Rapidly rising materials costs are a real concern for any construction contractor, especially in light of the price inflation we are experiencing these days. But there are strategies you can use to mitigate the risk and save your profit. Here are ten strategies you can use to account for rising materials prices:
- Including a contingency amount in the bid to cover potential cost increases. This is a set amount of money that is included in the bid to cover unexpected costs, such as materials price increases.
- Including a clause in the bid that allows for adjustments to the final price based on changes in material costs. This can be done using a cost escalation clause, which allows for the price of the project to increase based on changes in the cost of materials.
- Using unit prices instead of fixed prices in the bid. Unit prices are based on the cost of materials at the time of the bid and allow for adjustments to the final price based on changes in material costs.
- Building relationships with suppliers to get the early warning about any price increase.
- Negotiating with suppliers to lock in prices for a certain period of time to protect against future price increases.
- Bidding on projects with a longer lead time to allow for more flexibility in dealing with changes in materials prices.
- Using alternative materials that are less affected by price fluctuations, or that can be sourced from multiple suppliers to reduce the risk of price increases.
- Continuously monitoring the market prices for materials and updating the bid to reflect any changes.
- Establishing a budget for the materials and sticking to it as much as possible, this will help to minimize the impact of any price increases.
- Finally, being transparent with the client about any potential impact of materials price increases on the project cost and how it will be handled.
It’s important to understand that, these methods alone or in combination can be used to mitigate the impact of materials price increases on a construction job bid. However, the most effective approach will depend on the specific project and the current market conditions.
It is also critical that you track your job costs so that you KNOW if you materials costs are affecting your job performance and profitability. We recommend ProfitDig, the world’s easiest job bidding and costing solution.