By Shawn Anderton, Graycor
According to the Bureau of Labor Statistics (BLS), construction input prices are up 39% compared to pre-pandemic prices in early 2020. Materials and labor are the main contributors to increased costs, and an uncertain supply chain and dwindling labor work force make navigating today’s already-challenging construction market even more difficult.
Risks to contractors and subcontractors associated with these challenges are apparent: lower — and sometimes zero — profit. Risks to owners initially seem limited to cost increases and schedule delays. However, more catastrophic project outcomes are a risk as well, with possibilities including safety and quality issues or, in worst-case scenarios, defaults and disputes.
Consider experienced contractors
When constructing or renovating a power facility, owners one strategy to stay ahead of these challenges is to partner with an experienced construction contractor. A construction partner with tools to manage today’s uncertainty can guide owners on how to keep projects on schedule and within budget—but only if they are brought to the table early, during preconstruction when design decisions are made.
Collaborate early
Early contractor involvement (ECI) is an alternative project delivery method similar to design-build that brings all project stakeholders to the table early in the construction process, at the design concept or schematic phase. ECI adds value because it taps into the expertise of all involved parties, who contribute unique perspectives, ideas, approaches, and solutions to constructability. It also accelerates relationship-building with vendors, subcontractors, and suppliers. ECI facilitates identification of alternative materials and processes, early ordering of supplies and equipment with long lead times, and thorough execution of subcontractor prequalification.
With collaboration and strong communication among the entire team, delivery and production delays are better understood in advance and alternative plans can be made, including flexibility in design, material options and scheduling. Now that historical data is much less reliable than it once was due to price volatility, reliable and trusted sources and vendors can help fill in knowledge gaps.
For projects related to power delivery, acquisition of electrical materials continues to be a hurdle—and it’s not just custom or complex electrical products leading to unpredictability. From switch gears to panels, costs are up, and lead times are long — typically a year and sometimes closer to two years.
Consider a range of equipment that could work
Though delays prevail industry-wide, electrical components that are uncommon or specialized are experiencing longer delays than other materials. Designing electrical systems with contractor input during preconstruction can help mitigate long lead times. Experienced contractors can work with owners to generalize selected materials, encouraging owners and their engineering firms to determine ranges of materials that would suffice for projects — improving their chances of shorter lead times and fewer project delays.
In today’s environment, contractors can’t rely on established relationships with vendors, as delays often are out of vendors’ control. However, contractors involved in preconstruction can rely on trusted vendors to bring transparency and reality to what the team should expect with material procurement.
To help keep a project on schedule despite material acquisition challengess, vendors can offer alternates by looking at the bigger picture of what’s available. Though alternates may have a higher upfront cost, they could save money over their lifecycle by being more available for speed to market or efficient to the future operator.
Be decisive
As materials need to be replaced and schedules and budgets are impacted, owners must make decisions to keep construction moving forward. Because availability and pricing of materials are so variable in today’s market, indecision can cripple a project’s budget and schedule. It’s better for owners to make decisions that apply to the majority of the project to hold price and schedule, knowing they may have items that need course correcting later. It’s key to make decisions, move forward and then reevaluate. A trusted construction partner can help owners make hard decisions to solve complicated problems. Additionally, phased releases of work offer another option to solidify cost and schedule with more certainty.
Recruiting and retaining a workforce continues to be a challenge for contractors as well, so designing a project to require the least amount of labor can reduce overall project risk. Contractors involved in preconstruction can help determine the best way to design and schedule project components that require less labor.
Be wary of early buying
Without early contractor collaboration, owners and engineers may be tempted to buy materials or design building components before constructability is complete to lock in pricing. However, these tactics can lead to the negative unintended consequence of labor intensity that overshadows any material savings. If materials are selected in a vacuum or components are designed in a labor-heavy way, it may save money upfront but require more manhours that extend schedule and or require a larger workforce, leading to higher and often less predictable costs downstream.
Dive deeper into the company
It’s equally important to make sure subcontractors can control labor costs. A strong construction partner can help determine whether subcontractors have the resources necessary to be successful on the project. Subcontractors should have workers with tenure and low turnover, as high turnover rates lead to additional training and supervision—and increased costs. The construction team should ask subcontractors how many skilled workers they have on staff to designate to the project, how they plan to use and assign those workers, and how much supervision those workers will need.
Today’s uncertain market requires nontraditional questions to be asked of contractors, clients, and engineers as well. Because all parties are struggling with thin and overcommitted resources, it’s important that the entire team shares the same values and are transparent about how they plan to use resources.
Be transparent about challenges
Transparency is the key to success resolving issues as they arise and maintaining relationships in this market. All team members should be able to open their books for review, look at the numbers, and understand the risks to make the best decisions for the project.
By bringing the entire team to the planning table early—and encouraging full transparency among all team members—power generation projects can move forward with fewer delays and unexpected costs despite today’s volatile and uncertain construction market.
About the Author
Shawn Anderton is Vice President and General Manager at Graycor, where she directs and oversees Graycor power, industrial and gas infrastructure work within the U.S. She brings over 25 years of experience in project controls, estimating, project management and operations in the process, power and gas infrastructure markets. A graduate of Kansas State University, Shawn earned a B.S. in mechanical engineering.
