Any new project decisions in 2022 will be evaluated in an environment of ongoing material price increases and supply disruption that has alredy pushed some contractors to propose higher bids with longer completion times.

Image courtesy of John Dortmunder, Pixabay.

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Most contractors see prices clearly trending higher this year and are acting in anticipation, according to the 2022 Association General Contractors (AGC)-Sage Construction Hiring and Business Outlook Survey released in January.

“Continuing cost and supply challenges may lead to more project deferrals,” according to comments on the 2022 AGC report on non-residential construction.

Separately, top executives from the leading U.S.-based paints and coatings producer, Pittsburgh, Pennsylvania-based PPG, said that they plan to increase prices in 2022 in part to reflect supply chain challenges.

Material prices rising

The “percent of respondents expecting a higher dollar value less the percent expecting a lower amount”, was positive for 15 out of 17 project types including residential, commercial and industrial investments, according to survey results in the AGC report.

Most of those surveyed believed that the dollar value of projects for which they will compete for in 2022 would be higher than those that they competed for during the previous year.

About 72% of the survey participants said that they had taken longer than anticipated in recently completed construction projects. As a result, about 69% of those surveyed have proposed higher bids and 44% have quoted longer completion times in those proposals.

Prices for materials and services related to new nonresidential construction increased 18% during 2021, according to the AGC.

Biggest rise in 12 years

The Producer Price Index (PPI) for new nonresidential building construction increased 13% year over year and this was “the most in the series’ 12-year history,” according to the AGC.  

Prices for steel rose 127% from a year earlier while diesel had on average a 55% on-year increase. The cost of plastic construction products rose 34%. 

Contractor´s bid prices, as measured by PPIs for new buildings, increased 21% in 2021 from a year earlier for new warehouse construction, and 14% for industrial buildings.

The expanding North American plastic resin production capacity uses plastic pellet silos to store, and warehouses that also serve to process pellets from railcars into bags for export.

The Producer Price Index increases for new, repair, and maintenance work by subcontractors amounted to 17% year over year for concrete contractors, and to nearly 10% for roofing and plumbing work contractors.

Material, labor and transportation woes

PPG Industries is the U.S. second biggest paint and coatings producer after Sherwin Williams. Its products help protect and add finishing to automotive, boating and across manufacturing, as well as for structures including bridges and buildings. Prices will rise to reflect rising materials and labor challenges.

“Recently, some of our manufacturing facilities have had up to 40% of their workforce out,” said PPG Industries CEO Michael McGarry, according to a Motley Fool transcript of the company´s fourth quarter earnings discussion, in late January.

Several U.S. industries, like air travel, also faced temporarily labor problems due to an Omicron-related spike in December and January.

“We continue to face certain raw material shortages with the biggest impacts in U.S. architectural coatings and traffic solutions,” McGarry said, according to the transcript.

“Raw material cost inflation was up approximately 30% compared to prior year. And transportation costs spiked due to shortages of available trucks and drivers,” he added.

Higher prices for paints and coatings

PPG executives will “continue to proactively work with our customers to implement additional selling price increases in the first quarter,” he said.

And in 2022 costs may also increase in other areas along the supply chain.

“We anticipate warehousing inflation, although any of that roll-off this year we'll be, you know, looking for an increase in that space,” he said.

Price increases on paints and coatings planned for 2022 will not just compensate higher costs.

“Every quarter from this point out, we should start to see improvement in the margins,” McGarry said.

The AGC warned in mid-2021 about rising prices.

By Renzo Pipoli