For 29 years, Rick Reviglio, co-owner of Western Nevada Supply, has never worried about running low on a commodity like 4-inch PVC sewer pipe.
This year, that changed.
“We’ve been out of 4-inch sewer pipe many times over the last six months,” said Reviglio, whose wholesale distributor company is headquartered in Sparks. “Not only did we always have it, we had it in abundance — you’d find miles of it in our yard. And there’s been multiple times we’re out of it.”
It’s the result of commodity shortages rippling across the United States economy as growing demand for housing, commercial construction, electronics and other goods runs up against production and transportation bottlenecks.
“It’s the perfect storm of the supply-demand dynamic,” Reviglio said. “Everyone’s trying to get projects done, so you have over-demand and a lack of supply.
“Every one of our segments — waterworks, plumbing, HVAC, all of them — we have to tell our contractors, ‘we don’t have materials.’ And our competition is in the same boat. So, the contractors have their jobs on hold.”
As projects and orders stack up in a rebounding economy in Northern Nevada, construction companies are watching rising costs for materials — from PVC pipe to steel to lumber — become increasingly hard to predict and factor into bids, exposing them to potential losses.
Mark Drahos, operations manager for the Nevada region at Alston Construction.
“Before the pandemic, it was a lot easier to look back at historical values when we’re conceptually estimating projects for clients,” said Mark Drahos, operations manager for the Nevada region at Alston Construction in Reno. “Now, it’s much more difficult because you've got some material suppliers telling their subcontractors, ‘here's the price of your material right now, but you can't lock that in; once we go to deliver the materials to you, you'll pay whatever price it is at that point time.’ So that's a huge challenge.”COSTLY SCENARIOS
For Northern Nevada builders, that means several months can pass between the time bids are submitted and when the actual work begins.
In the past, materials suppliers usually guaranteed prices for 60 to 90 days and often stuck to those prices if orders came in later than that, executives said. Now suppliers are quoting prices for just a week or two, and many aren’t honoring them beyond that, as prices steadily climb.
That’s been especially true of suppliers in the roofing industry, said Matt Clafton, senior VP and regional manager at Alston Construction.
“That's the only industry thus far that we've encountered that is not committing to their pricing,” he said. “Basically, they're saying, ‘we're going to give you a quote today but when the material actually hits the job site and you take possession of it, then we'll let you know what the cost is at that point.’
“Obviously, that’s a bit scary.”
Matt Clafton, senior VP and regional manager at Alston Construction.
After all, the bulk of a roofing contract — about 70% — is material and the remaining 30% is labor, Clafton said, meaning fluctuation in materials can add a significant amount to the cost of a roof structure.
“If there’s fluctuation on a $1 million roofing job and $700,000 of that amount is subject to maybe as much as a 20% increase in costs, that’s a $140,000 delta that hits that job, potentially,” Clafton said. “Somebody is going to have to cover it, whether it’s the contractor, the subcontractor or the owner.”
As a result, Clafton said the prices of Alston Construction’s roof structures have oftentimes “tripled in cost.”
“Historically, we would see $5 to $6 a foot would be the cost of our roof structure. And today, it’s probably $17 to $18 (per foot),” Clafton said. “And those same lead times that originally would be 12 to 14 weeks have slid to 10 to 12 months … You’re either going to delay your start on your project or going to be extending out the duration of your project, which are both potential cost impacts.”PROACTIVE APPROACH
To combat the sweeping challenges, regional construction and real estate development companies are trying to be more proactive, said Doug Roberts, partner at Reno-based Panattoni Development, which develops industrial, office and retail space in more than 278 cities.
Doug Roberts, partner at Panattoni Development.
“What we’re doing is just getting ahead of the game on our ordering,” Roberts said.
Pre-pandemic, Roberts said, Panattoni would allocate several weeks for a steel order. Because of the shortages, the company is seeing build-to-suit clients — meaning, a commercial building or space specifically constructed to the client’s needs — authorize Panattoni to spend a certain amount of money getting into the queue “so we’re not missing out on those steel orders,” Roberts said.
Panattoni’s orders come early and often, and in large quantities. The company says it has developed an average of roughly 12 million square feet per year since 2011. Its North Valleys Commerce Center in Reno, for example, totals nearly 3 million square feet alone.
“Given the size of our projects, we hope that we order enough steel and materials that we have a little bit more buying power,” Roberts said. “But, we’re still subject, like everybody else, on these delays. That’s really what it comes down to. It’s probably more simple delays on schedule as well as increased pricing. Because people are, obviously, doing what they’ve got to do to get their projects in on time. And they’ll pay extra to have that happen.”
Still, Roberts said he assumes every project is going to take two to three months longer than they hope.
“Obviously, it depends on what kind of material we’re talking about as far as how much delay there is,” Robert said.
Regardless, all the executives who spoke with the NNBW said they have never seen a materials shortage anywhere near what they’re experiencing right now, not even during the economic downturn a decade earlier.
“I thought I’d never seen anything like that again or have the same type of challenges,” Clafton said of the Great Recession. “And then we went to COVID and the pandemic. It’s been a whirlwind of firsts.”