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News July 21, 2021

Rising material prices create an unpredictable bid process

Construction companies, manufacturers and other businesses that submit bids to win jobs say the bid process has become a gamble as rising material costs can lead to potential losses, according to The Wall Street Journal.

Some construction and manufacturing executives said they are losing profits on jobs or paying out of their own pockets to cover material costs that exceed their bids.

Rising prices for steel, copper, brass, lumber, laminate sheeting and plastic-based materials reportedly are especially difficult to factor into bids as inventories remain tight amid growing demand.

Jeff Harper, president of Harper Construction Co., San Diego, said he has paid about $2 million this year to cover material costs that exceeded his company’s bids. Harper’s company builds structures for federal agencies and the military, and he said federal contracts typically have no provisions for contractors to recover higher costs for materials once a bid is accepted.

“It’s a real gamble,” Harper said. “It’s tough right now to figure out how to get work against a dozen competitors and not lose your tail in the process.”

Months often can pass between when bids are submitted and when the work begins. Materials suppliers typically guaranteed prices for 60 to 90 days and often stuck to those prices if orders came in later; now, suppliers are quoting prices for a week or two, and many will not honor the prices beyond that.

Builders must do more estimating regarding materials expenses than ever before, which can be risky. Companies that incorporate too many price increases can be easily underbid by competitors who do not. Underestimating can lead to higher costs later for building and manufacturing companies, and customers often will not cover those costs once a contract is signed.

Some companies are adapting by including protections, such as materials surcharges, in their contracts to combat rising costs.

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