Another COVID challenge: Material, labor shortages forcing construction firms to get creative

Material and equipment delays. They’re hitting commercial construction companies across the country. Trying to get steel? Expect to wait nine months. Want the perfect insulation for your multifamily construction job? You might be out of luck.

The pent-up demand from the COVID year of 2020, has resulted in a surge of construction projects this year. And that has led to a shortage of the most important building materials, something that continues to plague construction firms as the summer months begin to wane.

But some construction management firms are getting creative. Count DBS Group as one.

Based in Onalaska, Wisconsin, DBS Group specializes in the design-build method of construction. Chris Walters, president of DBS Group, says that the design-build method gives his company the ability to pivot quickly, ordering materials ahead of schedule to make sure they arrive on time. It also gives DBS the chance to swap out materials that might be not arrive in time for those with a shorter delay.

Midwest Real Estate News spoke with Walters about the challenges construction firms face today and how relying on the design-build model is helping DBS Group overcome them.

Let’s start with the basics: What sets the design-build method of construction apart from the traditional general contractor approach?
Chris Walters: 
How we are different from a normal construction manager or general contractor is that we have an in-house design team. We have a group of designers in our office that works hand-in-hand with our construction professionals, our project managers, estimators and superintendents, to help deliver our projects as efficiently as possible from conception to the ribbon-cutting.

It’s different in that it’s a total team approach. When we start working on a project, not only do we have the design team involved, we also have construction professionals involved at the beginning of the design process. We have an estimator, project manager and a project executive working together with the design team. That team sees the project through from concept to completion.

How does the design-build approach help during a time in which labor, materials and equipment are getting more expensive? How does it help you combat the delays we’re seeing in getting materials shipped to job sites?
There are three things that we are seeing in the market right now that are the most challenging when we are working on projects.

The pricing volatility is first. When we start and kick off the design work on a project, we have an estimator involved from the onset. That can have a big benefit. The estimators know the pricing of materials and equipment better than anyone else on the project team. They have their fingers on the pulse better than anyone else on the project team. Their job is to monitor the pricing of materials. That is important today. The pricing can change almost daily depending on what is happening in the marketplace.

Prices change because of demand and because of outside issues. Natural disasters can have a big impact on pricing volatility. Or there might be a fire in a manufacturing plant that makes roof insulation and now that insulation is difficult to get. The estimators study this and bring that knowledge to the team. They can provide input and make suggestions to the design team regarding which materials and equipment should and should not be used based on what we are seeing in the market in terms of pricing volatility.

What are some of the other challenges that the design-build method helps DBS overcome?
There’s also the volatility in how quickly you can get materials and equipment to your job site. The availability of materials and equipment changes at a frequent pace, too. When we start designing a project, we have a project manager right there. The manager brings a base knowledge of all things related to phasing and scheduling. The project manager also understands the current lead times of materials and equipment. Having them involved from the start is important. Project managers can make suggestions on using specific building materials so that we can avoid using materials and equipment that are experiencing lead time volatility. We can anticipate those challenges before they surface and impact the project.

The other challenge we are seeing is a workforce shortage. Everyone is scrambling for employees for their projects. Another benefit of the design-build method is having the construction discipline involved from the outset of a project. Construction officials are collaborating with the owner and designers. As a project is being developed, we can start generating vendor interest well in advance of when construction documents or issue-for-bid documents are actually available for vendors to look at.

A month or so before the issue for bid is going to be available, we will start drumming up interest in the project with local and regional vendors. We get them interested in the project and excited about it. Then when the issue for bid is out on the street, we get a good set of vendors pursuing the project. We know that when we are ready to start the project that we’ll have a good vendor team set up and ready to go.

Can you give an example of how the design-build method has helped DBS Group during this challenging time?
Right now, the lead time for steel is much longer than normal. It’s this way for structural steel, steel decking, steel joists. We have a lot of projects that we would normally design with steel joists. Usually, it’s a three- to four-month lead time for those. Today, though, it’s a nine- to 10-month lead time, maybe even longer. We proactively collaborated with our design team to develop a steel-framing package that didn’t rely on steel joists. Instead, we decided to go with red iron framing, which is, essentially, steel beams. The red iron framing has a shorter lead time than the steel joists do. That allows us to maintain our project schedule.

Here’s another example: A lot of multifamily projects today have flat roofs instead of gabled roofs with roof trusses. In a flat-roof situation, the insulation you normally use is polyiso insulation. That insulation is very difficult to get right now. You probably can’t get it for somewhere between six to nine months. That can have a big impact on a project’s schedule. Knowing that, we are suggesting to multifamily owners to try and use a different insulation to avoid the polyiso. EPS insulation is more readily available. You can get it in less time, and that doesn’t impact a project’s schedule.

Is the shortage situation today worse than you’ve seen in the past?
There are a lot of materials and equipment that would normally have a three- to four-month lead time now taking nine to 12 months to get to projects. If owners have projects that they are planning, they need to take that into consideration. They need to be working with a design and construction team that is proactively planning for that.

We have experienced markets in the past where material crunches and pricing volatility have been high. But I’ve never seen one like today. This is a bit of an extreme market. When you have to wait nine months or more for a material that is commonly used in the construction industry, that is different than what we’ve seen in the past.

What are some of the reasons for this?
There is pent-up demand. COVID in 2020 definitely had an impact on construction starts. Now you fast-forward to 2021 and you have projects that were tabled or delayed and didn’t start in 2020. They are now starting those in 2021 along with other projects that had been on the planning table, too.

There were also manufacturers of construction materials and equipment that during COVID had to slow down some of their production. They still haven’t caught up. They are not catching up from their COVID slowdown as fast as the demand is rising.

How about the multifamily market? How is the shortage of supplies and workers impacting this commercial segment?
There is a shortage of workers who are available to be on site. But that’s with any project. With multifamily, though, you can look at what is going on with panelizing. That is a common strategy in the multifamily market. They panelize walls in factories and deliver them to the site. That requires less labor on site. But those panelizing companies today are swamped. They are trying to keep up with the increase in demand, too, and they aren’t able to right now. That is causing some pricing increases as well as lead time increases. If you can’t get wall panels for an extended period of time, that will have a big impact on your construction schedule. If you can’t get roof insulation, that will have a big impact on your schedule.

If you are late on your schedule, for every day the project is not done, that is rent not coming in. You have to plan ahead as best as you can to make sure your project gets done on schedule.

Do you see any signs of hope that this shortage in labor and materials and the price volatility might be easing in the near future?
The fact that lumber pricing has come down in the last 30 to 45 days is encouraging. It was at an all-time historical high and has come down since then. We are hopeful that other products in the industry will follow between now and the end of 2021. There are no signs of that yet. But the fact that lumber has come down in pricing is an encouraging sign.