By: Dan Emerson January 7, 2022 4:33 pm

Based on recent news coverage, global supply chain delays seem to be impacting every sector of the economy. That includes contractors, although, according to some stakeholders, builders are still seeing healthy demand for their services.

The Minneapolis Federal Reserve Bank’s most recent quarterly survey of Midwestern construction companies, concrete suppliers, and architects found positive revenue trends, in the face of delays reported as “persistent and worsening,” according to Ron Wirtz, regional outreach director for the Minneapolis Fed.

About 225 respondents – most of them in Minnesota – responded to the survey, conducted in mid-November.

Wirtz said revenue trends were positive, with sub sector activity “continuing to even out.” However delays were reported as persistent and worsening. With supply chain problems, tighter labor and higher costs presenting challenges. “The pipeline of new projects seems to have plateaued at modest growth,” but firms remained optimistic, he said.

“The construction industry is doing fairly well, if not spectacularly,” Wirtz noted. “We’re still seeing growth, really positive messages. There are lots of challenges, but demand is still pretty firm.” For the first time ever, the survey included a question about supply chain delays. Product categories with the greatest shortages included appliances, cabinets, PVC pipe and copper wiring. There are some shortages in virtually every product category. There are very few product markets that are not seeing some squeezes,” Wirtz said.

In 20 years in the construction industry, Dave Lyste, president of the Minnesota Construction Association and a vice president at St. Michael-based Rachel Construction, said he has “never seen anything like” current supply chain conditions. The pandemic’s impact on workforce numbers has been also been a challenge to workflow.

To cope, Lyste said his company does “the best we can to notify owners, developers and engineers about pricing increases and the possible impact on their ability to complete projects on schedule. We’re doing what we can to stay ahead of it.”

In many cases suppliers can’t commit to specific prices or material delivery dates due to the overall market uncertainty. “When we are bidding a project, we do our best to let owners know that.” Lyste said he’s heard some precast concrete suppliers are taking delivery orders about a year in advance.

Rachel built a new office 2020, but has had to delay its planned shop building until possibly 2023 due to problems obtaining precast concrete components. Contractors need to place material orders as soon as they sign contracts for new projects, Lyste said.

Jeff Halper, Atlanta-based vice president of procurement for the Minneapolis-based Ryan Cos., U.S. said delays in obtaining materials have been occurring “off and on” since COVID-19 first hit in spring 2020. “It’s varied each month, depending on the commodity, from lumber and steel, down to things like appliances and flooring. It’s been a bumpy road.” Often, he said price problems on construction components originate not at the factory assembly stage, but with raw materials coming from overseas.

After a major spike in lumber prices that began last year, prices have normalized in the past couple of months, Halper said. “They’re still not 100 percent where buyers would like to see, but they’ve returned to an area that is a little more in line with pre-COVID prices.”

The key to keeping construction projects moving ahead has been constant communication with partners, from customers to suppliers, Halper said. It’s important to understand the challenges faced in each market where the company does business, which helps with planning ahead. “And we’ve been able to talk directly to manufacturers to understand the challenges they face.

“We’ve been fortunate that we have not seen significant (project) schedule impact.”

Lead times for procuring materials and components have been as long as 12 months, compared to a historical average of about 30 to 60 days, Halper added. “It also helps to make sure that suppliers view Ryan as our entire enterprise, rather than individual projects. Using the strategic partner concept makes us more ‘customers of choice.’”

He expects to see supply chain issues continue in 2022 but ‘we’re hopeful that things start to normalize in Q2 and Q3. We have to be prepared and plan as if things will be bumpy for a while.”

According to Dave Grandstaff, director of preconstruction for Adolphson & Peterson Construction, the arrival of COVID-19 “had a great deal of effect” on the company’s project flow. “That was certainly step one.” Contractors are accustomed to year-to-year price increases, but in first quarter 2021, material prices jumped at about four times the normal rate, said Grandstaff.

They started noticing price spikes in February- March 2021. “We initially started seeing wood and steel climb higher and higher. It jumped up more than expected and then things like copper and roof insulation became an issue.”

Delays in getting materials happened around the same time, fourth quarter of 2020 and first quarter of 2021, particularly precast concrete panels and steel joists, the latter due to booming construction of distribution centers and big box stores, Grandstaff said.

Some project delays were not due to material or labor shortages, but rather owners taking a wait-and-see stance on scheduled projects, according to Grandstaff. “People were being cautious with their money.”

Fortunately for the firm, that has been offset by booming construction of industrial space and activity in the company’s other business categories, such as correctional facilities, government centers and senior living facilities built for clients nationwide, Grandstaff said.

In recent years, the industry had adopted a “just in time” model for obtaining materials, “which doesn’t work in the current environment,” according to Grandstaff. These days, when the builder schedules a project it acts immediately to get the necessary materials on site as soon as possible, or work with trade partners to secure them.

“Clients we’ve worked with for a long time helped us come up with solutions to get buildings built in a timely manner. It requires a high level of communication,” he said.

“We do our best to find the right subcontractors who have materials stored already and can meet deadlines. A lot of structural engineers had to ‘design away’ from using joists and going to beams instead. It’s more pricey but certainly has been worth it.”

As has been widely reported, finding enough qualified workers has been a problem for some contractors and one that pre-dated the COVID-19 slowdown. The survey indicated that roughly half of the responding contractors are hoping to add staff, and another quarter are seeking to replace employees who have left. “A lot of firms are looking for labor and are not necessarily having an easy time of it,” Wirtz said.

Among general contractors responding to the Midwest survey, around 70% said they are facing “very tight” labor conditions, and another 20% cited a “moderately tight” situation, Wirtz said.

Contractors haven’t seen as much of a labor shortage as they had expected, coming into this year, Lyste said.

“The construction industry in general typically pays very competitively, which has been helpful in finding qualified workers. The labor shortage is still a challenge as it has always been, but the supply chain issues have been more of a concern for most construction firms in 2021.”

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