An unintended consequence of the global pandemic has been the extreme volatility with which the construction supply chain has had to contend.
The lack of certain products in the industry, or the spike in the cost of items that were otherwise commonplace on construction projects, has made accurately pricing a project akin to the nexus of quantum physics and black magic!
From the simplest items that most contractors would take for granted, such as rebar, drywall, lumber, concrete, and such, to complex HVAC systems that were manufactured elsewhere and shipped for the specific project in question, everything needed to be reviewed and re-evaluated for costs and scheduling.
As I just touched upon, the areas that were the most noted to change were the costs of lumber, steel and the supply of concrete. The OGCA received notice after notice from groups, associations and organizations communicating that the costs would be increasing and without warning.
In the past, it was customary for a slight increase to occur at the start of the construction season, or to coincide with the provincial and municipal budgets being tabled. This was something that all contactors would be aware of and would price future projects accordingly. Unfortunately, the industry, in the past, has not been affected to this magnitude and by so many components all at the same time. The current situation has no historical predictors and does not follow any logical progression; it just seems like utter chaos.
To this point, it isn’t solely the cost fluctuation that is confounding; it is the erratic nature of the increases that has also prompted general contractors to rethink and retool their estimates. With some items in the supply chain, the construction industry is actually seeing daily increases without any reprieve. This is not typical, and contractors need to understand the full implications in order to adequatly contend with this ever-increasing threat.
Yes, I used the word threat! Let me explain why…
On the surface, one or two items increasing is not a cause for alarm. But this “new normal” that we are facing is actually something for which contractors cannot completely prepare. A contractor may submit a price, and based on the time of tender and the timing of the award, that initial bid may have actually inflated to the point where, should the contractor be the successful proponent of the project, they would have lost money before even commencing the build! If this is not a threat, then I am not sure what is!
So, the contractors have erratic costs coupled with uncertainty in delivery of product or components. How does our ICI construction sector contend with these variables: price accordingly to make a profit; peer into our crystal balls to ensure delivery time certainty; contend with the ever-expanding COVID-19 issue; and ultimately still acquire and deliver projects professionally?
Let’s begin with what we can tackle.
The OGCA is in the process of communicating to the buyers of construction, all stakeholders in construction and the greater construction supply line to address the current validity periods that are being tabled in tender awards.
With some jurisdictions, the timeline between the tendering of a potential project and the ultimate award of said project is upwards of 90, 150 or 180 days. This is not acceptable under normal non-COVID-19 circumstances, and it is especially not acceptable or workable in our current situation.
The OGCA is launching a concerted effort to have the entire construction industry return to a thirty (30) day award timeline. This has been the historically accepted norm for decades, but slowly, we as an industry allowed this to creep ever upwards to its currently unattainable threshold.
It has been noted that things change due to evolution or revolution. The construction industry allowed a slow evolution to the current timelines, and we now require a revolution in order to properly rectify this to regain some semblance of control over the situation.
Understand that buyers of construction will continue to try to unilaterally download risk onto the general contractors, but this is only possible if you, as the contractor, allow for this to occur.
We have allowed the timelines to ever expand without pushing back. We now need to take a concerted effort to ensure that award timelines return to thirty (30) days. Look out for our OGCA bulletin on this shortly.
Is this the complete solution?
No. But it is a start and something in which contractors have a direct say. The industry does not need to accept 90, 150 or 180 days prior to award as the normal timing, and the OGCA can assist the industry in qualifying bids so that they attain acceptable limits. This one step will at least lessen the gap between the bid and the award and the uncertainty that comes with the constantly evolving landscape that is our current supply chain.
Having more vaccinations is also a step that our industry can employ to address the fluctuations of the supply chain. A great many of the issues have been caused directly by manufacturing disruptions in the regular production of construction-related items. Having a COVID-19 outbreak at a main gypsum processing and manufacturing plant and having said plant closed for fourteen (14) days or greater disrupts the flow. Being unable to produce rebar for the same issue disrupts the flow. Not having enough drivers to deliver concrete because a majority have COVID-19 or are afraid to contract it, disrupts the flow.
The OGCA has also had success in having construction included on the “essential workers” list for the phase two vaccination rollout. This will help our sector regain control, but we need workers to get vaccinated for this to work.
Ultimately, our sector must work together to reduce timelines for award of tenders and push for more workers being vaccinated. These are two areas over which contractors have some control. Let’s continue to work together to get through this and overcome this current threat.
Should anyone want to discuss the timelines of a bid award, like to qualify a bid, or if you require any assistance from the OGCA, please contact me directly at giovanni@ogca.wpengine.com or via phone at 905.671.3969.