Per the project’s professional cost estimator:
“The current market conditions are causing difficulties for cost estimators and, in particular, relating to bid analysis. However, our cost estimates on large projects in the Northeast are holding up well against overall bid ranges and against low bids.
That said, on several high-profile projects recently, we have seen a concerning trend which has led us to do some deeper investigations, including sharing appropriate discussions with other cost estimating companies, large subcontractors, and construction managers to establish rational explanations.”
Below is a summary of the issues which are causing this current volatility – some issues have been apparent for a few months, but others have become known more recently.
- Subcontractors who successfully bid projects in 2021 are now losing money heavily as they had not anticipated current market conditions (due to reasons listed below). This situation has prompted them to include additional money in their current bids in an attempt to recover the lost money on current active projects.
- Labor shortages – during COVID, there were significant lay-offs and the contracting companies have not been confident enough to restore their labor forces nor have they been able to find quality personnel in the region. This has resulted in a low appetite among larger contractors and subcontractors and a desire to focus on larger more profitable projects. Smaller projects with a low probability of making a good profit are being bid at higher prices. This results in a bid strategy of “here’s what we will do the job for if we win it.” This is not a competitive bidding strategy. Also, the “traveling” labor force (which tends to gravitate to cities or locations where there is work and where there are profitable projects) hasn’t aided the labor shortage in Metro Boston as it did pre-Covid.
- Supply chain problems and lead times – this is well-documented (see below items also). Equipment vendors are quoting extremely long lead times and equipment which until recently was on 4 to 6 weeks delivery is now being quoted out beyond 20 weeks. This is creating another element of risk which contractors and subcontractors are having to deal with.
- Rising fuel costs.
- Equipment pricing by vendors – the vendors have no risk associated with their prices and therefore, they have been increasing their quoted costs to cover themselves for price fluctuations. Contractors have no alternative than to accept the quotes. Furthermore, vendors are only holding their prices for a few weeks which makes it a very risky proposition for contractors bidding projects of longer construction durations. Some vendors are refusing to commit to pricing until they have approved shop drawings which is leading to an elevated level of risk for bidders (see risk comments below)
- Stock-piling materials – larger contracting organizations have stock-piled materials predicting or sometimes knowing that there are shortages. For example, roofing materials and PVC conduit. Contractors buying materials are facing higher prices because of low inventories at the suppliers and coupled with this, suppliers are only selling some materials in very limited quantities. This presents big problems for bidders on larger projects, where greater quantities will be needed.
- Contractors are pricing risk at higher-than-normal levels because of the above factors and it is extremely difficult to analyze this. The intangible costs in current bids make it problematic to reconcile a cost estimate to bids received.