By: ProcurementIQ Analyst, Anna Son
The new year has brought along with it the opportunity for businesses to start procuring the products and services they require more strategically. Businesses must be conscious of changing market conditions to achieve cost savings, accommodate for cost increases and plan efficiently. This rings particularly true for buyers of legal, construction and healthcare services, which are growing rapidly in price. Using its proprietary Procurement Data Wizard tool, ProcurementIQ has identified several markets within these sectors in which prices are forecast to grow more rapidly than the national inflation rate in 2016. To soften the blow of price increases, procurement professionals can leverage their knowledge of key market characteristics to minimize costs and win strategic deals.
Regardless of their core business, most companies need legal counsel. In fact, ProcurementIQ estimates that 66.1% of revenue generated by industries in the legal service sector is derived from business and corporate clients. Some of the legal services expected to exhibit the highest price increases in 2016 include immigration law, criminal law and employment law. A strengthening economy has given way to rising corporate profit and expanding business activity, lifting demand and prices for these services. Prices for immigration law services, for example, are forecast to rise 3.7% in 2016 on the back of steady immigration into the United States and the increasing frequency with which employers are recruiting talent from overseas. The average price of criminal law services is also projected to rise in 2016. The growing rate of cybercrime and businesses’ continued susceptibility to crimes such as fraud will pressure prices upward at an estimated rate of 3.3%. Furthermore, the price of employment law services is forecast to rise 3.2% in 2016 as the number of employee lawsuits rises and pushes demand for these services upward. Nevertheless, buyers can leverage low market share concentration in the aforementioned markets to facilitate price competition between suppliers during the negotiation process and enhance their chances of obtaining a favorable deal.
To avoid the risks associated with hefty legal costs, arbitration clauses have become a staple of conducting business for many companies. Unfortunately for buyers, with businesses increasingly turning toward arbitration, the price of alternative dispute resolution (ADR) services is forecast to rise 3.0% in 2016. Buyers should be aware, however, that the Consumer Financial Protection Bureau is considering putting forth regulation that bars the use of arbitration for class action disputes and requires that companies disclose the arbitration claims and compensation or other awards issued. If such regulations were implemented, demand for ADR services could fall and result in tempered price growth. Buyers with an ongoing need for these services should consider establishing a professional relationship with an ADR firm to secure favorable pricing terms and rates in the future.
The construction sector is also poised for strong growth in 2016. With an improving economic outlook and more available cash on hand, businesses will continue their expansion plans, thereby bolstering overall construction activity. Swelling demand for new healthcare and educational facilities, offices, hotels and retail stores is projected to strengthen commercial construction activity in particular. As a result of this surge in demand, prices for a number of construction services are projected to increase rapidly. For example, the price of plastering and drywall services, which are widely used in commercial construction projects, is forecast to jump 7.7% in 2016. Similarly, prices for painting services and landscape architecture and design services are anticipated to increase 5.9% and 3.4%, respectively, this year. In addition to skyrocketing demand, higher prices for raw inputs such as gypsum building materials, coatings and paint will further propel price growth for construction services as suppliers seek to compensate for heightened purchase costs.
While buyers cannot completely avoid future price hikes, they can reevaluate their purchasing strategies to maximize cost savings. In fragmented markets with high competition, buyers can pit suppliers against one another by sourcing multiple bids, including blind bids, to elicit more competitive prices. In order to lock in lower prices, buyers should consider purchasing these services sooner rather than later or entering into contract agreements.
Now that healthcare reform is in full swing and more individuals are enrolling in health plans, health insurance premiums are projected to spike in 2016. Both employers and employees are expected to bear the cost of hefty premiums as insurance carriers seek to hedge against potential cost increases associated with enrolling a greater number of riskier individuals who require more medical treatment. The prevalence of chronic diseases, the aging population and the influx of newly insured individuals are projected to fuel demand for healthcare services, propelling rapid price growth. To combat swelling group health insurance prices, which are expected to grow 4.3% this year, some employers have sought out better deals from other providers, while others have explored the possibility of using different services altogether. For example, more employers are expected to use corporate wellness services as a means of curbing surging healthcare costs and boosting employee productivity. The growing emphasis on preventive care and various healthcare reform incentives designed to support wellness programs will boost demand for these services in 2016, causing prices to rise a projected 2.8%. In addition, more employers are beginning to recognize the benefits of offering telehealth services to their employees to help reduce the costs of employee absenteeism and sickness. The proliferation of telehealth services is projected to surge in the coming years thanks to continual technological advancements and a rise in the number of states willing to reimburse healthcare providers for the services. ProcurementIQ estimates that prices for these services will trend upward by 2.8% this year. Although buyers will ultimately pay higher prices for healthcare services, they can limit the negative impact of these trends by entering into contractual agreements now.
Purchasing in the New Year
With the new year underway, businesses should resolve to be more knowledgeable about the markets in which they will be purchasing and more strategic with their procurement techniques to effectively brace for price hikes. Using strategies like purchasing services sooner rather than later or engaging in supply agreements to lock in favorable rates can shield buyers from the brunt of the damage. Armed with key pricing insight, buyers can gain the upper hand in negotiations.