Arcade Bouw Consult takes you into the future of the construction industry this summer.
How do we as Arcade envision the future and what changes do we see on the horizon. In this first part:
How will more expensive building materials affect construction?
Cost management expertise
Arcade Bouw Consult deals with the cost and project side of various construction projects. One of our projects consists of a 6-storey building, of which 1 parking level (basement) and further as a residential building. The building consists of a concrete skeleton with masonry infill and a finishing package. The estimated price and yield calculation for this project were very close, so this starting point should be set as the budget.
The budget included an amount for possible price increases of 3%, later it turned out that the different materials had increased by a much higher percentage. For concrete about 7%, wood 50%, steel 40%, copper 30%. Building materials, which include the 3%, became much more expensive as a result. Besides fuel costs and petroleum products, the increase is also due to the increasing demand for the different products. We are thinking here of wood products such as softwood and hardwood, panel materials, etc. Demand has also increased because the demand for sustainable materials is growing. The demand for European wood has also increased. For steel products, demand has increased faster than expected, partly due to the production cut caused by the coronal pandemic. Rising copper demand from China has also pushed up the price. Given the global copper demand, this price is also expected to remain high.
Petroleum products have also risen sharply in price, which in turn has affected fuels and various insulation materials. This in turn has to do with the demand for sustainability.
These price increases must be passed on in the final price in order to pass on the increased material costs to the customer. In the case of fixed-price construction work, exorbitant price increases must be discussed. These exorbitant price increases are passed on in the BDB indices one year later.
This suggests that large multi-year projects may be able to access and pass on these increases. Suppliers are also facing the problem that their products are becoming more expensive. For this reason, materials are also not available on time, which in turn affects planning. If materials are not available in time, we look for possible alternatives.
Covid-19 and tensions in the construction market
The Corona pandemic did not do the construction industry any good either, as it caused a high level of sick leave and consequently many lost hours. The locomotive breakdown has also caused many problems because of this. Construction workers cannot work from home. This has caused projects to fall behind schedule, with all the consequences.
In addition, there are tensions in the construction market, well-known companies and others were all pretty much stuck in work. The pandemic has made it difficult for them to find staff and so they have sometimes had to turn down projects. Suppliers are also having problems pricing their products and finding staff.
From this it could be concluded that the additional price increases for the materials of the above project compared to the contract price could amount to approximately €570,000 to approximately €665,000. This is a significant amount that may not be covered by the estimated contract sum.
To determine the exact size of the price increase, the budget should be broken down by those materials that have actually become more expensive given the movements in the materials market; this should be done in advance to let the client know in advance that price increases are coming, where they are and what the cost will be.
Expert opinion on price increases in the construction industry
All in all, the outlook for material prices is not rosy. It is therefore of utmost importance that this is taken into account.
Arcade Bouw Consult can use its expertise to place these price increases where they belong and give a good insight into what the price increases per component actually mean for the client. This can be done on a quarterly basis so that there is an overview of the price increases for the materials to be used over the entire construction period. Arcade Bouw Consult thus provides an insight and an idea of what the final price could be.
Find out more about construction costs by clicking here or calling/emailing us for more information.
h.roscoe@arcadebouwconsult.com
0541-217510