Rising Material Costs Hurt Const. Firms

March 15, 2021

Steep price increases and supply-chain disruptions are proving difficult for contractors, driving up construction costs and slowing projects, according to an analysis by the Associated General Contractors of America. Association officials urged the Biden administration to end a range of trade tariffs in place, including for Canadian lumber, that are contributing to the price increases.

“Both today’s producer price index report and our survey results show escalating materials costs and lengthening delivery times are making life difficult for contractors and their customers, including hospitals, schools, and other facilities needed to get the economy back on track,” said Ken Simonson, the association’s chief economist. “Project owners and budget officials should anticipate that projects will cost more and have longer—perhaps uncertain—completion times, owing to these circumstances that contractors cannot control.”

Prices for materials and services used in construction and contractors’ bid prices both declined at the beginning of the pandemic but have diverged sharply since last April, according to AGC. The selling price for materials and services used in nonresidential construction jumped 1.9 percent from January to February, and 12.8 percent since April 2020. The producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—increased 0.3 percent last month and 0.5 percent since April.

Association officials called on the president to remove tariffs on key construction materials, including steel and lumber. They also urged Washington officials to look at ways to address supply chain problems by making it easier for Canadian materials to enter the country. They noted that construction firms are already absorbing the costs associated with protecting workers from the pandemic.