How one construction company is coping with price volatility in Dallas

Dallas is crowded with cranes as area construction booms. But even as the Metroplex grows, price volatility is a fact of life.

“It’s been trending upward,” says Larry Knox, executive vice president at Bob Moore Construction.

Price volatility for construction materials, such as steel, is a national issue, driven by both economic growth and tariffs levied on foreign steel. An analysis of U.S. Department of Labor data by the Associated General Contractors of America (AGC)  shows the price of new non-residential buildings accelerated in October.

“Contractors and subcontractors raised their bid prices in November to make up for past cost increases, but the cost of goods and services that they buy rose even faster,” says Ken Simonson, the chief economist for the AGC. “That makes further bid-price increases likely but also implies some contractors will just stop bidding on projects where costs are too unpredictable to ensure they can be built profitably.”

The U.S. producer price index for construction industry inputs has risen 6.6 percent for the past 12 months. Metals and petroleum products have had the steepest increase from October 2017 to October 2018— 27 percent for diesel fuel, 18.2 percent for steel mill products, 11.6 percent for asphalt paving mixtures and blocks and 8.2 percent for aluminum mill shapes.

“It appears the tariffs imposed on steel, aluminum and thousands of Chinese imports are starting to affect the cost of many items used in construction,” Simonson says. “As inventories of goods purchased before the tariffs took effect are depleted, contractors are likely to face even higher costs.”

Knox says volatility in the metals market is acute. Bob Moore’s steel suppliers will hold a price for just 15 days, he says.

Materials aren’t the only rising construction cost. The price of labor is also on the rise, with wages in the industry up 3.9 percent in the 12 months ended in October.

The issues are amplified in Dallas because of the region’s torrid growth, which drives demand for materials and labor higher than in most other markets. The Dallas Morning News reports that during the first five months of 2018, Dallas-Fort Worth area construction starts totaled $8.8 billion. “We’ve probably got the hottest market in the United States right now,” Knox says.

Given all that, it’s a challenge for Bob Moore to hold the line on pricing for projects. But there are some strategies the company has followed and some advantages it has as a result of its longevity and prominence.

Mark Duvall, an estimator with Bob Moore, says his company is able to lock in favorable pricing from subcontractors. “We get competitive bids from subcontractors,” he says. “We hold them to it. It helps that we have been in business 72 years. They’re not going to want to risk hurting that relationship.”

And when price volatility does affect the cost of a project, Bob Moore has the flexibility and expertise to adjust projects to meet changing circumstances. “We can assist with value engineering the project,” Duvall says. “We do that all the time.”

Knox says the key strategy for Bob Moore is communication. The company is in constant communication with suppliers, subcontractors and clients, he says. Those stakeholders might not like what they hear at any given time. For example, Bob Moore may have to build in a 3 percent increase to the price of a project to respond to rising materials costs, if a client doesn’t make a decision to go ahead within a certain time frame. “The best we can do is let them know up front,” Knox says. “They don’t like it, they’re used to getting a fixed price.”

But clients aren’t caught flat-footed if fluctuations in the price of steel drive the cost of a project higher. That’s important, even if the overall situation is not ideal. “We’re straightforward with them,” Knox says. “We haven’t found any other, better way.”

Contact Bob Moore Construction to discuss your construction needs.

Bob Moore Construction started in 1946 and is one of the largest commercial general contractors in Dallas, Fort Worth and all of Texas. It  has delivered commercial construction projects in Texas and around the United States. The company is an industry leader in tilt-up construction.