How COVID-19 Is Impacting Construction Costs

Over the last few months, new building and renovation projects have been postponed or canceled as economic news worsened due to the spread of COVID-19. This is true across all sectors, including commercial/industrial, institutional (governmental agencies, universities and schools) and residential projects. As we shake off the dust and get back to work, owners are reassessing the impact of the virus on future construction.

The amount of work that architectural firms have is an indicator of what the construction market will look like in the near term. Depending on project size, there is typically a year or two of design work from the time an architect is hired until the construction contract begins. To monitor the economic health of the design industry, the American Institute of Architects (AIA) publishes the Architectural Billings Index monthly. This index looks at three parameters: change in billings since the previous month, change in new contracts and inquiries for design services. Not surprisingly, all three of these indicators were down by approximately 30 percent in April, depending on the area of the country.

Politicians have advocated for another stimulus package that could include funding for improved roads and infrastructure. Such funding could change these numbers and provide work for architects and engineers, much like the depression-era Works Progress Administration (WPA) program, which paid for the design and construction of schools, parks and infrastructure. But such a package and what it might include is far from certain.

Logic has it that reduced demand for design translates into reduced demand for construction, putting downward pressure on prices. So, will construction prices come down soon?

We reached out to several contractors, as well as a sports flooring and locker vendor, for their ideas on the future of construction prices. Our calls went to Gary Frazier, president of CORE Construction, a national firm that works in all sectors of the construction market; Steve Skabla, director of preconstruction services for Vaughn Construction, a Texas-based firm that focuses on institutional clients regionally; and John Gayhart, vice president of sales for RFS Sports, distributor of sports flooring, turf and lockers. We discussed three areas of cost change.

Materials

For materials manufactured in the U.S., costs may come down temporarily as factories reopen and companies look to sell inventory. Materials and equipment manufactured overseas is another matter. Frazier noted that “Availability of materials coming from other countries is unpredictable right now and uncertainty about delivery can impact cost and schedule.” Skabla noted that with borders closed and shipping containers stranded in the U.S., foreign-made materials can be difficult to acquire.

Countless building materials are made outside of the U.S. For instance, components for China-made LED light fixtures are currently scarce. Many specialty athletic floor products and tile are made in Europe. Gayhart noted that availability from Italy slowed for a few weeks while factories were closed — as did deliveries from Canada during the border closure — but agreed that products manufactured in the U.S.  have been minimally impacted. Additionally, many factories gave advance notice of closures, allowing for materials to be delivered and stored.

Labor Costs

The Associated General Contractors noted that in April, close to one million construction workers had lost their jobs. On June 5, 2020, the federal government announced that loss had been reduced to approximately 600,000 in May. These returning jobs vary widely by region with the northeast seeing the fewest. Many workers are going back to projects that were previously under construction rather than newly won work.

Gayhart noted that RFS has seen an increase in competitive bidding leading to lower prices.  Some installers are beginning to diversify and provide maintenance, as well as construction services. He noted that labor costs and ability to respond quickly have been impacted by pandemic protections, including limiting crew size and thereby increasing the length of time a subcontractor needs to be on site.

General Contractor Costs

General contractors oversee the health and safety of all workers on a construction site. New requirements for hygiene breaks, PPE and cleaning add to their costs. “Cleaning is constant. This includes elevators, stairs, ladders, railings. Imagine if you have a ten-story building the amount of cleaning to be done,” said Skabla.

Many contractors are taking worker’s temperatures at the site entrance. If someone working is found to be virus positive, the site needs to be closed, work suspended and the site disinfected, causing delays. Social distancing has also decreased productivity. CDC guidelines require 6 feet between workers, which translates to smaller crews on a job site at one time, slowing construction. One solution is to consider multiple shifts to make up for time lost. This approach may speed up a schedule, but increased hours of supervision increases costs.

Builders are increasingly concerned about contracts that require them to be responsible for costs related to delays due to materials shortages, pandemics, and other factors that they cannot control. If they elect to pursue projects with such clauses, they may increase their fees to cover added risks. Or these clauses could reduce the number of willing bidders, decrease competition, and increase costs.

“We are hopeful that any potential savings are more than enough to offset cleaning costs and the reduction in productivity,” said Skabla. But with the number of new projects on the drawing boards dropping, contractors will be competing for a smaller amount of construction soon. Both contractors agree that this could yield lower prices for owners near-term making now a good time to finish architectural drawings and start building.

Is this the new normal or will there be a gradual reversal to previous practices? Of course, the answer is that no one knows. In the short term some things that owners and architects can do to reduce delays are to avoid materials and equipment made in other countries and anticipate longer construction schedules. Include a general contractor in the design process to advise on cost, materials availability, and schedule — all of which are changing daily. And always include a project contingency for the things that no one can anticipate.

Anita Picozzi Moran is founder of Moran Architects