Why has there been a rise and fall in construction costs?

If you’ve ever spent time working in the construction industry - be it manufacturing of materials, supply chain and distribution or, indeed, actual construction - you’ll know that things rarely stay steady for long. Several factors can influence the rise and fall in construction costs; this then has a knock on effect on productivity levels, scheduling, health and safety performance, and quality.

Navigating through these financial peaks and valleys can be a tricky business - and Majestic Site Management are here to help.

Let’s take a moment to explain how.

Influencing Factors

A construction project is unfortunately held ransom by several external factors, which it cannot control.

These factors are in turn affected by factors which they cannot influence too - so it’s difficult and unwise to get comfortable or complacent.

These constraints may be influenced by events such as far-off wars, political fiasco, or environmental phenomena, or the general cyclical nature of industry which is affected by inflation, interest rates, and general economic growth.

Conversely, construction costs may actually decrease during economic downturns or periods of reduced demand for construction services.

So, whether costs are high or low, your average project manager is unlikely to be able to control these influences.

Properly predicting and managing these elements can make the difference between a project being delivered on time and within budget to one that is protracted and expensive.

Here’s a few of the constraints that can affect your project.

Labour Costs

Labour costs include wages, overtime, and benefits and represents a significant portion of the overall construction project costs.

These can be influenced by general labour market conditions, agreements, or pressure from labour unions, government regulation, and general productivity.

Material Costs

Construction materials such as timber, steel, concrete, and manufactured components can vary in cost due to:

• General supply and demand, (some projects, e.g. HS2, may take the lion’s share of resources, such as cement)
• Availability, (timber, as a natural product, is vulnerable to supply issues due to disease and shortage of standing timber),
• The cost of transportation, (for example the oil crisis, affected by the war in Ukraine, which has inflated diesel prices) and;
• Charges and taxes (for example the charges introduced at the France-UK border). Global market conditions can also influence material costs.

Equipment Costs

Likewise, the cost of equipment, be it the disposal or single use items such as PPE, or tools and plant, as well as hire costs of heavy machinery such as excavators, cranes, and bulk transport, are all affected by similar factors such as supply and demand, transport costs, and availability.

An example is where COVID placed pressure on electronic equipment manufacturers; this caused a microchip shortage which delayed production and, therefore, supply of new vehicles, plant and equipment.

This shortage of supply caused the price of purchase or hire of available items to skyrocket, and supply lead times were dramatically extended.

Permits and Regulation

Obtaining the relevant permits and assuring compliance with regulation can add costs to a construction project.

Fees for permits, inspections, environmental assessments, and surveys must all be accounted for.

Similarly, the price of non-compliance is increasing, for example the fees for intervention applied by the HSE should they discover any breaches in health and safety regulation occurring on your project - not to mention the costs associated with court proceedings and punishments.

Failure to manage the safety risks on your project can cripple any business.

Design and Engineering Costs

Most design and engineering services are outsourced and are left to professionals such as architects and indeed, engineers.

These service suppliers will come with their own overheads and financial costs which in the main, they will pass on to you.

Certain complex or unique projects may require additional specialist engineering or design services which can add to or increase project costs.

External Overheads

Contractors of all types will pass their overhead costs on to their customers.

So, costs such as insurance, office expenses, as well as all of the factors listed above, will be reflected in their quotes and invoices.

Navigating the rise and fall in construction costs - Help is at hand

You may have read this far and think “how does any project ever stay on track and within budget?!”

Well, the answer is simple.

Engage with a professional project manager and/or principal designer.

Here’s how you can keep your project running smoothly with their help.

Brilliant Budgeting

At the start of your project, create a comprehensive budget that includes reliable estimates for all major costs such as labour, materials, equipment, permits, etc.

Include a contingency fund (which will be a percentage of the overall budget) to account for unforeseen expenses - and expect to use it.

Review your budget and update it regularly throughout the project and compare actual spending against your budget in order to identify notable variances which may occur again.

Educated Engineering

Have a go at value engineering.

This involves identifying alternative options within your design which present increased value for money - without compromising on quality or safety.

Identifying these will involve liaison with your design and engineering team, however, you may find different materials, construction methods, or optimised design layouts which can contribute to reducing project costs… while continuing to meet regulatory requirements.

Contractor Competition

A bit of healthy competition can work in your favour.

Obtain multiple bids from suppliers, contractors, and service providers to encourage competitive pricing.

Once received, review the bids, and compare their quoted costs against quality and the proposed scope of work.

Be wary of any bids that are unusually low, as they may indicate sacrificed quality or safety standards in favour of lower costs.

Slick Scheduling

You can minimise your project costs by efficiently managing the overall project schedule.

Delays can result in additional expenses such as additional and increased labour costs or extended equipment rental periods.

Close collaboration with the construction team will help you to monitor progress and proactively address potential delays.

Cost Control

Implement cost tracking and expense management and maintain accurate records of project costs to identify budget overruns.

Collaborative Comms

Ensure open and effective communication between all stakeholders, such as the design team, contractors, suppliers, and the project owner/client.

Communicate any budget constraints as well as cost-saving opportunities.

Changes to the project scope or requirements should also be communicated.

CDM Compliance

The CDM regulations and 1974 Act define legal stipulations and conditions which affect the way you must conduct your project.

Failure to comply can lead to fines, penalties and indirect costs associated with delays and downtime.

Market Monitoring

Remain informed on market conditions, such as changes in material or labour costs, exchange rate fluctuations and regulatory changes which may affect construction costs.

Don’t Be Overwhelmed

At Majestic Site Management we’re experienced and equipped to prevent your project from overrunning and the costs spiralling.

We will gladly help you to navigate the rise and fall in construction costs throughout the lifespan of your project – why not give us a call on 01484 426302 to see how we can keep your project on track today.  Or contact us here.