There is no denying that the coronavirus has affected many facets of our daily personal and professional lives. While the coronavirus's lasting effects are unknown, the virus has caused a significant level of interruption to the construction industry, including contractors, subcontractors, and supply chain vendors. Builders are also reporting substantial challenges finding various essential hardware and products and getting those components delivered.
The United States relies on China, Mexico, and Canada for 70% of its building material imports. We are now facing real supply chain disruptions in receiving timber, plaster, drywall, insulation, flooring materials, lighting, electrical materials, elevator parts, fire protection items, steel, and hardware. Shandong Province, which is home to several of China’s largest aluminum manufacturers, also produces more than 90% of the world’s collated roofing nails. Other significant materials and product suppliers, such as Japan, Lithuania, Germany, Spain, and Italy, have also been harshly affected by the coronavirus outbreak, which has added to the United States' construction materials and components troubles.
According to an article published by the law firm Brooks-Pierce, in addition to labor shortages and financial burdens, one challenge impacting ongoing construction projects is the difficulty in getting needed building materials on time. At the height of coronavirus shutdowns in the spring of 2020, many producers of building supplies that were not deemed “essential businesses” by their local governments either closed their offices entirely or reduced their staffing and capacity to help support social distancing efforts among employees. This has led to a shortage of numerous supplies and ongoing supply chain issues.
In June, the Associated General Contractors of America found that “25% of contractors were experiencing project delays or disruptions due to a shortage of construction materials, equipment, or parts. These delays can impact the scheduling of a construction project by days, weeks, and months. Furthermore, 38% of respondents said suppliers had notified them or their subcontractors that material deliveries would be late or canceled.”
The supply of building materials in the Northeast reflects what we see nationally. Suppliers are waiting on new stock; their inventory is exhausted, and available stock is selling at premium pricing. Lumber prices peaked at a record high of approximately $950 per thousand board feet in September 2020 before gradually shifting down to about $550 per thousand board feet in November 2020. According to Random Lengths, December 9 lumber prices were above $650 per thousand board, up nearly 20% over the previous four weeks. With the building materials supply unable to satisfy the demand by contractors, prices and lead times have surpassed what they would be in a regular market. Contractors are now experiencing 6 to 12 weeks of lead time on various building materials and products.
On December 3, 2020, the United States Commerce Department decided to reduce its duties on Canadian lumber shipments into the U.S., down to 9% from more than 20%, in response to extreme lumber price volatility. Chuck Fowke, Chairman of the National Association of Home Builders, stated, "The Commerce Department's action to reduce duties from more than 20% to 9% on softwood lumber shipments from Canada into the U.S. is a positive development, but more needs to be done. Tariffs have contributed to unprecedented price volatility in the lumber market in 2020, leading to upward pressure on prices and harming American consumers' housing affordability. The U.S. needs to work with Canada to end the tariffs and achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber." The tariff reductions were expected to go into effect in mid- December 2020.
For community associations, the ripple effect of material delays and shortages, price fluctuations, extended delays in product fulfillment and shipping on roofing and cladding materials is likely to be felt for a significant period on many projects and perhaps throughout the project's entire length, causing changes to the project completion schedule. Contractors have been preparing for these effects by speaking with their suppliers every week to pinpoint vulnerabilities and pursue updates to keep their clients informed and minimize disruption within communities.
Although many contractors are looking at alternative materials and products to resume projects and meet planned deadlines, other hurdles arise, such as cost and visible inconsistencies between units within the same project. The new materials and products must be compatible and of the same quality. Often, approval on the use of new products and materials would need authorization by the project engineer and the association’s board of directors.
Many contractors now include escalation clauses in contracts with their clients, emphasizing that clients will be required to pay the extra costs if prices increase by a certain percentage. These escalation clauses can help protect contractors against the abrupt changes in prices between submitting a proposal and contract signing.
Now, more than ever, clients should review the terms and conditions of their contracts, understand there may be changes to the project schedule and completion date as a consequence of material delays, be aware of their financing terms and other liability risks.
As we all learn to navigate the unprecedented challenges imposed by the coronavirus pandemic, we need to continue to be flexible, work collaboratively, and show continued patience. We may be dealing with these disruptions well into 2021. We are all in this together and taking care of our clients remains our top priority.