By: ProcurementIQ Analyst, Anna Son
Despite a drag in construction activity in recent months, which has primarily been due to prohibitive winter weather and spring storms, not everything is expected to be doom and gloom in the construction sector. Based on historical trends, ProcurementIQ predicts construction starts will heat up during the summer, with construction firms taking on as many contracts as possible to take advantage of improving weather conditions and peak business activity. However, the anticipated boom in summer construction activity also signals a rise in the costs of construction material, labor and safety compliance costs, which contractors must address in order to effectively navigate the summer surge.
The Impact of Seasonal Demand Shifts on Construction Costs
The recent drag in construction activity exists due to buyers’ preference for summer construction project starts. In non-summer seasons, construction lead times are longer because workdays are shorter; in addition, project completion times are often further extended by weather delays when temperatures are colder. These conditions have led buyers to delay or suspend construction projects during the 2016 winter and spring seasons.
While early 2016 trends implied slow growth in the number of construction starts over the course of the year, historical trends suggest this trend will reverse beginning in the summer. The summer season signals gradually improved weather conditions and peak business activity; these trends will prompt growth in demand for residential construction specifically. ProcurementIQ expects that demand for housing starts will be bolstered by low interest rates and ongoing job creation over the remainder of 2016. Construction firms will take advantage of this opportunity by taking on as many contracts as possible during this season, pushing up housing starts by 10.2% in 2016.
Unfortunately, the surge in summer construction activity also signals escalating building costs. Seasonal fluctuations in construction starts over the course of 2016 will cause higher volatility in building material prices and, subsequently, higher material prices. To hedge against rising input costs and volatile demand, contractors are expected to raise the price of related construction services. As a result, ProcurementIQ expects the price of integral building construction services, including roofing, drywall and insulation services, to increase 6.8%, 4.9% and 0.4% in 2016, respectively. These trends will force contractors to raise their service prices.
Also contributing to higher construction start prices are rising labor costs. Spurred by surging demand during the summer, the value of construction is on course to rise 8.7% over the course of 2016. In response, contractors are expected to hire more laborers during the summer rush, leading to higher wage costs. Heightened operating costs are passed on to buyers in the form of higher construction services prices.
Eliminating the Fatal Four
Since the number of construction projects and workers is projected to pick up during the summer, construction firms will incur heightened compliance costs relating to safety practices. The number of construction-related injuries and fatalities is at a record high since the last construction boom in 2007 and 2008. According to the Occupational Safety and Health Administration (OSHA), 899 construction worker fatalities, which accounts for 20.5% of all worker fatalities in 2014. The primary causes of worker fatalities are falls, electrocutions, falling objects and getting caught in or between objects or equipment on construction sites, which together are coined as the “Fatal Four.” OSHA projects that eliminating the Fatal Four could save the lives of 508 construction workers in the United States each year. In response to rising construction-related accidents, OSHA has recently introduced more stringent safety standards and increased compliance penalties. Although required by law to provide their workers with safe and healthy workplaces, construction firms can improve worker safety by investing in the proper personal protective equipment.
Given that falling is one of the most significant hazards on a construction site, construction workers must be equipped with safety harnesses, which typically are an integral part of a fall prevention system. ProcurementIQ estimates that the average price for a safety harness hovers around $159.35. While contractors can pay lower prices, these cost savings should not come at the expense of a worker’s safety. Because construction workers have to wear safety harnesses for extensive periods of time, comfort and durability are crucial to evaluating product quality. Poor-fitting or uncomfortable harnesses can pose a safety hazard because workers might wear them loosely to avoid discomfort.
Another common hazard on a construction site is electrocution, because of the large number of power lines and power cables stretched throughout many construction sites. In addition to protecting and regularly inspecting electrical cables, contractors should also provide their workers with proper protective gloves, such as insulated gloves, when performing electrical work. ProcurementIQ estimates that prices for electrical gloves can vary anywhere from $25 to $250 per pair depending on material construction, product features and brand. Moreover, contractors should consider investing in other types of protective equipment to help eliminate the Fatal Four accidents. These products include hearing protection, back and joint protective equipment, high-visibility uniforms, safety eyewear and safety footwear, as well as other types of safety apparel. By purchasing various safety products from the same supplier, contractors can negotiate bundle discounts, save on shipping costs and ensure consistency in product quality.
Investing in Safety Training
The growing number of workplace accidents on construction sites can also be attributed to poor safety training for construction workers. Therefore, contractors should invest in proper safety training services to train their workers on how to avoid falls and other injuries. For example, OSHA’s Outreach Training Program is designed to teach prevention of safety and health hazards to entry-level construction workers and is typically administered by an OSHA-authorized trainer. Another way of improving safety conditions on a construction site is to hire workplace safety consultants, who analyze potential hazards that might cause harm to workers and evaluate each hazard’s severity. They then provide suggestions for mitigating risk and for preventing harm to workers, to improve workplace safety and increase a contractor’s ability to meet regulatory requirements. In light of rising demand for safety equipment and services due to booming summer construction activity, prices are projected to trend upward. Therefore, buyers should consider purchasing these products and services sooner rather than later to hedge against potential price increases.
Preparing for the Busy Summer Season
With construction activity heating up during the summer season, there is no better time for buyers to negotiate project costs with contractors to lock in more favorable rates. While safety risk levels increase in line with booming summer construction activity, contractors can mitigate the risk of potential workplace accidents and safety violation penalties by investing in proper safety equipment and training.