Associated General Contractors recently published cost index data on various materials that make up a hotel building. My brother Jim, the contractor, was kind enough to send this information along to me. I’ve listed some excerpts from the AGC data below, but first, I think some editorial comments are in order.
Diesel fuel took one of the biggest jumps over the past 12 months – 40% – and it takes lots of deisel fuel to build a hotel! Other items that rose significantly were those available globally. Note that the cost index for nonresidential buildings is flat – what developers PAY is not changing. (Yet.) The squeeze is on the contractors, subcontractors and likely on the material vendors as well. This margin squeeze couples with the current lack of business to bring very hard times to the construction community. It’s time for developers to scrutinize your contractors like never before. Satisfy yourself that he’ll be around to finish your job.
“PPI for inputs to construction industries—a weighted average of the price of all materials used in every type of construction, plus items consumed by contractors, such as diesel fuel—rose 6.1% over 12 months. Commodity PPIs that contributed to the large monthly rise included diesel fuel, up 40% over 12 months; copper and brass mill shapes, +20%; steel mill products, +13%; aluminum mill shapes, +8.7%; and insulation materials, +6.0%. All of these items are made from globally traded raw materials (oil, ores, steel scrap) that have risen in price because of growth in developing countries, exchange rate movements or fears of supply disruptions.
“PPIs for materials produced locally and used only by U.S. construction have barely budged: brick and structural clay tile, -0.4% and -1.9%; gypsum products, -0.7% and -0.6%; concrete products, -0.3% and -0.5%; and asphalt paving mixtures and blocks, 0.9% and 2.2%.
“These gains intensified the cost squeeze on contractors, as PPIs for subcontractors and for new nonresidential buildings—which include estimated labor costs, overhead and profits—stayed nearly flat. The PPI for roofing contractors’ new and repair work on nonresidential buildings fell 0.8% over 12 months; plumbing contractors, +0.2%; concrete contractors, +0.4%; and electrical contractors, +1.8%.”