[Illinois Real Estate Journal, February/March 2022]
Supply chain issues. Less available land. Labor issues. The construction industry has endured more than its fair share of challenges over the past couple of years, yet it’s as strong as some of the steel-framed buildings it erects across Illinois.
“There are so many variables in the equation now. It’s unlike anything I’ve seen in my 31 years in the industry. It’s becoming harder and harder on a daily basis to solve the equation of a project,” says President and Co-Founder of Principle Construction Jim Brucato. “It has created a much deeper teamwork approach to our projects.”
He says in prior years when these problems were infrequent, minor and more manageable, those involved in a project would work on their portion of it independently then come together in later stages of the project. For example, bankers and developers didn’t usually reach out to construction firms until several months in.
“That’s totally different now. Now we’re deeply involved at the earliest stages of the project,” Brucato says. “As a team, we’re running various scenarios together until we reach one that works for them in the overpriced overall project. As difficult as today’s conditions are, they’ve forced every player in the project to come together much earlier to contribute to the solution.”
Those solutions have sometimes culminated in creative results. As an example, Brucato shares that he has a manufacturing client who is growing rapidly.
“As we work on plans for their facility, they said, ‘Hey, we have this extra land over here on our site. What should we do with it? What do you recommend?’” he says.
Principle Construction brought the whole team together – the client, the broker and the architect – to brainstorm. Running through several scenarios, they decided the best solution would be to build a speculative building on that part of the property and lease it out until the client is ready to expand into it.
“It seems relatively straightforward, but in essence, this manufacturer is now becoming a developer because of the need for space,” Brucato says.
Stories like that illustrate the multi-faceted obstacles the construction industry is taking on right now, obstacles that seem to begin and end with supply chain issues.
“Supply chain issues related to shortages and delays in the delivery of construction materials, as well as volatility in the prices of those materials, have affected our projects’ timelines and budgets,” says President and CEO of Skender Justin Brown.
Those variables are making it difficult for construction companies to obtain pricing that can be held from bid stage to procurement, adds Founder and CEO of Mosaic Construction Andy Poticha.
“We are experiencing never-before-seen lead times eclipsing 52 weeks on certain products like appliances,” he adds. “Other significant delays include the timing to receive materials to erect steel buildings which are hovering around 36- to 40-week lead times.”
Poticha asserts the skilled labor pool is tightening as well.
“To keep projects moving forward, as experienced design/builders, Mosaic Construction has a variety of trade and supplier resources available to leverage and help find alternative solutions,” he says.
Just as the other firms we spoke to have, Graycor Construction Company Inc. attempts to mitigate that as much as possible in the project planning stage by purchasing long-lead items as early as possible.
“We have had to work diligently with our subcontractors and owners to establish a clear picture on price and schedules,” says President Tim Hanifin. “This is where relationships come in, allowing us to accurately gauge supply availability and get accurate pricing decisions locked in early, so that we can meet delivery needs.”
Brown says Skender’s lean construction tactics are a fundamental part of its approach, which helps it achieve greater stability, reliability and efficiency – even during periods of uncertainty.
“Our teams also develop multiple back-up scenario plans, which enable us to shift seamlessly to plan B or C when we encounter issues like materials delays,” says Brown.
For Mosaic, the goal is staying ahead of the curve as much as possible.
“We preorder equipment immediately where possible and re-sequence parts of projects that would normally be in a different order,” Poticha says. “Clients hire us based on our experience and reputation, so being transparent about equipment delays is critical to maintaining strong client relationships.”
While Brown cites recent analysis by the Associated General Contractors of America to indicate prices of certain construction materials are no longer rising steeply like they did throughout 2021, he says some volatility will remain.
“So our teams will continue to prioritize flexibility and work proactively to meet project needs,” he says.