Opposition to Opportunity: Construction Costs & Procurement Challenges

Corporate real estate professionals and industrial occupiers are facing obstacles in every direction. From supply chain challenges and sustainability goals to rising construction costs and labor shortages, there is a lot of chaos out there.  At the IAMC Fall Forum Greg Schementi and Tricia Trester gave a presentation that highlighted each of these megatrends. Below is a portion of that presentation, focusing on the rising construction costs and procurement challenges. A recording of the full keynote can be found here. 

Construction Cost, Schedule and Material Procurement Challenges Persist

Construction was significantly impacted by the supply chain disruptions caused by the COVID-19 pandemic. These disruptions have driven construction costs well above core inflation rates. With the rapid increase, the ability to have a reasonable outlook on how long things are going to take and how much they're going to cost has become a real challenge. 

Vice President, Project Management, Kelly Branch works with occupiers and developers to try to create more transparency within agreements, delivering answers that clients can deliver back to their stakeholders. 

One of the strategies we’ve seen success with is purchasing things early. It's often worth paying to hold onto inventory for 6-12 months, if that means more control over your timeline. Kelly Branch tells contractors to get stuff on site, and get it bolted down so no one can take it. Because you never know when the phone call that the next material is going to be delayed. So, purchase things as soon as you possibly can. 

Another strategy, depending on what type of product you are delivering, is to purchase in bulk. Whether it’s steel, electrical, copper, roofing (anything that needs to be purchased early)  get that design done right away and if you have a lot of projects that can use the same materials, purchase it in bulk. 

It’s tempting to look at strategies that have been effective in the past. But it's important to be forward-looking. The problems you had six months ago are different from the problems we'll be encountering six months from now. Stay tuned into the industry to see what issues are coming. Problem-solving is all about finding creative solutions, but first you need to know what the problems are. 

Remember that developers have a business. Their priority is to their investors before it is to their tenants. That is a natural part of the business. They might make commitments today based on the information they have. Availability, contracts, and budgets they’re receiving may not be accurate two weeks or six months from now. 

One of the most important things is to stay in constant contact with the landlord, talk to the contractor and be involved in the meetings so that you may see the issues coming down the pipeline. Project managers only get as much information as they ask for. They will not give the tenant anything additional because it might highlight other issues with the schedule or the budget. It's critical to dig in, show up in person, make additional phone calls and take a proactive approach. 

Often, developers and landlords know what the issues are, but are hoping to resolve them before the tenant is made aware. We believe the sooner you know, the sooner you can brace for impact. Transparency is huge, but it’s hard to get at a time when everyone feels guarded. People are becoming much less comfortable sharing schedules and budgets. So, we must force that issue and be more involved. 

Key Takeaways 

• Get details nailed down early to be able to plan, prioritize and mitigate issues
• Purchasing early and in bulk
• Look forward, not backward to find creative solutions
• Stay in constant proactive contact with the landlord/ developer