Insights for Your Industry Given that new reality, Gordian has developed modifications to the well-known RSMeans construction cost estimates (which Gordian acquired in 2014) to account for the added costs of infectious disease precautions and biohazard remediation at job sites.1 The costs of infectious disease precautions might not be significant if they did not come at the same time contractors are struggling to recruit and retain skilled workers, a problem the sector has wrestled with since thousands of artisans retired or left the business following the real estate collapse of 2007. Faced with both a labor shortage and restrictions on how they can deploy labor at a jobsite, contractors are getting creative in utilizing the workforce they have. For example, firms are utilizing both video surveillance and QR codes to monitor compliance with safety guidelines. Also, there is evidence of a growing use of prefabricated components created offsite and installed in a project as a means to reduce the number of workers needed at a job site.2 PAGE 2 Construction After COVID-19 Continued Materials Cost Compounding the stresses of a tight labor market are recent spikes in the cost of building materials. “Over the past 12 months, the upward trajectory of material costs has been striking,” said Rider Levitt Bucknall (RLB), a construction cost data firm, in its report on the first quarter of 2021. According to RLB, copper, aluminum, oil, and lumber all experienced significant price hikes during the pandemic.3 That observation was shared by CBRE, a leading construction analysis firm, which reported that by May 2021, steel and lumber prices were more than three times their level at the end of 2020. “Rising costs are creating sticker shock for developers,” CBRE writes, “[This is] causing some to cancel or postpone projects. Others are increasing their prepandemic construction budgets by as much as 20%.”4 According to Jay Hannah, president of Woodus K. Humphrey & Co., part of Amwins, a leading insurance intermediary, lumber mill owners expected construction demand to fall in the wake of the pandemic. Unexpectedly, he says, “most homeowners were sitting in their houses, looking around, and thinking it was time to renovate with a new deck, a new addition, or even a new house. “Suddenly there was huge demand and a significant backlog in the supply of lumber.” Fortunately, he adds, timber management practices implemented in the 1990s and 2000s resulted in an abundance of available trees, and the lumber industry has begun catching up with demand. It’s not just the cost of materials that concerns contractors, but also volatility in the supply of materials, whatever the cost. “Contractors are afraid they’re not going to be able to get their materials, or they’re going to come significantly later than they planned,” says Mewing of Gordian.5 877.482.1234 | aiblc.com Sheila E. Salvatore, Editor | Editor@AdjustersInternational.com Copyright © 2021 Adjusters International, Ltd. All Rights Reserved. Insights for Your Industry® is published as a public service by Adjusters International, Ltd. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. E06-1024 PROTECTING YOUR PROPERTY
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