Construction Cost Analysis
The CLM Group, a leader in the construction loan service industry, continues with our comprehensive market analysis to monitor construction cost trends. During this pandemic, our team continues to observe this ever-changing market and its impact on construction costs. We would like to take this opportunity to share some of the results from our initial research.
The COVID-19 pandemic has had an overwhelming impact across the world. All corners of the globe have seen industries come to a halt as hundreds of thousands are battling this disease while millions more are trying to do their part to flatten the curve. The American construction industry has not been spared from this pandemic as construction has halted in some states, while others had limited work to only essential projects. As we wrap up the first 90 days of this pandemic, we have seen job sites reopen and establish new safety standard.
Our Initial Findings
Our approach into the matter involved researching proprietary data, online construction estimating software and countless conversations with construction professionals in order to understand the current market. Our initial research of the information and details accumulated show no significant change to construction costs in the current market. As we took a deeper dive into the data, we noticed significant changes to the price index of the following products since February of 2020:
- Oil price index has dropped approximately 40%.
- Lumber price index has dropped approximately 30%.
- Aluminum price index has dropped approximately 12%.
- Copper price index has dropped approximately 9%.
- Iron Ore price index has dropped approximately 1%.
These indexes are indicators of the direction in which construction material costs are heading depending on how quickly the world market recovers. We may continue to see this downward trajectory affect construction costs the longer the economy takes to rebound.
General Condition Costs
As construction starts to ramp back up, many job sites are enforcing strict safety measures. The safety measures have been derived from state, county and city mandates as well as best practices with the information that is available. There are costs that are associated with new safety measures and will need to be considered as we move forward.
With some contractors unable to absorb the cost associated with the new safety standards, there is a potential that Change Orders may include some of these costs. The cost of Personal Protective Equipment (PPE), site signage, adding hand sanitizing and wash stations, as well as training of how to properly use PPE, enforcing use, and understanding when to replace used PPE is now a standard practice at job sites. Additionally, the staggering of trades to allow proper physical distancing is extending completion dates. New safety measures along and enforcement of those measures may potentially reduce productivity thus adding time to a job. These new elements come with a cost and these costs may be pasted on to project owners over time. For existing projects, this will come in the form of Change Orders. The CLM Group will be continually monitoring current projects and future project to examine the effect of COVID-19 on all costs related construction.
Author: Norberto Nunes, Estimator & Inspector
Norberto brings to CLM Group a deep understanding of the construction process. His experience spans from hands-on artisan work to complete supervision and project management. He is a highly incisive estimator and critically observant inspector whose professional demeanor adds value to the project as a whole.