Supply chain issues continue to be a ‘pressure cooker’ in B.C.
The following is an article from the Journal of Commerce, featuring commentary from VICA CEO Rory Kulmala. Published on July 20, 2022
The Lower Mainland is feeling the heat of supply chain issues.
Chris Atchison, president of the B.C. Construction Association (BCCA) said supply chain disruption and escalating costs of goods are worse than he’s ever seen and there doesn’t appear to be any relief on the horizon.
“Unfortunately, cost increases are widespread, affecting all trades and project stages,” said Atchison. “It’s not only the main structural materials — glass, rebar, steel, lumber — but crucial smaller items such as screws, plates, fasteners, metal door frames, electrical panels, and much more.”
He explained this causes a double-impact as projects are delayed by shortages and then costs continue to climb during the delay.
The BCCA recommended contractors currently working on projects should engage with owners proactively and regularly, bringing facts that clearly demonstrate the reality of price increases and communicating the anticipated impacts on the project.
“You’re in this together and not talking about it is not a solution,” said Atchison.
Contractors are being more selective about which projects to bid on, he said, making sure contract terms include escalation clauses and other risk mitigations.
“If they can’t factor in an appropriate level of risk and make sure that the risk is allocated to the party best positioned to manage it, they won’t bid,” he said.
“Our members are bringing this to our attention more and more, specifically the cost escalations. It is a real pressure cooker for our members,” said Donna Grant, president of the Vancouver Regional Construction Association (VRCA).
Grant is taking these concerns straight to decision-makers. She has reached out to every single MLA in the Lower Mainland asking to chat while they are in their home ridings. She already has meetings set up and is working on more.
“Our MLAs need to hear about our industry,” said Grant. “We came to the table when we were deemed an essential service and kept the B.C. economy going with little fanfare.”
Despite this, Grant noted the province has dragged its feet on prompt payment legislation and is now being told it might have to be revisited next year.
“That’s not good enough,” she said. “It’s low hanging fruit and our members are taking a lot of hits right now when they were the ones who kept the economy going.”
Grant explained if issues around fixed price contracts, cost escalations and inflexible owners aren’t addressed, many might rethink being in the industry.
“We need a bigger recognition of how important this industry is to all our lives,” she said. “We need passable roads, safe hospitals, schools for children and that all takes construction. There is a lot of pressure on our industry and that needs recognition.”
Vancouver Island is also feeling the pain. Rory Kulmala, CEO of the Vancouver Island Construction Association, explained supply chain and labour availability are lagging in light of the demand for construction.
“Materials are in demand globally and this has stressed our B.C. and national markets significantly,” he said. “As little as three years ago, we saw that materials that would normally take four-to-six-month lead time are now, in some cases, near doubled. From fuel to raw materials such as cement, petroleum-based products, and special-order materials, add on the increased costs of distribution, and the costs of these materials are hitting an all-time high.”
HVAC equipment, elevating equipment and specialty finishing items that are imported are taking much longer and at a higher cost.
“Everything is costing more,” he said. “In some cases, anywhere from 30 per cent to 50 per cent.”
This is causing island contractors to be very careful with their bidding and not holding pricing very long. Kulmala explained they are less likely to provide guaranteed pricing for work that may not start for several months. If they do, they may be including further inflated pricing for both materials and labour.
“If they are already under contract, they are either absorbing these price increases or making claims for reimbursement,” he said. “Ultimately, these costs will be borne by the owner.”
Owners like the City of Vancouver acknowledged they have seen volatility in the supply chain sector and an increase in costs associated with the supply of materials and services that support our construction programs.
“To mitigate against these challenges, we constantly monitor the inventory of material with our supply vendors, review service contracts against market inflationary conditions, evaluate alternate construction materials with lower cost escalations and maintain ongoing communication with our clients and service providers to ensure project delivery is maintained,” said the city. “In addition to the above, rigorous project schedule and budget tracking helps ensure impacts related to construction cost increases are minimized.”