Inflation – A Rising Concern in Construction
Our post-pandemic economic recovery is menaced by inflation coupled with slow economic growth (aka “stagflation”), and it weighs heavily on the construction industry.
Disrupted supply chains, labor shortages, and recent aggressive economic sanctions – both private and public – against a resource-rich country, continue to drive up prices, dampen growth, and heighten uncertainty. Making the situation worse, commodity markets (steel, lumber, coal, iron ore, and petroleum products) have turned extremely volatile, robbing price predictability for contractors and project owners. Project estimates vary widely, while contingencies rise to address pricing uncertainty and cost overruns. Economic turbulence from record inflation drives building materials/services higher, causing drastic deviations between initial and final budgets.
During the pandemic, we saw record-shattering levels of stimulus spending, which incentivized lower labor force participation and breakdowns of supply chain due to production cuts and transportation setbacks. All these externalities or force majeures have a detrimental impact on ownership’s project costs and construction completion timelines.
But instead of taking a “sorry ownership, c’est la vie” attitude, we remain proactive, steering productive and healthy discussions with clients about cost escalation, budget estimates and strategies to soften the blow. Reach out to us to hear more about how we’re helping owners handle market exposure and project risk.