Covid, commercial construction supply chain issues, escalating costs in the commercial construction industry and shortages in materials in commercial construction continue to pose challenges in all aspects of development nationally.

While we are all paying a higher price for goods and services, this is particularly true when it comes to product shortages and costs in industrial space and office construction. It’s a one-two punch to companies in commercial construction, particularly for general contractors. One challenge that is incredibly frustrating is electrical lead times. Equipment and electrical utilities delays have escalated to 40-plus weeks and more from what was typically a 10- to 15-week wait time.

Setting the stage

Let’s start with Covid. Early on, Covid created labor issues, specifically in Mexico, where the government there shut down entire plants when 30% of that labor force contracted Covid. When those workers were then cleared to return to work, the government wanted those companies to reduce the number of people in the buildings and eliminate one of the shifts.

Many of those workers never came back because they could work elsewhere for more money. The electrical gear manufacturers were slow to react to the wage increases which led to the new challenge of having to replace those workers with new hires that had to be trained.

The Trickle-Down Effect

All of these suppliers work on Just in Time Inventory models and are heavily dependent on vendors to send all the parts required in a certain period of time. But those vendors are having the same issues with commercial building construction materials and rising commercial construction costs. These vendors have annual contracts to supply parts at a set price for the year but due to inflation, they are losing money when fulfilling that contract. They are then not motivated to continue to supply materials at the contracted price. The other issue is that the gear suppliers have a UL listing for their products based on the material supplied from these vendors, which make it impossible to change vendors in many cases.

One of the specific excuses for why we are facing commercial construction product shortages and higher commercial building construction costs was the lack of plastic parts. An example is the back plates for all the meter sockets. That was the case for PVC pipe as well, but they are also using the lack of plastic parts as the reason for the long lead times on circuit breakers.

Rising Commercial Construction Costs

Commercial construction costs, particularly for industrial and office space, continue to rise. Gear is nearly double the previous cost. PVC pipe has tripled. Steel pipe has doubled. Copper at one point was close to $5 per pound. Fittings and more rose by 35 to 40%. While commodities have backed down, there has not been a price reduction from any of the finished goods from manufacturers. But why would they with backlogs at an all-time high? The mark ups in commercial building materials have been significant and frankly unsustainable.

Hard to Get

Gear is the most difficult overall to get, with switchboards and metering at lead times that are over a year. To replace the gear, a new manufacturer in the market would be needed. Standalone meter cans are a second challenge, taking at least 40 weeks for delivery.

Case Study

Situation:

A leading provider of contract manufacturing services in advanced gummy technologies for the global nutraceutical industry contracted with Excel Construction of Florida to build out its first production facility in the U.S., located in South Florida. The company needs to be able to start operations before the end of 2022.

The Challenge:

When plans were released for the company’s commercial warehouse and office space, electrical gear was backlogged by about 40 weeks, which meant they would not meet their completion by end of year deadline.

The Solution:

With Excel Construction of Florida’s strong relationships with subcontractors and equally strong relationships with suppliers, the commercial construction industry leader in quality construction and infrastructure was able to take a step back and redesign the space. Excel recommended to the engineer reducing the size of the larger panel equipment enabling them to access it locally. With the redesign, Excel can get power before the end of the year to the space with a very minor price increase to purchase multiple smaller panels.

Five Ways to the Workaround

1. Redesign or design around current available panels and transformers.
2. Plan for contingencies and don’t rely on the old standard – release equipment earlier.
3. Work closely with vendors who have relationships with distributors and who may stock standard equipment in the industry.
4. Keep your finger on the pulse of commercial real estate construction costs and commercial real estate construction inventories and supplies.
5. Think ahead!