Rising costs

[nod]

I’ve a meeting on Monday to discuss rising costs on a site that we are doing the plastering Framing and Render 

Two years work 

We have the usual 5% material and 3% labour increases built into the contract Whilst the Labour is no longer a problem 

Materials and transport are 

The contracts where signed before the pandemic Started The site is on week 99 and with only 8 homes out of 205 complete 20 staff in the onsite offices  the builder must be hemorrhaging money 

 

The point of the post is 

Ive agreed a price and they can either hold me to it 

and force me in to administration 

Or cover the extra costs 

The same choice will face many on here that get a fixed price 

Has a fixed price build become a thing of the past 

 

All new quotes have agreed to cover material price rises But also when materials drop as some already have 

They  benefit from the reduction 

 

[MikeSharp01]

Interesting insight into the challenges of fixed price contracts, they are only ever any good in times of low inflation or predictable inflation times.

[Gus Potter]

@nod

 

Feel for you Nod. You spend years building up a good business, good reputation for high quality work and something like this happens through no fault of your own.

 

Hopefully pragmatism will prevail and you will reach an equitable agreement.

 

All the best for Monday.

 

For all. A few of the domestic builders I work (extensions and garage conversions for example) with have been doing open book pricing for a while. They have been fixing the labour cost, declaring the material cost and asking that if the materials increase in price the customer makes up the difference, if they drop the sum due for materials is reduced accordingly. Unfortunately this is not as easy to negotiate on larger projects / commercial works.

 

 

 

 

[TonyT]

We went 50/50 with our main contractor for extras due to to covid.

things like altering scaffold to create one way systems, hand wash station etc

on commercial builds it all adds up

[Bonner]

Depending on your contract, you could claim force majeure, “acts of war” or suspend work until prices come down (ie. indefinitely). Hopefully they will see sense and realise that you are not going to finish the job at 2019 prices. Interesting what you say about labour no longer a problem, are you seeing a slow down in demand?

[DragsterDriver]

I’m strictly ‘cost plus’ now, daywork and materials on top with open book and a 10% mark up. There’s a proper recession coming down the line, I would speak to my accountant about the options and take everything you can from the business and prepare a battle plan.
 

tell the customer if they force the contract you’ll have to cease trading and the new contractor coming in will be higher priced. 

[DragsterDriver]

On 07/07/2022 at 19:52, nod said:

I’ve a meeting on Monday to discuss rising costs on a site that we are doing the plastering Framing and Render 

Two years work 

We have the usual 5% material and 3% labour increases built into the contract Whilst the Labour is no longer a problem 

Materials and transport are 

The contracts where signed before the pandemic Started The site is on week 99 and with only 8 homes out of 205 complete 20 staff in the onsite offices  the builder must be hemorrhaging money 

 

The point of the post is 

Ive agreed a price and they can either hold me to it 

and force me in to administration 

Or cover the extra costs 

The same choice will face many on here that get a fixed price 

Has a fixed price build become a thing of the past 

 

All new quotes have agreed to cover material price rises But also when materials drop as some already have 

They  benefit from the reduction 

 

How did it go?

 

been a few medium builders go pop locally this week, and people are definitely getting tight on work.

[kommando]

I was a purchasing manager during the previous material cost explosion in the early noughties due to China buying up all the materials to build all their infrastructure. The prices paid by our customers were fixed (automotive industry) and the material costs were exploding and we were piggy in the middle. I had fixed the steel prices for a year but the suppliers were increasing prices just after the ink was dry so I knew they would be back. The steel suppliers played cute and first asked for a small surcharge per tonne on all signed fixed price contracts. To keep us afloat I had to keep those steel prices fixed, first letter came in asking for £10 a tonne extra so I consulted the company lawyer. I was told by the lawyer not to agree in writing and hold out. A lot of sister companies in the same group agreed to pay the surcharge (did not consult the lawyer as the amount was so little), then when the huge increase came 8 weeks later the lawyer told all of us.

 

If you paid the surcharge of £10 a tonne you are stuffed, pay all and any increases you are asked for until you can get a new contract.

 

If you didn't pay the £10 then carry on refusing to pay and point out the terms of the contract are fixed price and no previous variation has been accepted so the original fixed price is valid.

 

What the small variation in price did if paid was to remove the protection of the fixed price in the contract, it was not longer fixed as it had been varied by a small amount which then left the door ajar for later increases.

 

I had 2 steel suppliers, I sent one bust with this strategy despite them being the better supplier as their staff drank at the same pubs. If it got out that I had paid one then the other would know. But it was either they went bust or we did and I got paid to keep the business viable not to be kind.

 

 

[SuperJohnG]

On 07/07/2022 at 21:22, Gus Potter said:

this is not as easy to negotiate on larger projects / commercial works.

Its actually how most major buildings are built.or.infrastructure projects. 

 

Agreed margins and fees which cover profit and overhead. Then full open book on the costs. 

 

They generally use NEC contracts. I am in one now building hinckley and it works well. 

[Gus Potter]

On 14/07/2022 at 20:24, SuperJohnG said:

Its actually how most major buildings are built.or.infrastructure projects. 

 

Agreed margins and fees which cover profit and overhead. Then full open book on the costs. 

 

They generally use NEC contracts. I am in one now building hinckley and it works well. 

Agree with you John here about the NEC contract. The Egan report followed up on previous reports. Basically it was and still is costing us more in the UK to build stuff cf some other countries. At least we seem to have rooted out the out/ blatent (some may argue otherwise) corruption in the UK... thinking the Poulson scandel here for example.

 

The NEC suite of contracts forces you to play ball but they are expensive to adminster and not really applicable to small domestic self build / home extension works.

