Who absorbs material cost increases?

[gc86]

How much (as a percentage of the original costings) of material price fluctuations or increases, should a builder or contractor be normally expected to absorb as part of fixed price contractual works?

[jack]

All of them. It's a fixed price contract.

 

However, contracts can always be renegotiated. It's in your interest for the builder to remain in business to complete your build, and for them to at least be making a bit of money. It's up to you how far you push things.

[Conor]

For our roof, the material costs went up 6%. We split the difference at 3%. I'm finding it hard and harder to get people to do supply and fit, they (joiners, roofer, boarders) want me to buy the materials and they just do the labour and sundries.

[nod]

Most contractors will absorb Or like Conor split small increases 

But when materials double or more like many have You the client will be expected to step up regardless of fix rate contracts 

[joe90]

As I put in a different thread I came across a contractor who said he was hearing of people offering 24hr quotes because of spiralling prices.

[Nickfromwales]

27 minutes ago, joe90 said:

As I put in a different thread I came across a contractor who said he was hearing of people offering 24hr quotes because of spiralling prices.

Don’t blame them. Why should a contractor take money out his back pocket and gift it to someone to build their home? I’ve drawn a line under it now, and will absorb 3% max ( so a 6% uplift is 50/50 between the client and my company ) but after that the client pays or takes a hike.
The uplift is not the fault of any contractor so expecting them to be met regardless is just a ridiculous stance. ? The client gets to hold onto these things, and enjoy them for the duration and not the contractor, so get your hand in your back pocket and stump up!!!

The construction industry is on fire atm, and contractors will just migrate to the next willing client, so beware playing devils advocate as good trades will just move on and then you’ll be left with the barrel scrapes. That’s a step backwards not forwards, so no savings or value there, quite the opposite.  

[Dave Jones]

builders quoting now fixed price contracts without using some sort of escalator clause are mad. It's just plain gambling.

[SteamyTea]

It is fair to assume that builders have already put a mark up on materials, it is why they have trade accounts a merchants.

If they don't know what is happening in the industry regarding prices, they are not good business people, and are best avoided. 

May seem harsh, but if they come back and ask for more after agreeing a price, they don't know what they are doing. We have had a good 12 months to understand the affects of COVID-19 (clue is in the 19) and 5 years to plan for BREXIT.

 

If a quote seems low, there will be a reason, and not a good reason.

If it is high, it is more likely the builder knows what they are doing.

Edited August 29, 2021 by SteamyTea

[Nickfromwales]

4 hours ago, SteamyTea said:

May seem harsh, but if they come back and ask for more after agreeing a price, they don't know what they are doing. We have had a good 12 months to understand the affects of COVID-19 (clue is in the 19) and 5 years to plan for BREXIT.

It is only in the last 3 or more months that the effect of the pandemic aftermath has started to significantly affect materials availability and the "supply and demand" uplift in costs. So yes, very harsh, and quite out of touch with what is actually going on in the industry to boot.

 

4 hours ago, SteamyTea said:

It is fair to assume that builders have already put a mark up on materials

Yes, and that shan't be absorbed or consumed by anything as it is there to offset time and paperwork / accountancy fees / fuel and time between merchants / time on phone sorting procurement etc etc, so no to anyone assuming "we" should just take money from our pockets and help 'hard done by' individuals building their dream home. Sorry, NO SALE. Homeowners have TV's and are aware of such things also, so those 'playing dumb' can also take a hike. Customers would be on "us" like a tramp on a kebab if they read that materials had gone down in price ffs. Self builders......live by the sword etc etc.

[SteamyTea]

4 minutes ago, Nickfromwales said:

It is only in the last 3 or more months that the effect of the pandemic aftermath has started to significantly affect materials availability and the "supply and demand" uplift in costs

So no one saw this coming a year back?

5 minutes ago, Nickfromwales said:

Yes, and that shan't be absorbed or consumed by anything as it is there to offset time and paperwork / accountancy fees / fuel and time between merchants / time on phone sorting procurement etc etc

Isn't that just part of job though. 

 

We all know trades that have to pop off to the supplier to get nails, screws, cable and pipes.

Do you think oil companies send a man out in a dingy to bring a couple of kegs of crude to finish the batch off.

