It is no secret to anyone within the construction industry that construction material costs have risen dramatically. Reduced production during the pandemic, climate events, and supply chain issues have all contributed to the rising cost of materials.
In the construction industry, many contracts are negotiated and signed well before materials are actually ordered, payed for and work begins on the contract. For this reason, in the past many material suppliers have agreed to help by locking in prices for contracted work. With the issues surrounding the cost and supply of materials today, many suppliers are only holding prices for perhaps 30 days. This inability to hold rising costs can quickly eat away at profit margins for contractors.
Not only are these rising prices and declining a supply an issue for contracts, it is also a concern for sureties. Material price escalation can lead to financial difficulty and possible bond claims for a contractor. Success for the contractor equates to success for the surety. For this reason, contractors and their surety need to work together and keep lines of communication open.
Over the past several months, Goldleaf Surety has received many emails and articles relating to materials shortages, rising material costs, and ways for contractors to address and mitigate these increases and shortages. Below are links to several of these articles.
- Rising cost of materials means fewer contracts, smaller profits for builders, survey says. Federal Reserve Bank of Minneapolis; Tu-Uyen Tran, Senior Writer; June 24, 2021. This article highlights information obtained from the Federal Reserve Bank’s survey from the Ninth District states of Minnesota, Montana, North and South Dakota, northwestern Wisconsin, and the Upper Peninsula of Michigan.
- Comments from the CEO: Price Escalation-It’s Material to your Clients. National Association of Surety Bond Producers Pipeline, May/June 2021.
- Best Practices for Addressing Rising Construction Material Costs. National Association of Surety Bond Producers Website Blog Post; posted 5/5/2021 by Kathryn Doran; written and published 4/26/2021 by Richard Reizen and Patrick Johnson of Gould & Ratner, LLP.
- Contractor Materials Shortages and Materials Price Inflation. Old Republic Surety Blog. Posted by Mike Sanders, AFSB
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