Material Construction Cost Increases Everything You Need to Know

May 31, 2024

Material Construction Cost Increases Everything You Need to Know

How Does This Impact Builders?

The overall impact of rising construction cost will vary by project, depending on the type of contract and specific terms agreed upon. Here are a few scenarios that highlight the potential effects of increased materials and labor costs:

Projects with High Exposure to Basic Materials

Projects heavily reliant on essential materials, such as infrastructure projects dependent on steel, will see costs increase rapidly as these materials move through the supply chain.

Collaborative Projects

These projects share some risks, helping cushion cost increases for builders, as clients will also bear part of the price hike.

Lump-Sum Contracts

While lump-sum contracts offer some protection, the impact depends on the timing of material procurement and contract execution. Builders may still face cost increases if materials were purchased after prices rose.

In addition to rising costs, builders might experience project delays due to longer lead times. Tight deadlines can make projects more vulnerable to instability and inflation.

What Can You Do?

Global material price volatility presents significant challenges for contractors. Construction costs in Australia are expected to keep rising due to potential material shortages, increased shipping costs, and delays in imported goods and equipment. Here are some strategies to navigate these challenges:

Choose the Right Contract

Selecting the appropriate contract type, whether fixed-price or cost-plus, is crucial. Fixed-price contracts can lead to higher profits if material costs are accurately predicted or lower than expected. However, incorrect predictions can reduce profits or result in losses. Understanding market trends and your risk tolerance is essential.

Understand Your Contract

Builders must comprehend how ‘rise and fall’ clauses in contracts account for price fluctuations to manage cost increases effectively.

Monitor Material Prices

Regularly review the prices of building materials and adjust contract or tender prices accordingly to reflect any increases.

Minimize Time Between Contract and Work Commencement

Reducing the time between signing the contract and starting work ensures that cost predictions and assumptions remain valid throughout the project.

Review Investment Priorities

Evaluate short- and mid-term investment priorities to understand potential exposure to inflation risks.

Align Procurement Strategies

Align procurement strategies with market conditions to maintain a competitive position for your project.

Communicate Proactively with the Supply Chain

Engage in proactive communication with your supply chain to understand current limitations and potential impacts of delays and cost increases on the project.

Worried About the Impacts of Material Cost Increases?

As experts in construction cost estimation, Cost Logic is here to address all your construction cost concerns. We provide comprehensive project cost estimations, helping you navigate the complexities of rising costs and supply chain disruptions. Our experienced team supports builders and contractors with accurate cost estimates to streamline your projects.

We offer high-quality services across Australia, including Sydney, Melbourne, Perth, and Brisbane. Contact us today to discuss your needs:

Get in touch with us to ensure your construction projects stay on track despite the challenges of increasing construction costs.