Material Shortages, Costs Affecting TX Projects

THURSDAY, MAY 5, 2022


According to recent reports, Texas Department of Transportation road infrastructure projects are being impacted by construction material shortages and cost increases, causing delays and driving up project expenses.

“Due to recent circumstances affected by world events, there has been significant volatility in the market for various construction materials,” wrote TxDOT Director, Construction Division, Duane Milligan in a memorandum last month.

“We have seen the availability of some materials become very limited or the material lead time has increased significantly. We have also seen significant increases (over 100% in some cases) in some material prices.”

According to the agency’s project tracker, TxDOT is working on more than 15,700 projects totaling $157 billion. About half of the projects are reportedly underway or scheduled to start soon.

“Contractors all over the country have been running into extreme price increases and delays on getting materials delivered, and shortages of workers to perform the work when they do have the materials,” said Ken Simonson, chief economist with the Associated General Contractors of America, told the Austin Monitor.

Factors like rising petroleum costs, COVID-related shutdowns, increase for material demand and a worker shortage are all driving up prices for road-building materials like steel and concrete. The memo, issued by TxDOT at the beginning of last month, also outlines points for contractors to consider to mitigate issues and keep projects moving:

  • Material on hand;
  • Quantity increase;
  • Price increases due to TxDOT delay;
  • Substitutions;
  • Item deletions;
  • Delayed starts;
  • Avoid sole sourcing;
  • Time considerations; and
  • Last resort (referring to TxDOT for further consideration).

A TxDOT spokesperson told reporters that it was too soon to say how inflation and material shortages could affect the timing or cost of the I-35 Capital Express project, a plan to widen the interstate by adding additional lanes. The current estimated cost of the expansion is $5.7 billion with $4.9 billion of that paying for the central portion from Ben White Boulevard to U.S. Highway 290 East.

Requiring some 30 acres of land through Austin, and the median sales prices of a home in the area reportedly topping $600,000, land acquisition will likely drive up these costs as well.

Two light-rail projects in the city, including a downtown subway, have been pushed to cost over $10 billion due to inflation and other design changes, which is a 40% increase over initial estimates. While an expansion in tunnel length also drove up costs, officials also noted that costs increased due to construction material inflation and real estate.

Simonson added that while more steel-making capacity is coming online over the next year or so, a shortage of construction workers could also complicate both projects.

“It’s an ongoing challenge for contractors to get enough workers,” Simonson said. “The country has really neglected its career and technical education programs that are the pipeline for bringing people into fields like construction.”

Rising Material Prices

At the beginning of 2022, the AGC found that increased prices of construction materials were outpacing the rate at which contractors are raising their bid prices. In a survey issued by the association in January, 86% of contractors rated material costs at their top concern for 2022, more than any other concern. Availability of materials and supply chain disruptions were the second most frequent concern, listed by 77% of the more than 1,000 respondents.

“Construction firms have been burdened with cost increases of 20% per year or more since early 2021,” said Simonson at the time. “Since contractors can seldom pass along increases on projects that are underway, these extreme price hikes threaten the viability of many firms. Unfortunately, the continuing war in Ukraine is likely to keep input costs elevated for many more months, if not longer.”

In the most recent AGC report, the association noted that prices rose faster than the 17% increase in bid prices for a wide range of inputs in the cost index. According to the latest PPI report, year-over-year steel mill product prices rose 42.9%, aluminum mill shapes jumped 43.7% and plastic construction products increased by 35.2%.

Other products breaching the 17% bid increase threshold included diesel fuel (63.8%), truck transportation of freight (24.5%), asphalt and tar roofing and siding products (22.6%), lumber and plywood (20.9%), gypsum products (20.8%), architectural coatings (20.6%) and insulation materials (17.4%).

“Consumers are right to complain about inflation, which has been north of 8% during the past year,” said ABC Chief Economist Anirban Basu in a press release. “But America’s contractors have experienced materials price inflation nearly three times that during the same period. For now, there are few signs of relief.”

In specifying the monthly increase in March on several products, Basu noted on the ongoing upward price momentum, which included softwood lumber (7.6%), iron and steel (1.4%), key roofing materials (1.6%), and nonferrous wire and cable (4.4%).

“For contractors, this is not where the inflation narrative ends,” said Basu. “Despite recent growth in the nation’s labor force participation rate, contractors continue to contend with shortages of skilled construction workers. Supply chain setbacks related to the spread of another omicron variant along with the Russia-Ukraine war will also affect equipment availability. The latest ABC Construction Confidence Index survey indicates that approximately 3 in 4 contractors have suffered an interruption in delivering construction services in recent months. These challenges will persist.

“There is one more significant consideration for contractors. With inflation running hot, the Federal Reserve will have to work even harder to slow the economy to trim price pressures and expectations. Recession risks are accordingly rising, and while that is unlikely to affect the level of contractor activity in the near term, that could eventually set the stage for a period when demand for construction services declines.”

The report went on to mention that input prices for natural gas decreased and unprocessed energy materials decreased for the month, lowering by 30.1% and 11.2%, respectively. Crude petroleum prices increased 7.2%. In looking at the three energy subcategories on a year-over-year basis, those percentages are up 62.9%, 58.7% and 62.2%, respectively.

As a result of the continued uptick in prices and inflation, the AGC has urged President Joe Biden to remove the tariffs on several building materials. Currently, tariffs run as high as 25% on steel, 18% on Canadian lumber and 10% on aluminum.

Last month, the nation and the United Kingdom issued a joint press release announcing a deal to partially lift tariffs on steel and aluminum exports from the U.K. According to the joint statement, the U.K. will be permitted to export 500,000 metric tons of finished steel and 900,000 metric tons of aluminum into the U.S. duty-free before tariffs take effect.

In exchange, the U.K. has agreed to lift approximately $500 million worth of tariffs on U.S. products, such as whiskey, blue jeans and motorcycles.

In February, The White House announced a new deal between the U.S. and Japan to roll back tariffs on Japanese steel. The deal reportedly removed the 25% levy previously imposed by former President Trump from about 1.25 million metric tons of Japanese steel imports annually.

Should Japan go over that amount, however, the tariff would be reinstated on any additional steel imports. According to the U.S. Commerce Department, Japan is one of the top 10 sources of steel to the nation, but only accounts for roughly 4% of all steel imports.

And, at the end of November 2021, the U.S. Department of Commerce increased tariffs on antidumping and countervailing duties on Canadian softwood lumber imports. Implemented by the Biden Administration, the increase nearly doubles the import rate from 8.99% during the Trump Administration to 17.99%.

“Given the impact inflation is already having on the economy, it makes no sense for the administration to continue to needlessly inflate the cost of key construction materials,” said Stephen E. Sandherr, AGC Chief Executive Officer. “Removing these tariffs will take some of the price pressure off of employers grappling to control costs.”

   

Tagged categories: Associated General Contractors (AGC); Building materials; concrete; Contractors; Contracts; Department of Transportation (DOT); Economy; Industrial Contractors; Market; Market data; Market trends; NA; North America; Ongoing projects; Program/Project Management; Roads/Highways; Steel; Upcoming projects

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