 

What I am saying it that we all had enough warning that there would be turmoil, if we failed to plan for that, and we really have had plenty of time to plan, then we can only blame ourselves and not look to blame others.

[ToughButterCup]

 

37 minutes ago, SteamyTea said:

...

then we can only blame ourselves and not look to blame others.

 

Blame isn't the issue.

The OP  asks (in the light of current circumstances) when they occur - and not before - how should such increased cost be fairly apportioned? 

Halving the increase seems to me to be reasonable.

[Ferdinand]

On 26/08/2021 at 23:42, gc86 said:

How much (as a percentage of the original costings) of material price fluctuations or increases, should a builder or contractor be normally expected to absorb as part of fixed price contractual works?

 

Depends on what is in your "fixed price" contract. It may include terms as to what may change under which circumstances.

 

There is also a thing called a "firm" price contract, which is really fixed.

 

See:

https://www.commercial-consulting.co.uk/post/contract-price-type

 

If someone tries  to impose a price increase on you, your action needs to depend on all the circumstances. Half may be reasonable if it is genuinely unpredictable, but if eg it is recent and you have discussed Brexit / supply crunch consequences then it may be different. 

 

Nick's "take a hike" could potentially leave him with a liability.

[SteamyTea]

46 minutes ago, ToughButterCup said:

Blame isn't the issue.

It is the whole issue. No one likes a price change, but my point is that professionals in the trades should have costed this in.

If I go to buy lunch in a cafe, I expect the price to be as advertised, it is not an 'invitation to treat'. And if you want to see price volatility, look at wholesale food prices and supply.

My point is that no one should be blaming COVID-19, BREXIT or the general state of the economy for poor costing or supply issues. These were known knowns.

Bit like part building a wall and expecting it to stay up, the wind can change direction and blow it down, a rare event maybe, but one with a known risk and known outcomes, to the contractor if not the customer, that, as @Ferdinand points out is to do with the contract. If a customer does not fully understand the contract, they should get a legal person to deal with it, but I suspect not many self builders do, they prefer to save a few quid.

 

There is a reason that there has never been a Marvel movie where the superhero is a builder. They would turn up late, with the wrong kit, want to renegotiated, with the threat of leaving in a huff if they don't get their way, and do a pretty piss poor job anyway.

Edited August 29, 2021 by SteamyTea

[Ferdinand]

22 minutes ago, SteamyTea said:

 

There is a reason that there has never been a Marvel movie where the superhero is a builder. They would turn up late, with the wrong kit, want to renegotiated, with the threat of leaving in a huff if they don't get their way, and do a pretty piss poor job anyway.

 

Ahem:

 

https://comicvine.gamespot.com/builders/4060-60019/

 

Just not made the movie, yet?

 

They are behind the creation of the entire Universe from Chaos.

 

But, as the Architect said - who created the Chaos?

[jamieled]

14 minutes ago, SteamyTea said:

No one likes a price change, but my point is that professionals in the trades should have costed this in.

If I go to buy lunch in a cafe, I expect the price to be as advertised, it is not an 'invitation to treat'. And if you want to see price volatility, look at wholesale food prices and supply.

 If I go into a cafe I'm not looking for a quote for my lunch in a year's time.  Many building firms/contractors are quoting for 6 to 12 months ahead. They are not experts in macroeconomics. It's easy to say they should have costed it in but I suspect while the potential problems re covid and brexit were generally known,  few trades would have had enough insight into the relevant factors to accurately price jobs a year in advance. For a start, given the rate of change in materials prices I doubt even their suppliers would have been able to predict exact cost changes.

 

If a client wants price certainty in a volatile market,  they're going to pay for that through a risk allowance. Otherwise they carry the can for price changes (in both directions).

[Nickfromwales]

1 hour ago, SteamyTea said:

professionals in the trades should have costed this in

Those with a F****** crystal ball!?! We are in unprecedented times for this building generation.

1 hour ago, SteamyTea said:

These were known knowns.

Horse manure. I'm on the ground, purchasing right now and for the many months since lockdown "ended", and the these "knowns" are drastically worse than anyone anticipated. More to the point, the cost increases have only become really bad, relatively recently.

