Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Material price hikes are eroding supplier profits

Brian Berry

Construction material prices have been steadily increasing since the EU referendum in June 2016.

The Federation of Master Builders’ most recent research shows that 90 per cent of builders reported increasing material prices in Q1 2018 – the highest reading on record.

We asked our members by what percentage materials had increased in price over the past 12 months. The survey found that insulation had seen the sharpest rise with a 16 per cent increase, and bricks were second on 9 per cent.

The FMB also asked which materials had the longest wait times: bricks topped the list, with roof tiles and insulation coming second and third respectively.

Margins increasingly squeezed

Concerns over rising material prices and material shortages are not a new problem in the construction industry.

Many of our members have been noting these issues since the Brexit vote caused sterling to depreciate in mid-2016. What is concerning, however, is the impact this is having on small construction firms and their clients.

More than half of construction SMEs reported their margins being squeezed during Q1 due to rising material prices – up from a third when we asked the same question in July 2017. Even more concerning is that nearly a fifth of builders reported making losses on their building projects due to material price increases, up from one in 10 last July.

Half of the firms surveyed had been forced to pass material price increases onto their clients, making projects more expensive for consumers; this was up from less than a quarter of respondents in the previous survey.

Pricing catch-22

When material prices go up mid-project, construction firms can either absorb that additional cost and potentially make a loss on the job, or attempt to renegotiate the fee with their client.

“Half of the firms surveyed had been forced to pass material price increases onto their clients, making projects more expensive for consumers”

The former hits the company’s bottom line and the latter impacts its reputation, so it’s a lose/lose situation for the builder.

To limit the negative impact of any material price increases or shortages, the FMB is urging manufacturers and suppliers to communicate as much as possible with contractors. This will allow construction firms to price jobs as accurately as possible. It might even encourage builders to specify alternative products or materials if others come with higher prices or delays.

The FMB is also speaking to manufacturers and suppliers to find out if there might be other potential short-term solutions to these issues while supply can catch up with demand.

Brian Berry is chief executive of the Federation of Master Builders

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.