Looks like we’ve got some cost increases coming… gas possibly approaching $4 (or more), and it’s sure to affect everything else. I’ve got a couple of larger projects I’m pricing out and am nervous about fixing the cost of materials. 1/2″ CDX is currently about $13 here but was over $20 a while back. Price hikes will affect materials, subs, the works. What are your predictions?
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David try Googling Escalation Clause for Specified Building Materials I think you'll find that there are a lot of HBAs that have posted some good sample text and a form to use to protect yourself against any price creep that comes as a result of the tragedy in Louisiana and Mississippi.
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I've got a couple of sample material escalation clauses on hand, downloaded from the NAHB and elsewhere. I suppose I could use one, but it doesn't account for increases in sub costs, which are sure to happen to. Someone more clever than I could probably come up with a fully-indexed pricing structure to protect against increases of any kind, but no client would buy it.
Hey, maybe I should just go T&M. Whaddya guys think about $35 per hour +10% on material?? Just kidding.
$4 gas is a definite probability. The station down the street from my office was $2.75 at noon yesterday. At noon today, it was $3.31. They were getting a delivery when I went by again at 1 pm. On the local news tonight, there was a station somewhere in the western or northern suburbs of Chicago that had regular at $3.69. Premium was $3.89.
Whispers on the wind are talking of the magical, or is apocalyptic, $5 a gallon level.I don't know but I think America is jitterbugging around on a house of cards. Construction prices, the housing bubble, gas prices, natural, or unnatural, disasters and the debts, personal, business and national. Throw in the deficits in infrastructure growth and maintenance, education and international respect. Each feeds off the other. Each is dependent on the others. Stresses or failures in one area might be rerouted through parallel and redundant paths. But the paths are getting narrower and optimized to the normally transmitted forces. And each path has less reserve. Like a turbine engine they are designed to operate efficiently at only one speed. Very little reserve for adjustments, or contingencies, remain.This is across industries and media. It is true in accounting, monetary flow and logistics. Look at the 'Just in time' supply systems where materials show up timed to the manufacturers needs. There is little or no remaining surplus or warehousing. It is very efficient. It is quite beautiful as hundreds of parts from dozens of suppliers come by way of multiple transport methods and they all arrive in perfect order. A customer orders a car and an order, complete down to special features and color, for the seats goes to the supplier who times his manufacturing and shipping to meet the frame going down the assembly line a thousand miles away. A wondrous and efficient system. Quite profitable.But also quite fragile. If the seat manufacturer runs out of the right color thread it holds up the making of the seat which holds up assembly of the car. There is very little slack in the system. It is the old 'For lack of a nail the kingdom was lost' story. A ox in India coming up lame can stop production in Michigan. And this is a benign fault. The financial world is the same way. The money is leveraged. The credit limits are groaning. The American workers are working as hard and as many hours as they can. Luxuries, like a second vehicle, have become necessities. Necessities, like time off and quiet, have become luxuries. There is little or no slack available so when a hurricane comes ashore the waves and wind are just the leading providers of pain. Long after the wind has died and the water has returned to the sea the waves propagated through economic and communications lines that are drawn drawn guitar-string tight will still be felt across the nation.It is a fragile system. Efficient and fragile. Like a finely machined engine. It is subject to even the finest grit that gets between the parts. Sloppy machines with large clearances are more tolerant of abuse. I am not saying 'the end is near'. I think we will get through this. What I am saying is that the fat and reserves we, as a nation, have enjoyed. Like not having a large national debt. Like being mostly energy independent. Like having the highest per capita number of engineers and researchers. Like having the finest education system on the planet. Like having the finest infrastructure of any nation. These are all gone. No more can we, when faced by disaster, blithely and easily reach into a bulging pocket and smoothly unroll a few bills to make it right. We have squandered our lead and now we are starting to see life from within the shoes of the rest of the nations. Shoes that are supported on a fine cable. Now we can feel the reality that not only success, but utter failure, is only a misstep away. Our cushion of fat pockets, copious natural resources and vast areas of unexploited frontier are gone. No longer is it possible to 'pull up roots' and recreate yourself in the US. Used to happen all the time. Now seldom. Screw up in NYC and they will pull up the record on your credit report in in LA, or Albuquerque. We now have a well established, pervasive and deeply entrenched social class structure and its influence is growing every day. Used to be only Europeans and Indians had this structure. As the logistical and economic systems ossify so do the social structures. The slack, the fat, the reserve, and the grace and graceful response to contingencies that this implies are gone. Too unpredictable and inefficient for business. And so we dance away on our stack of cards. I don't think it will fall too soon but if it stats to fall it is likely to go all the way. The stabilizing reserves are gone.
