recent increases in the price of common building materials like steel and aluminum, according to an analysis by the Associated General Contractors of America. Meanwhile, an ongoing labor shortage has led many companies to start paying workers more average hourly earnings for all construction employees was up by 3.9 percent in October from what it had been in the same month the year before, showing the fastest-paced increase in nearly a decade, the U.S. Labor Department reported last week.

Many contractors are responding by seeking to charge owners more, said Ken Simonson, AGC chief economist.

"Contractors and subcontractors raised their bid prices in November to make up for past cost increases, but the cost of goods and services that they buy rose even faster," Simonson said. "That makes further bid-price increases likely but also implies some contractors will just stop bidding on projects where costs are too unpredictable to ensure they can be built profitably."

The pressures have been noticed at JCP Construction, a general contractor with its main offices in Milwaukee. James Phelps, company president, said it's imperative in uncertain times to communicate as clearly as possible with clients, he said.

"We're just trying to find the best deal for the clients, being smart as we always try to be," Phelps said. "We're trying to be as efficient as possible with the material."

The company has worked to keep its clients informed of rising prices. Phelps said JCP officials really began to take notice of the recent trends about a year ago.

Like many other Wisconsin contractors, JCP has struggled to find qualified workers. That has limited the number of projects it can take on at any given time, Phelps said. The company hasn't its raised wages, so labor costs have remained consistent. Phelps said company officials have to think carefully about what they can accomplish with their existing staff.

"There's definitely a shortage," he said. "We're not paying any premiums above and beyond. It's not affecting the costs per se, but it's affecting the projects that we're able to take on."

AGC, in a survey in August, found many companies throughout the country, including 48 in Wisconsin, are grappling with the side effects of the labor shortage. The survey found 46 percent of the firms surveyed were struggling to complete jobs on time, and that 44 percent said the labor shortage had driven up the the cost of projects already underway. Another 47 percent said the shortage was contributing to higher bid prices.

Construction materials prices have continued their long march higher as trade disputes continue to simmer. The producer-price index for construction inputs climbed by 0.6 percent in October,following a 0.2 percent rise in September. Goods cost 6.6 percent more this October than in the same month a year ago.

Metals and petroleum-based products showed the largest increases for construction inputs. From October 2017 to October 2018, there were producer-price index increases of 27.0 percent for diesel fuel, 18.2 percent for steel mill products, 11.6 percent for asphalt-paving mixtures and blocks and 8.2 percent for aluminum-mill shapes.

Contractors may be eating this cost increase. An index that tracks how much contractors say they would charge to build five types of residential buildings rose more slowly year-over-year than did goods prices.

AGC officials have long cautioned that higher bid costs could ultimatelydampen the demand fornew construction and slow public projects.

"It appears the tariffs imposed on steel, aluminum and thousands of Chinese imports are starting to affect the cost of many items used in construction," Simonson said. "As inventories of goods purchased before the tariffs took effect are depleted, contractors are likely to face even higher costs, which they will need to put into their bid prices if they hope to make any profit on future projects. At the same time, labor costs are accelerating.

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Publication:The Daily Reporter
Geographic Code:1U3WI
Date:Nov 12, 2018
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