Contractors face dilemma amid material price increases

Increases in material prices is affecting construction companies and changing their business methods, according to the Charlotte Business Journal.

The Producer Price Index, which tracks the cost of materials used in all types of construction, showed a 10.4 percent increase for the year that ended in June.

Asphalt increased 40 percent in some parts of the U.S. during the first two weeks of July. And amid a slight drop in petroleum prices, there have been price increases for materials such as gypsum, aluminum, polyvinyl chloride (PVC) piping and insulation.

"Anything associated with petroleum is going up—and that affects lots of things, such as shingles, tar paper and PVC piping," says Gary Young, purchasing manager for Simonini Builders, Charlotte, N.C. "But even tile and stone have gone up, as well as plumbing fixtures because of metal costs and HVAC systems because of copper wiring."

Transportation costs also are an issue for contractors. Some vendors are adding a fuel surcharge and will not ship orders until the surcharge is paid.

As a result of the rising fuel prices, Cemex USA, Houston, the largest cement and ready-mix company in the U.S., has announced it will raise its concrete prices by $25 per cubic yard Oct. 1.

With rising prices affecting their businesses and the construction industry, contractors face the dilemma of whether to pass price increases on to customers if the cost of materials is unpredictable. It also could cause them to lose bids.

In the meantime, companies are handling the increases in various ways, including absorbing the higher costs; shortening the length of time bids; and ordering a large amount of product from a limited number of suppliers over an extended time period so they have more leverage to negotiate prices.

Date : 8/28/2008