A perfect storm: contractors struggle to adapt to a host of issues
BUFFALO — Local contractors are facing an unheard of set of circumstances: volatile prices, increased transportation costs, material shortages and a rapid rise in new construction.
"I don't think there's ever been anything that compares to what we've been dealing with,” said Lonnie Holmes, general manager at Bloedorn Lumber in Buffalo.
Now, contractors are scrambling to stockpile the materials they need while watching their profit margins shrink.
According to the Associated Builders and Contractors, construction input prices rose 2.8 percent overall in June. In the past year, construction input prices rose 24.8 percent in total.
The cost of gas has also skyrocketed, increasing the cost to transport goods. The price of gas has risen more than a dollar in the past year in Wyoming, according to GasBuddy. com. In Johnson County, the average gas price was $3.36 per gallon on Monday.
Materials aren't just more expensive, they're less available. The pandemic disrupted normal production and transportation of goods, according to Tana Sikkenga, co-owner of Pro Plus Roofing & Siding. That led to shortages of almost everything. Sikkenga compared trying to get materials today to "trying to get syrup out of a tree in the middle of December."
Meanwhile, the demand for new construction is reaching new highs.
Buffalo building inspector Terry Asay said the city has issued 34 permits for new homes in the past year, twice the number of permits it usually issues. Johnson County has issued 20 new permits for septic tanks this calendar year, a measure that is roughly equivalent to new homes, according to the county's planner, Jim Waller. At this time last year, the county had issued 14 new septic tank permits.
All together, Holmes said, this is the perfect storm.
Zach Jerry, shop manager for Chesbro Electric, said he’s in “break-even mode” as he struggles to adapt to the new reality. Jerry said his distributors only estimate prices seven days out, leaving him without the ability to plan beyond that time limit. With that in mind, Jerry said, he puts a caveat on all his own estimates: “Due to the volatility of pricing, it may fluctuate somewhat.”
Without that disclaimer, Jerry said, he could be forced to bear the increased cost of materials entirely by himself. And that cost can be severe.
Sikkenga said that one of her window suppliers had recently warned her that it would be increasing prices by 14 percent. Normally, she said, price increases are closer to 3 percent or 5 percent.
"That's pretty astronomical,” Sikkenga said.
“I think that, you know, a general contractor that is writing a contract today really needs to protect themselves,” Holmes said, suggesting that, in addition to writing disclaimers into their contracts, contractors should be as transparent as possible with buyers.
The cost of buying materials at a much higher price than expected, or of changing materials mid-project, can affect buyers as much as it does contractors, Jerry said. And many buyers can't afford to wait for prices to stabilize to finish their project, so they're forced to swallow the high prices, he added.
"There's a lot of sticker shock on the cost of parts and material right now,” he said.
Both Jerry and Sikkenga said they do their best to take on some of the extra cost, balancing the cost to their businesses with the cost to the buyer. But that also means that their profit margins are shrinking.
"We're not out here trying to get rich. We're just trying to make a living just like everybody else. So if I'm able to provide a lower price for something, I definitely do that,” Jerry said. But ultimately, “being able to keep your doors open at the end of the day is where it's at."
Another way that Holmes suggested contractors protect themselves is by planning ahead, but it's also difficult to plan in this environment. Sikkenga said that there are “huge” lead times in ordering materials right now. What once took four to eight weeks to arrive can now take as much as six months, she said. With that in mind, she tries to keep her buyers' expectations low.
"I tell them that I won’t believe that their siding is here until I see it with the whites of my eyes,” Sikkenga said.
The long lead time also limits the flexibility of projects, and it can lead to situations where buyers want to make changes and contractors simply don't have the materials to do so.
In other situations, even if the project was planned long ago, a product may not be available or may simply be too expensive to purchase now, and buyers will have to adjust their plans.
One thing that's not a problem is the amount of work available. Between new construction and remodeling projects, there’s plenty of work to go around.
Erik Burden, owner of Great Divide Fabrication, said that all of this construction keeps him busy, but it's not a reliable source of work.
“I keep reminding myself, people retiring is not an industry. It is a trend, but it is not an industry,” Burden said.
Burden said he worries that, after newcomers who have flooded into Johnson County experience a Wyoming winter, they'll flood right back out again, leaving him without the revenue or the work he has now.
In anticipation of this, Burden diversifies his workload. He couples his larger projects with service calls, which use less material and are more reliable. He also keeps things short term, booking out just a month in advance when possible.
Still, the instability worries Burden.
"I'm a planner," he said.
And right now, he cannot plan.
Despite all of this, Holmes said that Buffalo has fared relatively well compared with other parts of the country.
"We haven't, I don't think, seen anywhere near the problems here in this market as they have in so many other markets throughout the country,” Holmes said. “And I attribute that to good planning on the contractors' parts and really some resourcefulness.”
Local contractors are still feeling the pressure, though.
Looking ahead, Sikkenga knows that she'll have to cut costs as her profit margin falls.
“I know this year, and probably the next year, are going to be like lean seasons, even though we're doing a decent amount of work,” she said.
"I don't know what's going to happen, and I don't know what to expect,” Burden said. “I just learned in the past 16 months to prepare for the worst. And sometimes you're pleasantly surprised.”