Gierke: [Tariffs] Perhaps not the largest risk companies with which contractors are confronted, but they have certainly created the greatest uncertainty in their business.
FMI has released a white paper that has instructed the contractors to be more conservative 5% to 7% price increases this year. And I found that conservative at the time.
The round -table report of the construction industry, which is about 130 CEOs and managers of architecture engineering office and large commercial contractors who were carried out in April and May, they came back and said that the respondents expect their prices for materials between 5% and 10%.
This is 5% to 10%, which is usually the total net income of a contract business, that's all … If prices rise by 5% to 10% and contractors do nothing, this is the difference between frankly to do something or to make nothing or even lose money. So the moral of the story is: Select good projects and carry them out profitably and protect yourself from this price risk.
Take contractors: In some letters that you wrote on the FMI website, you have drawn between the situation in which we are now in ourselves, and the disorders that the industry went through during the pandemic. What are some lessons from pandemic lessons?
Gierke: I have not yet mentioned that the total disorder of the supply chain – the extended time it takes to maintain materials [during the pandemic] That their equipment would take 10 weeks too late or that it would take 26 weeks late or 60 weeks. I assume that when this tariff uncertainty continues, we will see the same thing as the manufacturers pull off their inventory and then wait for refilling.
What most contractors learned in Covid was that early purchase is really important. How quickly can I have my project bought? How quickly can I buy everything, lock the pricing, lock up deliveries? Because the earlier, the better.
The contractors also learned to work with the customer in order to conclude design decisions, and so many conversations were upstream. Customers were asked before we knew what the entire scope of the project would look like. Which building size we will really build before we knew? What is the mechanical system that we will install? We have to make these decisions earlier and then cannot change them.
It is the same with contracts. Contracts are intended to advance discussions about the risk and risk … contractors changed Force majeure Clauses and insertion clauses for cost sharing or for the price division for material price calation. Clauses about timed materials and prize -shaped materials, but all of this should really have a conversation about where the risk lies and how the risk was dealt with.
All of these lessons really revolve around communication – the development upstream with customers, with their providers, with designers, with their field, with their project managers. Communicate early and often.
Something else that should be considered is the average sanitary and mechanics worker about 5% net per year. Before the Kovid, this number was closer to 4%. So something happened while covid. Those contractors who have adapted to the risks that took these risks that reduced these risks were actually more profitable – and this net of things like the PPP (PayCheck Program), which was available during this time, or the qualified companies that are loans to the company opponents.
For builders who can solve this problem, they will precede.
Claims: What are the most important things that a contractor must say that a typical customer may not understand?
Gierke: One thing is the cost increases that have already met different types of contractors – 33% since Covid for sanitary and HLK. Customers do not really recognize that the costs for the construction of their projects have increased by at least as much.
According to the Bureau of Labor Statistics, the costs for the construction of a school project, a health project, a production facility, a warehouse have risen between 33% and 45% since Covid, and that is a difficult number to wind your head.
Customers do not know that price increases have taken place, and that is already in the past, that is baked. For customers who, for example, not repeated buyers of the building who are not on the marketplace all the time, are most customers in my opinion, they will get a little sticker shock, so we have to prepare them for it.
Because these costs are their project costs at the end of the day. They are not the cost of the contractor … these are the costs of the customer. This is a hard conversation.
It is expected that contractors are expected to do everything about the knowledge of what is going on on the building materials, and supply chains and delivery – but that is not our business. Our business is building great projects for our customers. We are not experts on the futures market for different goods.
The second, which I do not believe that customers find that these price increases are associated with material delays, shipping delays or extended lead times.
So customers really have to participate and make decisions about what it is to be the design base of their project. We need you to make decisions earlier so that we can build the stuff here, earlier to create your projects on the schedule you want.