Construction Inflation: What you need to know for your next bid

There’s one word that has been popping up for a while now. Inflation. Inflation is the rise of materials, labor, and equipment. Not only does it raise costs, but it also heavily impacts the bidding process and cash flow on your projects. What numbers worked then don’t work now, and being adaptable to inflation is critical for your business, especially construction inflation. 

Inflation is also impacting your team and their families. As a business owner, team leader, or even if you are just leading yourself, it is a mistake to underestimate the impact this can have on your team or individual performance.  

Key Drivers of Construction Inflation

• Material Costs: Volatility of prices for steel, lumber, concrete, and copper.
• Labor Costs: Skilled labor shortages and state minimums driving up wages.
• Regulatory Changes: Compliance with new regulations increasing expenses.
• Energy Prices: Higher fuel and energy costs affect operations. 

Think about the impact these things can have on someone’s ability to do their job?  For sure, it does not make their job easier, and it is likely making it harder.  This could lead to someone feeling less confident, insecure, or unhappy.  These are traits that could potentially lead to mistakes.

Why Inflation Matters for Bidding

Accurate bidding is essential for profitability, and construction inflation directly impacts the bidding process:

• Cost Estimation: fluctuating prices make accurate cost prediction challenging.
• Contract Clauses: Price escalation clauses can mitigate risks but deter clients.
• Competitive Edge: Effective inflation management offers a bidding advantage. 
• Profit Margins: Accurate inflation projects are critical to maintaining margins. 

What is my recommendation on how to combat Inflation?

This isn’t to scare you away or start prepping for the worst. My advice here is to educate yourself on these factors and how they are impacting your business, your business processes, systems and you team. Collectively create the plan, for when things do hit the fan, as we all know, proactive is better than reactive. 

• Market Analysis: Stay up to date on material and labor forecasts.
• Supplier Relationships: Understand and secure pricing and material availability.  Make sure you have a plan for backup suppliers, and create a wider network to lean on.
• Create a strong Contract: include price adjustment provisions to protect your margins, negotiate terms, and provide clear reasons for any adjustments you need.
• Advanced Procurement: Buy materials early at fixed prices or negotiate on higher quantities that could give price breaks. Do what you can to avoid rapid cost spikes.
• Efficient Team and Cash Flow Management: Complete projects on time, understand where the money is going each week. Take time to map out the possibilities and make adjustments that are efficient to the project and business.  
• Do not be afraid to say “NO” to a project:  This is not the time to try and thread a needle to take on additional risk. Go into every project eyes wide open.

Know your strategy. Understanding what the market is doing and establishing solid relationships could not be more important as we move through high material costs, labor shortages, and as continuous changes impact the construction industry as a whole.