ECONOMY

Rising costs, supply chain problems plague construction projects in Salem

A construction crew works on the outside of the Nishioka building in downtown Salem on May 12, 2020. (Amanda Loman/Salem Reporter)

For Pence Construction, a Salem commercial contractor, this year marked the first time a construction project hinged on dimmer switches.

All other supplies are in, but Brent Pence, owner and senior project manager, said they can’t have dimmable light switches in hand until August. 

“My whole project ties into this small little item,” he said. “You go back to asking customers, how important is that to you? I could get you regular switches tomorrow.”

As construction companies in Salem fall behind on high-demand orders and have to push back projects by months, the cost of materials continues to climb.

City, county and school officials say they are also seeing bid prices spike on construction projects and expect higher costs through next year for supplies under annual contracts.

Pence said those trying to get ahead of continued inflation are hitting a wall of supply chain issues. 

“Every time you think you can beat it, you can’t order things fast enough to get everything in,” he said.

It used to take six to eight weeks for his company to receive vinyl windows. This year, they’ve heard from some suppliers that it will take anywhere from 18 to 24 weeks.

Without space to store extra items that are set to go in after the windows, he said they have to either hold off on ordering those items or pay to store them.

His company is having to delay projects eight to ten weeks on average.

Previously, suppliers would typically say material prices were fixed for 30 days. Pence started to see that timeframe reduced to 15 days last year and eventually 10. Currently, a project in Bend requires an order of steel with a price that’s set for 48 hours.

“How do you get someone to make a decision that fast, sign a contract and get it ordered before the price changes?” he said. “It’s really difficult for us to keep our finger on the pulse, so to speak, of where things are at.”

Pence said there is particularly high demand for anything petroleum- or plastic-based, such as roofing or plumbing products, as well as lumber – all of which have been rising in price since the start of the year.

For one project his company started in January, the total price of lumber needed has gone up $9,000, a roughly 15% increase.

 Rich Duncan, owner of Rich Duncan Construction, said toilet paper dispensers have recently become a hot item that’s difficult to order.

“It’s kinda hard because things are popping up almost on a daily basis where it’s just a surprise of what gets held up,” he said.

To cope with rising costs, Duncan’s company has stopped issuing quotes that are good for 30 or 90 days. Now, most are valid for just a few days, he said.

The combination of supply chain challenges and inflation also means it’s difficult to get accurate prices on materials, Duncan said.

“Even if we pre-pay for the materials today, a lot of manufacturers will not set the price for delivery,” he said. “The day they ship the product is the day they tell us how much it costs …That’s super scary.” 

Differences, he said, can be thousands of dollars.

Still, Duncan said the rising prices aren’t slowing the local market. He said in his 30 years in construction, he’s never seen economic conditions like this.

“We’re behind – we don’t have enough housing, we don’t have enough space,” he said.

The Salem-Keizer School District is nearing the end of a five-year, $700 million construction push to renovate nearly every school. 

Karma Kruse, the district’s public engagement manager for the projects, said they started to see supply costs rise about a year ago, mostly in lumber. At that point, about 75% of projects had been bid, she said, and the remaining ones were mostly smaller in scale.

“In this recent bidding cycle, some bids have been rejected because they were too high. In addition, when contractors experience and can prove unavoidable and extreme cost increases, the district may have a conversation with the contractor and in some instances (not all) may share a portion of the cost increase with the contractor,” Kruse said in an email.

To date, she said the district has approved cost increases on seven projects at Schirle, Richmond, Myers, Morningside, Sumpter and Kennedy elementary schools, and Parrish Middle School. Those approved increases total about $202,000.

City officials expect to see impacts of inflation in the construction contracts they are currently bidding, said Courtney Knox-Busch, city spokeswoman.

So far, she said the city hasn’t delayed any construction projects due to cost increases.

“Anecdotally, we are hearing from contractors that increases in the price of materials and fuel are impacting their bids,” she said in an email.

For construction projects beginning the next fiscal year that starts July 1, Knox-Busch said city officials tried to account in their estimates what they are seeing in the market. That included contingency funds set aside for unexpected costs.

Marion County’s Public Works Department is being hit hardest on contracted projects where bid prices have jumped an average of 40%, according to Yancee Gordon, department spokeswoman.

County officials are postponing some projects and cutting back work on others until the bid environment improves, she said. 

The department is mostly seeing prices rise in asphalt and chip seals, which repair cracks and help maintain roads. Items the department buys in bulk include liquid asphalt, hot mix asphalt and road chip seals.

Asphalt prices are up about 20% and chip seals are up about 80% due to availability and demand, Gordon said. 

“For critical work, we are absorbing some of these costs within our existing budget. For non-critical projects, we’re reducing the volume of work or deferring projects a little while until prices come down,” she said.

Some other materials and supplies, such as striping paint, are currently under contract and have not seen significant price increases. 

“When we go to renew these contracts, we are expecting to see price increases,” she said.

Contact reporter Ardeshir Tabrizian: [email protected] or 503-929-3053. Contact reporter Rachel Alexander: [email protected] or 503-575-1241.

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