The Current State of Construction Pricing

There is no question that the last few months have been difficult for the commercial construction industry. However, our own Todd Ruff, VP of Preconstruction, has kept a watchful eye on the market across Colorado & Wyoming. We sat down with Todd to discuss what he has observed with subcontractor pricing in the local commercial construction market.

While the impact has varied from trade to trade, Ruff noted that “what’s most telling is what I call the market pressure. Subcontractor backlogs seem to be burning off. With project delays and increased competition throughout the bidding process, we are seeing an overall decrease in labor prices throughout the Front Range.”

“It’s just that market feel of, ‘I need a project and I’m willing to get a little more aggressive than I would have three months ago,’” he furthered. “All of those market factors that are coming into play are where we are seeing the most volatility right now. We competitively bid out 15-20 projects a month, so we’re seeing some real-time changes in the market.”

The IHS Markit PEG Engineering and Construction Cost Index is used as an indicator for wage and material price inflation in the North American marketplace. It is comprised of Materials/Equipment and Subcontractor Labor sub-indices. These are then used to calculate a total Headline Cost Index. It operates on a 100-point scale and uses 50 as a baseline, which indicates no change in pricing.

In July, the Subcontractor Labor Price Sub-Index registered a 40.2 after a slight uptick in June. This indicates that all regions of North America witnessed a decrease in labor costs. However, it is important to note that the index’s six-month outlook was calculated to be 62.0, indicating that labor prices will rebound in the coming months.

For the Materials/Equipment Sub-Index, July registered at 44.8, continuing the trend of falling labor prices (see exhibit 1). But while materials and equipment may be cheaper, they are in shorter supply due to the choke that COVID-19 has put on supply chains.

Ruff stated that “Without question, lead times on manufactured equipment and components are being dramatically impacted. When you would usually hear, ‘Six weeks,’ you’re now getting ‘I don’t know, let me look into it.’ We’re keeping really close tabs on our equipment supply chain. Every trade and all materials are affected and you’ve got to be on top of it every day.”

Our deep involvement and knowledge of the commercial construction industry equip us to successfully manage client relationships while continuously monitoring the state of the market. Through all of this uncertainty, we have prioritized our commitment to our clients and trade partners, and have continued to provide a top-rate service. If you are looking to move a project forward in the coming months, we would be happy to discuss the ways we can utilize our expertise to ensure an exceptional building experience.

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