4Lorn, amazing, but finally you and I agree 100% on something. After all the God debates we had, and Evolution/Creation debates and the disagreements, here is one thing you're entirely right about. Your whole post paints a gloomy picture doesn't it? Yet it is reality in its finest form. Now if you just only believed in God you might come to an equal understanding that these are forshadows of what is to come prophetically.
Unfortunately I think there is room for honest argument that we're heading for a depressioin, not a recession. If you can't buy goods due to having to save to buy gas, then those goods don't get sold, or made, so worker layoffs will occur. Then homes foreclosed on because so many are out of work, then what? It's not a very pretty picture. We thought 9/11 was bad, and it was, but first it was 9/11, localized in its effect. But now this, affects the whole nation, can bring us to our knees in despair. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I agree 100%.
People should be considering how much money is in the bank to weather the storm, not what kind of price increases need to be made.
Worst case scenario, I might make it a year without any income, which is about 50 weeks longer than most people I know. All is out the window if inflation spirals out of control. This may be the beginnings of that scenario- natural gas is already trading at 2x last years prices.
Trouble is, this storm may be too much to weather for most, worse than the previous Depression. Not too many are at the top of the economic ladder.
How will the government fare if a majority of the population is on unemployment? So many States are already almost broke, even in the good economic times and after all those billions from the Tobacco Settlement and the lotteries and gambling boats and rising tax revenue from property value increases.... What has gone wrong?
The talk of not being able to even buy gas has not really been considered.
My wages have not risen to absorb the higher energy costs to date, yet everyone else is beginning to raise prices. Wages for many are no higher than what they were 20 years ago, less if adjusted for inflation.
Better advice than price increases is to reduce your exposure and make sure you are paid current and 100% for any ongoing jobs at any completion level.
Brace for impact.
Edited 9/1/2005 6:57 am ET by danski0224
danskil9224,
If the depression you are predicting happens your 50 week savings won't matter.. The depression really lasted a decade. You claim a years cash reserves not a decade). Only the start of the second world war got America out of it (And I don't want to remind you of the millions who had to die as a result of that fiscal stability program). Only those with paid up mortages and no other debts plus cash in a sound fincial instutution will really be able to weather the depression undamaged..
This time around we won't have the surplus of resources that we had previously. Most of our Iron and oil and such has been used up and we will become as Europe had become just prior to WW2, that is depending on their colonies to provide them with all of their resources..
Well Bush's attempt at colonizing Iraq isn't working as well as they predicted. It's beginning to look a lot more like Vietnam.
You asked what happened to tobacco settlement money? Well Bush got it! AAAAAAAh, indirectly in that he transfered a lot of the national debt onto the states and they used the tobacco money to cover the shortfall. You simply can't drain the hundreds of billions of dollars out of the economy that Iraq cost us and not expect a severe depression.. Sure he used political tricks like claiming it was off budget, but I know you were smarter than that! Try telling the bank that your mortage is off budget and see see if that has any impact..
I'm not trying to bash Bush here, he's actually made some moves that I approve of lately but his fiscal policy always was foolish in the extreme..
4Lorn1
That was awsom! And as close to the truth as any one could get!
Are you a writter by any chance?
"Construction prices, the housing bubble"
While I agree that things are getting interesting cost wise on many things, rising construction costs would preclude bursting of whatever housing bubble there may be.
Constuction costs & housing prices vary almost directly. If it costs to much to build, then the value of existing homes goes up. In fact I believe that the run up in housing prices (while certainly tied to many other things - it's not a simple game), is definitely connected to construction costs.
The fact that population is increasing & the costs inherent in building new homes (including things like land use restrictions which drive up lot prices) is increasing tell me that the bottom isn't falling out of the housing market any time soon. We may see it level off at times, but real estate is still a safe investment.
There's no question that gas and diesel prices will rise even more (I bought 87 octane today for $2.999) so that has to be figured in somehow. I've passed on two jobs this month that were about 20 miles away - Bay area traffic and high gas prices are keeping me close to home. - lol
I would also bet on materials costs going up, too. It takes fuel to get plywood from a mill to a big box. In a few months, that loud slurping sound you hear will be building materials heading for Louisiana and Mississippi.
Hey guys, gas just hit 3.09 here in Mobile AL (see my other post KATRINA: GROUND ZERO UPDATE) it's 3.30 in Atlanta from a reiable source. I'm now adding a "fuel surcharge" for all long term (longer than 3 days) projects and any project that is more than 50 miles from my office, round trip.Jason Pharez Construction
Framing & Exterior Remodeling