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Busy subcontractors and a lack of skilled labor are bigger factors for local contractors

When President Donald Trump first announced tariffs on imported steel and aluminum, general contractor Triplett Wellman was just going out to bid on the second phase of the Chehalem Park and Recreation District's aquatic and fitness center.

That created a stir in the market, but within a week project manager Steve Duch was able to work with his supplier to lock in the price of the steel orders for the project.

"I didn't really get a known impact on that," Duch said. "I think I kind of skirted in under the wire on that one."

Duch was also working on another larger project, which went to bid just a bit later, but wasn't able to lock in his price.

As it turns out, the tariffs led to a 5 percent cost increase for the steel in that project, but overall, the impact on the project budget was a manageable 0.15 percent.

Although he hasn't had any big bids since then, Duch said that steel costs have continued to rise, but those ultimately get passed on to the building's owners and have had relatively little impact on his projects.

"I would say the state of the construction economy is more of an issue than the tariff is," Duch said. "People are just so busy right now that getting their attention, just because they have so much other work, is really difficult. The tariff is a minor nuisance or headache and owners are paying more because of it. If you asked me what I'd rather have, I'd say I'd rather have the tariff than the subs this busy."

Duch said that it's difficult to isolate how much impact any one factor has on rising construction costs, and even if the tariffs aren't having much effect, the bottom line is that they are escalating.

"I do know that construction inflation is running about twice what it should be right now," Duch said. "Year in and year out, construction inflation is between 2 and 4 percent. Right now, we're running about 6 to 8 percent, probably closer to 8, on annual basis. Probably most of that is labor related, but there's also materials. Lumber has been way up over the last 12 months and steel's up now."

Todd Saunders, owner Newberg-based Saunders Construction, echoed those sentiments, especially in terms of labor costs, even though his business uses mostly petroleum-based products, like PVC pipe, and little steel.

"From our vantage (point), labor is No. 1, whether that's wage escalation or the amount of overtime we're working people to get things done," Saunders said. "There are still capacity problems from the fallout of the recession. There are not that many contractors today as there were in '08. Between having to rally prices and wages, all of our primary subs and suppliers are slammed and you see that in prices."

Saunders said that in the last month his company has made big investments in heavy equipment, which involve a lot of steel, but that prices weren't affected.

Labor costs are also having a bigger impact on his overhead in that he's having to spend more both on recruitment and training due to a shortage of skilled labor.

"We've been in (business) 25 years and for the first time three years ago we hired a full-time person whose sole purpose is to develop recruiting opportunities for our company," Saunders said. "We never had to do that. We've had to add overhead to our company to go out and do the networking."

Duch noted that the tariffs have added some volatility to the steel market, making it harder to lock in prices.

"A lot of producers would give us a 30- or 60-day window to lock in a number," he said. "Right now it's a lot shorter duration, like 10 days. So that's had an impact."

Duch also recalled how a building boom in China 15 to 20 years ago impacted prices and made it harder to even get steel into the U.S. market because so much of the world's supply was heading there for massive capital projects. Although he doesn't have figures, his sense is that situation was much worse then than the current one.

Contract Publishing

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