Rise in Tariffs & their Impact on the Construction Costs
If you have been keenly observing the global market, you must have noticed that over the past few years, the imposition of tariffs on foreign goods and potential trade wars with different countries have caused prices for various construction materials to increase dramatically. While the threat of a trade war and potential sanctions have wreaked havoc on building materials, the current tariffs that are affecting the construction industry include tariffs on steel, aluminum, lumber, etc.
This causes stress for contractors as not all are deeply interested in unfolding the science of market and foreign trades and how they affect the construction business. This article will help you understand tariffs and its impact on pricing and biddings on much simpler grounds.
Fear of Uncertainty
The estimated rise in tariffs causes the owners (your client) to want their projects to get completed faster before any escalation clause can increase their budget. Hence there is a constant stress uncertainty that hovers on both the contractors and their clients, especially if the project is large scale or is taking a long time. The tariffs are thus putting pressure on the industry to work quickly and find other means of cutting building costs to remain within budget. For housings and remodeling projects, these tariffs are even forcing contractors to add in escalation clauses for projects that are being scheduled for next year, because they don’t know that how high the prices are going to rise.
Increase in Demand
Adding to the problematic situation is the fact that construction costs start to escalate in the months before the tariffs are announced. With contracts already begun, construction companies have to move forward and pay the higher prices for materials, making the actual cost of construction much higher thus making it more difficult for companies to offer affordable price points. This disturbs the entire synergy between the buyers, the sellers, and the contractors as it becomes difficult to manage the cost at various levels of construction in a project.
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Tariffs and Biddings
You can turn the tariffs in your favor if you are aware enough of how it affects costs and the business. You should educate the owner on potential volatility of certain construction costs and discuss their effect on contingencies and value engineering. During the bidding phase of a project, contractors and suppliers should identify which materials are most likely to be affected by tariffs, trade wars, or other market factors that may cause price escalations. While negotiating on a contract, you should advocate for price escalation clauses in the prime contract with the owner and also ensure that similar price escalation clauses are included in any downstream subcontracts because you don’t want to get caught in the middle of a price escalation battle.
Overall, the tariffs aim to strengthen the economy by forcing construction companies to use goods manufactured in the country itself rather than imports. However, this has also raised the actual cost of building and construction. This may cause new construction projects to plummet in the coming year, and fewer instances of renovation projects like remodeling as well, but it remains to be seen as to how gravely this impacts the construction scenario in the long run.