Journal of Commerce | Russell Hixson | June 15, 2022
COVID-19, labour shortages, massive price fluctuations. For B.C. builders it seems like one problem on top another.
Josh Gaglardi, principal and founder of Orion Construction, has had to come up with creative strategies to mitigate the issues but says doing business has been getting harder and harder.
Over the past 18 to 24 months he has seen massive increases in construction pricing and costs in the range of 25 to 30 per cent.
“Up until these last 24 months, it wasn’t so clear and evident how intertwined these supply chains logistics on these projects are,” he said. “Going through this process has really opened our eyes to how dependent we are on almost all our building supplies from external countries and how little we produce and provide here.”
Orion is a design-build commercial contractor with roughly 1.5 million square feet of light industrial commercial construction underway and about six million square feet in planning and permitting.
This means price increases to things like steel, rebar, concrete and earthworks are hitting it the hardest.
“A lot of that is due to inflationary pressures on materials, labour, supply chain constraints and more recently, the substantial increase in gas prices,” he said.
To continue serving its clients of owner/users and local private developers, Orion has had to get creative. They have been pushing forward engineering work on projects ahead of the entitlement and permitting process so that materials can be ordered quicker as lead times on orders can be long.
The team has also been pre-purchasing materials for projects and storing them at warehouses or one of its industrial sites in the Lower Mainland. This includes steel, rebar, insulation, steel studs, PVC pipe and more.
“We’ve had a lot of success with that and saved quite a bit of money, which in this inflationary market has helped secure the financial viability of these projects,” said Gaglardi.
While Orion has been managing the impacts in the short term, Gaglardi believes in the long-term things need to change.
“For industrial and commercial, we are starting to price users and purchasers out of the market,” he said. “Between the scarcity of land and inflationary pressures, it’s getting very expensive to operate a business in this local market.”
Another example is fuel costs. Gaglardi said those expenses for Orion’s fleet of vehicles and equipment have gone up 50 per cent this year.
“And I am not able to get direct compensation from our clients with our contract structure so businesses like myself are feeling those increases and it’s definitely not a sustainable option,” he said. “When people make purchasing decisions to buy land, develop property or build a facility for their business there is never a 25 to 30 per cent contingency in their budget, so it’s been very challenging to work with groups. It’s been exhausting to explore all possible options to make our clients successful with their projects.”
The good news is the global events that have impacted prices, like the war in Ukraine and the pandemic, have received heavy coverage in the media, making clients far more aware. Gaglardi contrasted this with U.S. tariffs on steel which had similar price impacts but were not as well known.
“There is such shell shock in the market because so many people have gone through this,” he said. “Trades, suppliers and venders are not even committing to full pricing right now. A lot of guys are saying their price is good for 15 days and if they don’t have a contract and a place to store materials their price is not good. Before these past two years, I’d never experienced that.”
In addition to materials concerns, Gaglardi noted that the B.C. industry is also in the middle of a skilled labour shortage.
“It’s really challenging to staff your site with qualified tradespeople and trades that can commit the amount of manpower that you need,” he said. “It all has a cumulative effect and when you look at it in terms of trying to run a business, it gets challenging. I think there will be some long-term effects.”
Gaglardi believes the coming years could see much more cautious investment as high costs create too much risk and lead to investors thinking twice.
“It’s going to effect municipalities, the tax base, the provincial government – there will be a slowing down of new projects,” he said.