How the Cost of Inflation Affects Your Project Budget



During any electrical or other construction project, managing costs is vital. However, when inflation hits, it can be challenging to anticipate expenses and stay within budget. And if those projects are planned in advance, there's a chance of going over budget when the costs of materials increase.

The COVID-19 pandemic has seen the costs of construction materials skyrocket, especially for commercial projects. Increased costs are compounded by global supply-chain disruptions, which can threaten the financial health of contractors. According to the Associated General Contractors of America (AGC), the cost of materials has risen nearly 13% since the pandemic's start. Since materials make up at least 50% of the contract costs, this could decrease profits from a project unless these expenses are passed on to the customer.

No simple solution will resolve the situation, but clients and contractors can lessen the financial burden.

For Clients

If the project details were determined before or early in the pandemic, clients should brace for significant adjustments in price or delivery date. For new projects, expect higher pricing and consider building in more flexibility regarding design, timing, and expenses during the planning process. To accommodate for these potential obstacles, clients should be ready to make adjustments to design, completion date, and payments.

For projects that haven't started, clients need to have realistic expectations of current materials costs and the probability of price increases. Providing potential contractors with detailed project design information allows them to submit bids that minimize unwelcome surprises for both parties.

For Contractors

Now more than ever, contractors need to closely monitor materials costs and delivery schedules before submitting bids and throughout the project. In addition, contractors must communicate information to clients about any changes in materials costs and supply-chain issues that could impact current projects' cost and completion time.

Contractors may want to include price-adjustment clauses that protect them from unanticipated increases in material costs. Building a price contingency into a bid allows the client to share in cost savings should materials prices decrease, especially for long-term projects.

Additionally, the contractor should discuss the best time for ordering materials and other supplies with their client. Buying earlier in the project or before the project begins can protect against future cost increases.

Materials prices may eventually decrease, benefitting both contractors and business owners. Until that happens, communication and cooperation can help keep your project running smoothly. Building some flexibility into your budget will ensure that materials costs are covered to keep your business sustainable and profitable.

Unity Power Services delivers full service, design-build electrical services in industrial, commercial, residential, or mission-critical environments. With over 60 years of combined experience in electrical installation and maintenance, we are committed to delivering top-tier electrical services on time and within budget. To learn more about how Unity Power Services can serve you, give us a at call 571-577-0688.





Sources

https://firstnick.com/knowledge/inflation-what-you-need-to-know/

https://www.agc.org/sites/default/files/AGC%202021%20Inflation%20Alert%20-%20Ver1.1.pdf

https://www.cnbc.com/2021/10/01/key-inflation-gauge-watched-by-the-federal-reserve-hits-another-30-year-high.html

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