Almost two years into the pandemic, COVID-19’s impact on the construction industry’s supply chain, particularly for equipment and materials manufactured overseas, are still causing major problems. Adding to the supply chain issue is high demand and limited domestic manufacturing capacity resulting in an unprecedented degree of interruption to residential and commercial construction in particule.
From steel to resin to roofing materials, shortages of key materials have driven up prices and, when combined with persistent labour shortages, contributed to delays and higher construction costs. Labour shortages are being addressed however, with Quebec most recently announcing $3.9 billion over the next five years to address the labour shortage in the province in the hopes of requalifying and attracting 170,000 workers in certain priority sectors. We can only hope other provinces follow their lead. The current pain felt by contractors and consumers alike, however, may be short term.
It boils down to COVID. If we assume that in the spring – variants notwithstanding – that things go semi back to normal (a big ask), there’s no reason to believe that the supply chain issues will be with us for years. Until then, economists warn that problems with supply and higher prices for some goods will continue. They also note that the current troubles might encourage some creative approaches to procurement and encourage existing pre-pandemic logistical trends, like sourcing goods a little closer to home.
Crowded ports all over the world, stranded shipping containers, particularly in the ports of Southern California, and limited manufacturing capacity (because of labour shortages and Covid protocols) are all working to create a sluggish pace of delivery for some materials. The massive increase in demand for housing and improvements has compounded all these issues. Demand for new residential construction is producing competition for materials, like prefabricated steel products, that have lately become scarce.
The most recent flash estimates of the Industrial Product Price Index (IPPI), released by Statistics Canada earlier this month, reflect the real-world shortages felt on construction sites. The cost of fabricated metal products and construction materials were up 3.3% in September over August, and up a whopping 28.5% from the previous year.
Plastic and rubber products were up 10.5% year-over-year; Cement, glass and other non-metallic mineral products were up by a relatively more modest 6.7%. One bright spot was lumber, whose price has been sliding steadily in the second half of 2021 after historic highs (and frustrating shortages) that began shortly after the pandemic did. Statistics Canada puts the August to September drop at 2.5% and the year-over-year drop at 6.3%.
Still, the increased cost of other goods is driving up overall costs, a situation perhaps made worse by high fuel prices. Energy and petroleum product prices in September 2021 are up 60.6% from a year ago.
So, what is a contractor to do about all this? Ensure your contracts are airtight with regard to materials pricing and try to squeeze in substitution of materials provisions wherever possible. As always, please reach out to us for assistance with any construction related dispute because of these unprecedented times.
Written by Jeremy Power, a lawyer in our Toronto Office