Managing Editor’s Message
Resource cost fluctuations continue to cause havoc
S
ince the start of the COVID-19 pandemic, unprecedented changes have been thrust upon the construction industry. These changes have impacted a range of areas from fiscal measures to the means and methods of how physical construction work is carried out. Rewind to March 2020 when the World Health Organization declared a global pandemic,1 and you will be hard pressed to find anyone who could predict with any reasonable degree of certainty the impacts and outcomes that would occur over the next 12 months and beyond. We are now over a year into the pandemic and there are trends that have occurred along with many associated impacts and consequences. Whilst the uncertainty continues, there is a deeper understanding of what appeared to be immediate impacts are in fact of long-term consequence for the whole construction industry, as quoted in this article by a number of senior level Professional Quantity Surveyors (PQSs). In my editorial, I explore the causes, impacts, consequences, behaviours, and the role that we have to play in this situation. Causes All construction projects are driven by the need for resources, with such resources typically being made up in varying configurations of labour, materials, equipment, supervision, and management. These resources come at a cost and are typically subject to risks associated with multiple commercial, economic, and supply chain factors that form construction estimates. COVID-19 has directly impacted the normal forces of supply and demand and price elasticity, causing resource cost fluctuations (sometimes erratic) and cost uncertainty. Taking lumber as an example, prices were subject to increases as a result of reduced supply caused by logistical challenges, COVID-19 physical distancing, and hygiene measures implemented at lumber mills that, understandably, scaled back operations. Conversely, high demand has been and continues to be stoked by an increase in home renovation projects,2 recognizing that large numbers of the Canadian population were now being asked to work remotely, with homeowners reconfiguring spaces internally and externally to suit life working from home. Couple this with the low interest rates and a housing shortage driving new, timber-framed housing developments, it is easy to see why lumber prices have seen a significant increase with no immediate end in sight. In fact, many by-products of pulp have seen a spike in prices that continue to have an upward trajectory. 12 | CONSTRUCTION ECONOMIST | www.ciqs.org | Summer 2021
Arif Ghaffur, PQS(F)
“Commodity hikes in steel and uPVC, compounded by eye watering increases in the lumber sector, are proving to be concerning. The knock-on effect from a cost and supply perspective to the supply chain cannot be understated. Project cost risk mitigation and management remain of critical importance for all Quantity Surveyors.” – Mark Russell, PQS(F), Partner, LEC Group
There are many other extenuating factors in play, for example, the Suez Canal blockage in March this year caused delays to shipments, including construction materials coming to Canada from Asia, and caused disruption to Canadian shipping ports as an aftermath. Also, earlier this year, the state of Texas experienced unseasonal weather, and a lengthy power outage caused delays in imports, including construction materials, to Canada. The disruptions caused by COVID-19 – and to a differing extent, the Suez Canal blockage and the recent power outages experienced in Texas – have further exposed the fragility of the local and global supply chains. Impacts Lumber is not the only commodity that has been impacted; it is evident that there have been increases in other commodities including steel, glass, drywall, and roofing. A shortage in the supply of materials requires contractors to
“With cost trend going in one direction, drastic spikes in construction material prices like lumber, steel, and concrete in the wake of the COVID-19 pandemic presents contracting companies and construction professionals with the opportunity for creative strategies in lowering costs by trying new materials as substitutes like OSB vs. plywood, shortening project schedules, and considering contractual changes for material cost increase contingencies.” – Edward Traore, PQS(F), President TDI Global Services Synergy Ltd.
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