5 Easy Ways to Overcome Material Shortages
The world’s post-pandemic recovery has taken a turn for the worse, and no one is feeling it in their wallets more than builders. Much of this is due to the rapidly fluctuating construction material prices. Lumber has fluctuated in value more than Bitcoin! After reaching an all-time high in 2021, lumber dropped 67%, then rose 90%, then dropped again by 61%. Delays and pricing fluctuations can seriously hurt profit margins.
Here are a few ways to help ease the burden of material shortages:
Tip #1 - Transfer the Risk to the End Buyer. When writing up the contract, add in or revisit the cost escalation clause in case of delays and pricing fluctuations. Many contractors are also adding provisions for when a change of law (i.e., Coronavirus regulations) causes a delay in material delivery.
Tip #2 - Use Alternative Materials. If an alternative material is less expensive or readily available, and the buyer approves of the change, it makes a lot of sense to switch to a different material. Most builders skip this step because of the added hassle of getting approval from the buyer or developer. Just keep in mind that everyone will benefit from a less-expensive and faster-moving project.
Tip #3 - Work Flexibility into Your Construction Loan. Many construction loans allow for extensions and budget flexibility. Lenders would rather have a completed project than an uncompleted one, and they will likely work with you to get the project finished. If your lender is unwilling to work with you, then it’s time to shop around for a new lender!
Tip #4 - Invest in Technology. There are many types of construction management software available for you to use. These products protect you from miscalculations, oversights, and delays. Companies like CoFi use software to help builders streamline the draw process and ensure faster payments.
Tip #5 - Order Materials Early. Contractors are masters of planning ahead. They’re competing for materials with other contractors who plan EVERYTHING out. At a time when everyone is placing orders early, if you fail to do so, you’ll be the one that pays the price.
By utilizing these tips, builders can mitigate the risk of decreased profits related to material shortages and de-risk their projects and businesses during uncertain times.
