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How Construction Companies Can Best Manage Ongoing Shortages in Building Materials

New survey data from the U.S. Chamber of Commerce Commercial Construction Index indicates that companies are still contending with shortages of critical building materials.

In the most recent survey, completed at the end of 2020, 71 percent of contractors said they had faced at least one material shortage during the fourth quarter of 2020, a sharp increase from 54 percent in the third quarter. Lumber was the most-cited shortage, with 31 percent reporting a shortage in the fourth quarter, another sharp jump from the previous quarter’s 11 percent. Survey respondents also reported shortages in steel, electrical supplies, and lighting supplies.

The natural consequence of shortages has been dramatic fluctuation in material costs. The National Association of Home Builders reports that lumber prices more than doubled during 2020, topping out at more than $900 per thousand board feet in September. Prices then plunged to less than $600 per thousand board feet in November, before shooting back up to nearly $900 by the end of the year.

Such roller-coaster cost trends can put even well-managed contractors and subcontractors at risk—with no easy solutions. Cost-plus contracts or escalation clauses for critical materials can offer some protection, but project owners understandably resist such arrangements. Contractors with firm contracts and high confidence in their backlogs might consider stockpiling price-sensitive commodities, but this exposes the company to new risks and costs.

Unstable prices and shortages will continue, at least in the short term. For now, contractors should pay extra attention to their bids and ensure good communication and rapport with suppliers.

At Dembo Jones, our professionals have the in-depth knowledge and industry expertise to provide full-service solutions to contractors of all sizes and trades. As a mid-market accounting firm, we run our company similar to how you run yours — controlling costs in order to provide high-level services at a fair and reasonable price. Contact us today and learn what insights we can bring to your operation.