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Commercial Real Estate

The Construction Industry Steels for Price Hikes

Materials costs are an ongoing concern for general contractors in North Texas, where activity remains brisk.
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When the Trump administration’s tariffs on imported lumber, steel, and aluminum were imposed last year, it was a topic of concern for major Dallas-Fort Worth construction contractors. “Some of our board members were seeing huge price increases for these materials,” says Meloni McDaniel, president and CEO of TEXO, which represents more than 300 North Texas contractors. “They thought the increases were happening just because these companies could.”

That’s what Brandon Jenkins, preconstruction manager for construction giant Balfour Beatty US, saw happen with steel rebar, a major component in the company’s projects. “Right when this was announced there was about a 24 percent jump” on the price of rebar, he says. This came despite the fact that the company’s sources were domestic producers, not foreign suppliers subject to the newly imposed 25 percent tariff.

“I think a lot of that was posturing,” says Jenkins, noting that the prices have since come down. He says the hike had an effect on some projects, but it isn’t as much of a concern today.

Since the anti-dumping and countervailing duties, as the tariffs are officially called, began moving through the market a year ago, they have consumed less attention from TEXO contractors, McDaniel says. They have been learning to live with cost uncertainly by including language in contracts that mitigates the risk of having to absorb current or future tariff charges. Major projects are usually undertaken with long lead times, and margins are thin in a competitive industry, McDaniel adds.

The industry’s chief lobby, the Associated General Contractors of America, has been critical of tariffs imposed on lumber imports from Canada, several types of steel and aluminum, and on Chinese construction materials, including electrical components. They contributed to what Federal Reserve Bank of St. Louis research says was a 6 percent increase in the producer price index for inputs to the construction industry in the first 11 months of 2018.

“We use second-generation (recycled) steel, so we’re less affected than say, the auto industry,” says Steven Whitcraft, preconstruction manager at Turner Construction Co., another of the largest construction companies in Dallas. His company uses only modest amounts of wood, which has seen particularly volatile pricing.

Whitcraft says it’s clear that the tariffs are adding to costs for construction companies and their clients. Still, because prices are a result of many factors, there is no quantitative way of attributing what part of the price increases result from tariffs and other factors, such as transportation bottlenecks, or temporary shortages.

Contractors have opportunities to employ alternative designs that use unaffected materials, but at times are forced to buy items at prices that are likely to have been inflated by the tariffs, Whitcraft says.

The industry’s trade association says the tariffs pose two possible risks: either contractors will have to settle for smaller profit margins or project owners with fixed budgets will cut back on projects.

So far in Dallas, Whitcraft says, higher costs have done little to slow down what has been, in his words, “a very busy time” for the industry. “There are as many construction opportunities as there have ever been in my career,” he says. “You can see the cranes on the skyline.” 

Thomas Korosec is an award-winning journalist who specializes in legal and business topics.

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