Construction cost elevator reaches top, starts downward

Construction cost in South Florida is starting to stabilize, according to local construction developing experts.

In mid-2020 construction material costs skyrocketed to a 25% increase but in the past 12 months it has decreased to around 8%, said Peter Dyga, president and CEO of Associated Builders and Contractors Florida East Coast Chapter.

Those materials included lumber, concrete, petroleum natural gas, iron, steel, fabricated metal products, and even plumbing fixtures, he said, “Overall, it’s still pretty significant.”

One price tag shocker continues to be concrete, which is experiencing a rise of 6.1 % over the last 12 months.

“That’s obviously a huge input for most construction in South Florida,” Mr. Dyga said. “If you talk to anybody in the industry, they’ll tell you the difficulties they’re having with not just the cost of it, but the availability and the reliability of delivery.”

Last year, a big price driver was the whole supply chain, which led to shortages, no materials and equipment, said Chris Kennedy, vice president of preconstruction for Suffolk.

“Everything on the material side went through the roof and was a big driver of the escalation. I can say in general that has really stabilized,” he said.
There are a couple of exceptions in the Miami market, Mr. Kennedy added, and one is ready-mix concrete, which is really a lot of automation.

“Mix concrete is really a local commodity,” he said. “You really can only track it so far. So that continues to increase significantly in the last year and we’re projecting it still going up to $10 to $15 a cubic yard every quarter through this year, which is kind of unprecedented. The other interesting thing is we got to notice from all the drywall manufacturers that there was a 20% increase across the board starting first of the year.”

Generally, the good news on the commodities is that the supply chain is getting back to normal, Mr. Kennedy said. “There are still some materials with really long lead times, but not like what we faced 12 months ago. That’s generally encouraging on the material side.”

Guaranteed maximum price contracts (GMP) are now being used less in the construction market, said Beatriz Azcuy, a partner at Sidley Austin law firm and head of the firm’s real estate and construction group in Miami.

A GMP is a cost-type contract such that the contractor is compensated for actual costs incurred plus a fixed fee, limited to a maximum price.

“I see a cost plus. So even a GMP with a special escalation clause, for example, for things that are just simply beyond the control of the contractor,” she said. “Before you could get a contract locked in for six months; now they’re locking in for a much shorter period of time and that’s attributable to the uncertainty in the market. There’s still a lot of uncertainty in terms of cost. I don’t see it going down.”

“Let me just put it this way,” she continued. “I don’t see it going down significantly, but I do see stabilization. The problem is there are still a lot of materials that the lead times are just incredibly long, and the longer the lead times, the more opportunities for a shift in price.”