According to the Turner Construction Cost Index for Q1 2016, increases in construction costs are being driven by increased construction activity and limited availability of skilled labor, especially in the south and northwest.
The Index, which measures costs in nonresidential building construction, experienced a 1.15% increase from Q4 2015 and a 4.64% increase from Q1 2015. The Index now stands at 970, which is the highest level it’s recorded in 13 years. “As the volume of work remains relatively high, we expect subcontractors to continue to be strategic in pursuits, ultimately resulting in upward cost pressures,” said Attilio Rivetti, Turner’s Vice President responsible for preparing the index.
This reduction in skilled labor isn’t simply a North American phenomenon. In the UK and western Europe the same issue is causing a gradual increase in construction costs despite the reducing costs of materials in the current economic cycle. The workforce is also aging, 19% of the UK construction workforce is expected to retire within the next ten years, and the industry simply isn’t recruiting enough young workers to replace the natural turnover of older workers.
So what difference can standardizing your construction equipment fleet make?
Managing Time. With a reduced workforce, it has never been truer to say that time equals money. Every second that one of your job site workers to figure out how a machine works, or remembering the peculiar quirks of a particular manufacturer’s excavator costs you. The less variation you have in your equipment and tool fleet the easier it is for a worker to simply get on with the job.
Managing Safety. Variation creates risks when it comes to safety, particularly if you are bringing in foreign workers who don’t necessarily share the same language as your key workers. Variation means you need more versions of safety materials, more training materials and potentially you need those in more languages if your workforce is becoming more diverse.
Managing Your Project. When it comes to coming up with standardized costs and standardized ways of working, standardizing your equipment also makes sense. Knowing that the standard model of excavator that you use on all your job sites always behaves the same way, that it always takes a set amount of time to complete a 250-hour inspection, makes it much easier to plan your projects and to identify exceptions earlier. Where labor is an issue, anything you can do to maximize uptime and work time on site is essential.
Managing Costs. Whether you own your own construction equipment or you rent it in from outside, standardizing what you have in your fleet and what you are prepared to rent helps you standardize your costs. Standardized costs helps feed data to your BIM models if you are using them, helps predict margins more effectively and ultimately helps you estimate more accurately. When pressure on margins is coming from increased labor costs then anything you can do to make those costs more accurate is helpful in protecting your business profitability.
Managing Job Site Procurement. When you are providing equipment for your job site, it’s very easy to end up ordering the wrong thing when messages can be dis-jointed or vague. If your list of allowed equipment or tools is pared down to a standard list then the chances of mis-ordering or mis-deployment of equipment is reduced. Every time you have the wrong piece of equipment for the job you effect the timeline which is even more costly when labor is scarce. You also affect your margins, something you cannot afford to do when those margins are being squeezed by the increasing costs of labor across your business.
So how do you go about a standardization process? It obviously isn’t something that happens quickly. It may start from a conscious procurement decision that gradually standardizes your own fleet over several years. It may come from agreeing standardized rates and products with your rental equipment providers as you renew your procurement rates annually. Standardization is ultimately a tool in the construction arsenal to try and reduce the impact of a reducing and aging workforce who need to be more and more efficient to deliver on shrinking construction margins.
What are your thoughts? Drop me an email to discuss or learn how Wynne software can help you control costs.
Written by Helen Sowerby, Director of Business Development. Helen engages with prospects and customers to ensure that Wynne’s product delivers the applications, functions and the technology that is needed for rental & construction clients to manage their equipment, assets, and businesses effectively.