Through the Dark Tunnel of Supply Chain Issues, Landis Sees a Light
By Sarah Busch
Since 2020, with the onset of COVID-19 and its effects on manpower availability, the world has seen an upheaval in production across every industry, resulting in vast shortages and delays in the availability of goods and services. Add to this two years of COVID variants, extreme weather and environmental impacts, trade embargoes, and a war in Ukraine, and it’s little surprise that conditions have gone from bad to worse, with nothing but uncertainty staring us in the face as to when we might see a return to “normal” or even if our “normal” will ever return.
Those of us in the construction industry have not been spared the volatility; designated as an “essential service” during the pandemic, our work has not stopped, and contracts that were inked before the first undercurrents of turmoil became noticeable were still obligated to deliver per original contract amounts and completion dates though we faced unprecedented challenges with our supply chains. As we begin to see the light at the end of the COVID tunnel, construction spending will see a 5.4% increase and accelerate to a 6.1% increase in 2023, according to the AIA’s Consensus Construction Forecast panel. However, material prices and shipping woes are not expected to ease in the near future. In conversations with peers in my industry, I have heard the same frustrations with “getting projects out of Preconstruction”; the sky-high prices and our subcontractors’ inability to hold them has made it very difficult, if not impossible, to get to contract on many of our projects.
To steal a line from one of my favorite 80’s tunes by Young MC, “Every dark tunnel has a light of hope,” and even the most frustrated of general contractors (GC) can see how the current challenges have had some silver linings—the biggest being, in my opinion, the fact that developers and design teams are recognizing that hard bid projects are not practical in this climate. Getting a GC on board at the earliest stages of the project is now a necessity to ensure reliable early cost projections to inform the budget and materials/systems used in the design, provide feedback on material procurement lead times, and identify ways to mitigate the ever-evolving risk associated with supply chain challenges. Trust, relationships, and creativity matter in this climate, and Landis has been able to leverage our strengths in all three categories to win more work and successfully execute it. Trust in Landis as a partner and our strong relationships with the developer, design, and subcontractor communities have opened a lot of doors over this trying time, but it is the third—creativity in problem-solving—that will be the true measure of success for our company as we feel our way toward that light of hope.
“But we problem-solve every day on our projects,” you say. True, but it is usually to deal with unforeseen conditions or changes in the scope of work (not to belittle what it takes to overcome those issues!), not to ensure that a project even gets to contract. Our Preconstruction and Purchasing Teams have been doing some very heavy lifting to reach that important milestone, and here are just a few examples of their creative solutions in action:
Design Assist on Steroids: We are typically used to seeing at least 100% Design Development documents (or close) when we are introduced to a project. In recent times, it has become even more necessary to review details - not only for constructability, but for availability. Our team is often the catalyst for finding different systems and materials that will not only fit in the budget, but will also not bust the project schedule with lengthy lead times. What’s different now is that they have to do it without the benefit of updated drawings for subcontractors to price (we’re oftentimes working off of red-lines or narratives), while doing subcontractor outreach across multiple trades to verify internal estimates, and do it all quickly before the next price increases hit. And this is only the Design Development stage. Multiply that by a few more pricing exercises as the design progresses, holding multiple “Big Room” style meetings with the entire design team and all participating subcontractors, and throw in at least one additional Value Engineering effort to boot — our team is constantly trying to keep moving one step forward without taking two back, just to get to contract.
Targeted, Early Procurement: The sooner we can purchase materials, the sooner we can lock in prices and, not surprisingly, receive them. By prioritizing the buy-out process with our Owner very early in the Design Phase, we are able to do just that. Early buy-out and release of materials have become critical to protecting our estimate from price escalations and getting around those jaw-dropping lead times that we have been seeing—10-12 months for bar joists and decking, 12 months for generators, and 6-8 months for roofing insulation, just to name a few.
Stockpiling of Materials: Sometimes, the lead time might not be the issue, but price escalation is. By releasing and stockpiling materials (either with the distributor or in a third-party warehouse), we are better able to control this risk. We typically try to identify materials that can be re-stocked in case financing falls through or a project stalls out, but more often than not, the distributor is able to find a very relieved customer that is more than happy to receive materials for their project much earlier than anticipated.
Suffice it to say there is no magic bullet to truly address all of the risks that a project will face during these uncertain times. We haven’t seen one Request for Qualifications from an Owner in the past year that didn’t ask for a detailed plan on how we will mitigate their risk with the supply chain issues. Developers are looking for creative, transparent partners with whom to hitch their wagon, and it will be companies like Landis who are best positioned to answer the call. Will we ever return to “normal”? I am not an economist, and I do not have a crystal ball, but I do know that I am part of a team that will be at the forefront of redefining what that word looks like for our industry.