1 hour ago, SteamyTea said:

There is a reason that there has never been a Marvel movie where the superhero is a builder. They would turn up late, with the wrong kit, want to renegotiated, with the threat of leaving in a huff if they don't get their way, and do a pretty piss poor job anyway.

Probably best to stop "contributing" to this thread now me thinks........ This thread cannot survive on such narrow-minded garbage.

 

 

 

And no, I've had a perfectly fine day.

[joe90]

2 hours ago, SteamyTea said:

There is a reason that there has never been a Marvel movie where the superhero is a builder. They would turn up late, with the wrong kit, want to renegotiated, with the threat of leaving in a huff if they don't get their way, and do a pretty piss poor job anyway.

 Piss off (from a retired builder ?)

[SteamyTea]

1 minute ago, Nickfromwales said:

Probably best to stop "contributing" to this thread now me thinks........ This thread cannot survive on such narrow-minded garbage.

Ohh, touchy.

So you don't like an alternative view and think others should not contribute. An odd attitude.

[Nickfromwales]

2 hours ago, SteamyTea said:

There is a reason that there has never been a Marvel movie where the superhero is a builder. They would turn up late, with the wrong kit, want to renegotiated, with the threat of leaving in a huff if they don't get their way, and do a pretty piss poor job anyway.

It's shite like this that doesn't even closely resemble an alternative view. And as far as 'touchy' is, I'm 47 and have nothing to be touchy about these days, just this forum is usually on a higher level than what you've just put out. 

I stand by my statement.

Just words, remember, and my "alternative view"   seeing as were apparently to one if it justifies lacking of factual information.

[Nickfromwales]

I would stay up and fight, but there's finally something good on TV.

[PeterW]

8 hours ago, SteamyTea said:

It is fair to assume that builders have already put a mark up on materials, it is why they have trade accounts a merchants.

Errr … it doesn’t bring the prices down that much. The difference is between what Joe Public would pay walking off the street and a reasonable price. If builders quoted the Joe Public prices they would be out of business very quickly. Material markups are anywhere between 10-20% tops which isn’t unreasonable. 

 

2 hours ago, SteamyTea said:

If I go to buy lunch in a cafe, I expect the price to be as advertised, it is not an 'invitation to treat'. And if you want to see price volatility, look at wholesale food prices and supply.

And you’re running at a GP of probably 70-75%, so a 50% increase in material costs will take out 12% of the margin. Work on a GP of 20% based on materials and all of a sudden a 50% increase in timber costs (85% up this week on this time last year for reference) has just swallowed all of your profit and more. 
 

I’ve seen a few jobs recently quoted as open book and a 12.5% material handling charge, but a warning to the client that all materials have to be delivered to site within 48 hours of request or wait time may be charged. Not unreasonable but makes those clients who think that buying off eBay / internet sites to get “deals” has the ability to cost rather than save money

[SteamyTea]

23 minutes ago, PeterW said:

Work on a GP of 20% based on materials and all of a sudden a 50% increase in timber costs (85% up this week on this time last year for reference) has just swallowed all of your profit and more. 

We have high fixed cost and probably £2.5m in assets that need servicing, so the business model is different.

There is a reason that eating out cost a stupid amount of money compared to eating at home, it is to keep in business while being able to absorbing price shocks.

I am sure that the large construction companies are not too bothered by the recent price volatility, they will concentrate their resources to the most viable projects and mothball the least profitable.

That is just basic business economics.

Edited August 29, 2021 by SteamyTea

[NickK]

Just out if interest. If materials increase in cost by 6% and the builder asks to split the difference regardless of what contract is or isn’t in place. Should it work the other way as well then? If costs go down by 6% (unlikely) should be builder offering split of the savings? I have zero experience but keen to understand as much as possible before my time comes ?

Edited August 29, 2021 by NickK

[PeterW]

2 minutes ago, NickK said:

Just out if interest. If materials increase in cost by 6% and the builder asks to split the difference regardless of what contract is or isn’t in place. Should it work the other way as well then? If costs go down by 6% (unlikely) should be builder offering split of the savings? I have zero experience but keen to understand as much as possible before my time comes ?

Yes - it’s why cost plus contracts can be good. 

[Ferdinand]

50 minutes ago, PeterW said:

Yes - it’s why cost plus contracts can be good. 

Doesn't seem to work for the Ministry of Defence. ?