 

To quote myself, bad form.. but to clarify.

 

"this is not as easy to negotiate on larger projects / commercial works. " My intention here was to highlight the amount of effort you need to put in and support systems you need if you go open book say along the lines of NEC contracting.  NEC.. it's not for folk on BH.

 

In the current climate basic old school open book type arrangement could work well for folk on BH so long as you do your due dilligence and make sure say your builder is really opening up and declaring all the information.

 

Interested to hear you are working at Hinckley. I was at the Torness build briefly and did some stuff on the Bradwell decomissioning... time flies by!

 

 

 

 

 

[saveasteading]

On 16/07/2022 at 20:52, Gus Potter said:

make sure say your builder is really opening up and declaring all the information.

Are you suggesting that only increases might be mentioned?

 

Actually yes, this happens: 'estimates can only go up' was recently flung at us.

 

I have never in 40+years worked with price variation. The admin is prohibitive.

 

Once I recall telling a client of the the risk to us and him (pile length) , and that it wasn't fair for me just to add all the risk to the job.

But he insisted as he wanted a fixed price.

That was until the job was done and he realised that the element had gone smoothly, and it wouldn't be fair that we kept the risk money.

 

[DragsterDriver]

9 hours ago, saveasteading said:

Are you suggesting that only increases might be mentioned?

 

Actually yes, this happens: 'estimates can only go up' was recently flung at us.

 

I have never in 40+years worked with price variation. The admin is prohibitive.

 

Once I recall telling a client of the the risk to us and him (pile length) , and that it wasn't fair for me just to add all the risk to the job.

But he insisted as he wanted a fixed price.

That was until the job was done and he realised that the element had gone smoothly, and it wouldn't be fair that we kept the risk money.

 

Piling is a strange one, mine were 10m estimated with I think £85 per metre for extra depth, but they set at 7m. That’s not risk sharing when the contractor invoiced at 10m.

[PeterW]

Interesting my local timber merchant has dropped their prices on C24 timber by 25-30% this week .. “Pre-Covid Prices” apparently .. 

 

Flip side is that bricks are holding their prices but availability has extended to 27 weeks on some from order date..!

[oldkettle]

18 hours ago, PeterW said:

Interesting my local timber merchant has dropped their prices on C24 timber by 25-30% this week .. “Pre-Covid Prices” apparently .. 

 

Flip side is that bricks are holding their prices but availability has extended to 27 weeks on some from order date..!

 

The price in dollars came down quite a lot, but the exchange rate must be pushing the price in pounds. Still a good news. 

[DragsterDriver]

Timber prices are great- everything else still bad. Plasterboard, plastic goods etc.

[Kelvin]

Got our final kit price. They said the window supplier is putting their prices up by 20% on Feb 1st. 

[Canski]

Looking at recent activity in the merchants, I'm thinking anybody building after May next year will be better off. 

[Tosh]

By chance I came across a very extensive table of major material suppliers price increases for 2023, mainly in Jan and March. I can't for the life of me find it now however just about everything had a price increase. I called my BM up to check it out and they confirmed what I'd read. They said plasterboard going up 17% from 1st Jan so got my order in now.

[DragsterDriver]

Huw Gray (old ridgeons) just completely undercut competitors by a mile on an order for me. Nobody was using them locally because of their high prices so I guess they’re drumming up trade.

 

jewsons still much better that Travis for me. 

[Annker]

I believe merchants are going to have a think long and hard about any price increases in 2023. Demand from both domestic and commercial builders will be a fraction of the levels of recent years. 

Any material buyer in '23 will certainly find good value if they look for it. 

[CalvinHobbes]

On 03/11/2022 at 21:34, PeterW said:

Interesting my local timber merchant has dropped their prices on C24 timber by 25-30% this week .. “Pre-Covid Prices” apparently .. 

 

Flip side is that bricks are holding their prices but availability has extended to 27 weeks on some from order date..!

Is it the same for blocks? (Note to self, get them ordered.)

[CalvinHobbes]

21 hours ago, Annker said:

I believe merchants are going to have a think long and hard about any price increases in 2023. Demand from both domestic and commercial builders will be a fraction of the levels of recent years. 

Any material buyer in '23 will certainly find good value if they look for it. 

Good

[Kelvin]

Report on sky news saying building companies are going bust at the fastest rate since 2008. 

[Gus Potter]

Ok. to stick my neck out when folk on BH buy stuff  from their local merchants their profit margin is 20% based on the delivered price. That can be split up between the haulage and the uplift on the material. Sounds high but you may get a big delivery and then some small ones.

 

In terms of my work flow as an SE/ Architechural designer it was plentiful during COVID as everyone wanted to work from home and open up their house, build garden rooms / offices and so on. In the back ground I also had the industrial stuff that was on a long programme.

 

But I can see that things are getting back to normal where we need to compete for work. The folk that have made hay over the past couple of years and not set aside money for the lean years will go bust.

 

For self builders I think the labour cost will come down but material costs will remain fairly high due to the cost of energy and transport.

 

It would be good to say hey.. builders labour rates are going to go down.. but fuels costs are rising (running the van), insurance is not getting any cheaper and so on. If you are lucky enough to be a builder in Scotland.. John Swinney has just increase personal taxation again if you manage to build up enough of a nest egg to consider taking on an extra member of staff.. so add that to your self build bill.

 

In the round I think that prices may stay roughly where they are if you are doing a self build.

 

 

 

 

 

[saveasteading]

15 hours ago, Gus Potter said:

prices may stay roughly where they are

But may diverge enough to be worth changing the design. Eg if bricks go up but timber comes down.

My experience is that it takes many months for trades to accept that rates are dropping. They will sit at home through pride, until sent out to take what is going.