How can the construction industry be protected from the effects of inflation?
The latest U.S. Consumer Price Index report indicates that the country’s inflation rate has
attained its highest level in 40 years. This will impact all business sectors, including the
construction industry, underscoring the significance of containing inflation.
Inflation cannot be entirely controlled, but certain measures can be taken to lessen its
severity. If the negative effects of inflation on the construction industry are reduced, the
project’s profitability is kept at a satisfactory level, jobs are kept open for laborers as the
construction process continues. Here are some approaches to consider:
- Accelerate Schedules
If a contractor has an upcoming project, they should immediately set up a plan with the
necessary individuals and architects, engineers, subcontractors, and suppliers.
The use of project management software facilitates communication with project
collaborators, the rapid exchange and modification of information, and the storage of
essential documents. When schedules are accelerated, all construction-related activities,
such as ordering construction materials in advance to avoid price increases, are carried out
swiftly. - Adjust Bids
Estimate quantities accurately when preparing the bid. The use of site surveying
technologies may help contractors in this regard. Moreover, contractors should use the
anticipated input price that is expected when the project begins, not when the bid is being
prepared.
Potential clients in the bid should be informed that projects based on more accurate bids
are less likely to go over schedule and over budget. - Present Nonmonetary Value
Instead of focusing on the proposal with the lowest price, bring non-monetary value to the
table. For example, emphasize experience, quality, and rapidity, which are essential to
clients. - Amend Budgets
The project’s actual and projected costs must be reviewed weekly to ensure that the budget
is adhered to. Contractors will struggle to operate their businesses profitably if they do not
control and monitor their costs.
As soon as a prospective issue is identified, necessary adjustments must be made. However,
contractors cannot cover inflation risks during periods of high or uncertain inflation for
large, complex, and lengthy projects and contracts. Under the terms of this contract, the risk
of inflation should be shared with other parties.
- Construction Techniques
Inflation has less of an impact on construction companies that use modern techniques, such
as constructing the entire structure in a factory, than those that do not. Consequently, the
transportation costs are drastically reduced.
Traditional construction methods, on the other hand, necessitate different subcontractors
and may necessitate different construction materials from various regions of the country
that are susceptible to inflation. - Efficient Project Management
Implement efficient project management practices to minimize delays and cost overruns.
Effective planning, scheduling, and coordination can help avoid unnecessary expenses and
mitigate the impact of inflation on project timelines and budgets.
It’s important to note that the effectiveness of these strategies may vary based on the
specific circumstances and economic conditions. Consulting with Construction industry
experts, economists, and financial advisors can provide further guidance tailored to the
unique needs of your construction business.
Disclaimer: This content is provided solely for your review. Erusu Consultants takes no liability for this article. The reader is advised to form their own opinion. Please consult a Structural Engineer before making any final decisions.
