Market Volatility in Utility Construction – What the Pros Are Saying

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Atwell

Lauren Atwell, Chief Operating Officer, Petticoat-Schmitt Civil Contractors Inc.

Lauren Atwell is the Chief Operations Officer responsible for construction operations for Petticoat-Schmitt Civil Contractors Inc. Atwell has over 30 years of experience in heavy construction with a strong emphasis on water and wastewater facilities. He has a B.S in Civil & Environmental Engineering from Clarkson University. Atwell currently serves as the Chairman of the National Utility Contractors Association (NUCA).

Yvonne BlandYvonne Bland, Vice President, Sales & Business Development Core & Main

Yvonne Bland is vice president, sales & business development for Core & Main, the leading distributor of waterworks and fire protection infrastructure products in the U.S. Bland has spent her 33-plus year career with Core & Main and its legacy companies, serving in a variety of positions. An influential industry leader, Bland is currently an associate board member for the National Utility Contractors Association, and participates in numerous other industry associations.

Gretchen SaydanGretchen Suydan, Marketing Manager, Ferguson Waterworks

Gretchen Suydan is an experienced marketing and business management professional. Driven by a commitment to excellence, she takes pride in providing the best customer experience possible. As a marketing manager at Ferguson Waterworks, her goals include increasing brand awareness and educating current and existing customers on Ferguson’s valuable services. In addition to her primary duties, Suydan has been recognized by senior leadership for her extraordinary commitment to ensuring marketing alignment and integration with business goals.

In recent months, the utility construction market, as well as the construction market at large, has been experiencing market volatility spurred by increasing costs for materials and supply chain disruption. So what is the root of the problem and what steps can contractors take to help minimize this impact? We asked professionals in the market to share their views.

Utility Contractor spoke to Lauren Atlwell (Petticoat-Schmitt Civil Contractors Inc.), Yvonne Bland (Core & Main) and Gretchen Suydan (Ferguson Waterworks) to get their views on the situation. Here’s what they had to say:

Has your company experienced material cost escalation? What are the types of material are being impacted by the current market?

Atwell – We are seeing increases for PVC pipe, HDPE pipe, ductile iron pipe, stainless steel pipe, miscellaneous metals, and aggregates.

Bland – Yes we are seeing increases across the board. Virtually all materials have been impacted to some degree or another.

Suydan – Economic recovery is fueling rapid growth in our industry. Manufacturers are working hard to keep up with demand but are faced with unprecedented material shortages, product price increases and ongoing supply chain disruptions.

There have been widespread shortages on plastics, foam, chips, raw materials and other supplies used in the part itself or fabrication process. Logistical challenges are compounded by general backup at ports, lack of container availability and weather events such as the Texas freeze and floods.

What are the factors that are leading to cost escalation? What steps has your company taken to try to account for this escalation?

Atwell – There are different supply chain issues. In the case of PVC pipe, it started with a shortage of resin due to the hurricanes and winter freeze that hit the Houston area that shut down two of the three resin manufacturers. There is also a shortage of tin, which is a catalyst in manufacturing PVC pipe. The supply of resin is catching up some, but now the pipe manufactures are suffering from labor shortages to run their plants. For example, a pipe plant in Macon, Georgia, is not running due to labor shortages. And to top off the PVC issues, there is a shipping issue, increased fuel prices, driver shortages and increased driver regulations, which are making it hard for the manufacturers to get pipe they can make delivered. In certain cases, like Florida, the shipping issues are compounded because we are a deadhead delivery state. Product comes in, but there are not return loads to go out, so truckers would rather run other routes.

The ductile iron pipe issue is a delivery problem. A vast majority of ductile iron fittings are manufactured in China. There is a shortage of shipping containers, so the fittings are stocking up over there and not coming to the United States. For every 1,000 shipping containers that come into the United States, mainly through Long Beach and Los Angeles, only 400 get shipped back. Pre-COVID, ships were being unloaded at the ports in a day, now they are floating outside the short-staffed, partially open ports for two weeks before they get unloaded. Not getting fittings from China puts an increased demand on domestically made fittings and delivery times have extended exponentially. Prices have escalated proportionately.

On private and negotiated bids and contracts, we have conditioned our proposals to allow for adjustments in material cost. In public, hard-bid proposals that do not allow for escalation we make our best estimate of what the escalation will be and add it to the cost of our proposal.

Bland – There have been many factors contributing to the current market condition. Historically, supply chains have been somewhat fragile in that any specific major event can cause a domino effect disrupting an entire industry’s downstream supply chain. For example, hurricanes or other acts of nature may cause disruption in oil and chemical plant production in the Gulf. This in turn impacts supply in so many industries … resin, plastics, oil and gas, etc. Other factors include the pandemic, governmental regulations (i.e., tariffs, taxes, etc.), logistics gridlock, and most recently high demand.

Communication is a key factor in addressing cost escalations and mitigating ambiguity within a contract. It is important to engage all parties for input related to expectations and agreed process for addressing cost escalations.

Suydan – Nearly every single phase of the supply chain has been impacted somewhere along the way by COVID-19. Ferguson Waterworks is not immune to inventory and supply chain challenges. However, the strength of our DCs, overall supply chain and vendor partnerships put Ferguson in a strong position. We have several mitigation strategies in place, including keeping in close contact with our suppliers to forecast shortages. We have invested in inventory and are actively managing existing inventory to best serve all our customers.

How do you address the issue of cost escalation on your projects? Are you able to incorporate risk sharing clauses in your contracts? What can you do if the contract has already been signed?

Atwell – It is difficult to address cost escalation because most owners have not been willing to share risk once a contract is ready to be executed. They want a firm fixed price for us to construct the project. So, we have had to be creative, expedite procurement, submittals, and deliveries, as well as utilize alternate materials and different types of fittings (i.e. push joint fittings with gripper gaskets in lieu of MJ and meg-a-lugs or bell restraints). We have worked closely with our vendors to mitigate the impact by increasing our levels of communication with them. And we have presented the supply chain problem and escalation to our owners, by utilizing resources from manufactures, vendors and NUCA to educate them on the situation. In some cases with fair and reasonable owners we have gotten some relief either financially or time wise.

Bland – Each project carries its own set of stipulations from an owner. It is important for all parties involved (from bid to contract award through completion of project) to ensure the terms are agreeable, including risk sharing that in part addresses future supply chain disruption after project inception.

Suydan – We keep our customers regularly informed and doing everything we can to get the product they need. We ask them to place orders as soon as possible so we have greater visibility into product needs and order only what is required for the project to better manage our inventory. Significantly larger than normal orders require special approval. Lastly, we publish a monthly newsletter for our customers that explains market and commodity conditions so they understand the current landscape and can make informed decisions for their business.

The issue of employee recruitment and retention has been of concern for some time. How has this issue been affected since the onset of the pandemic?

Bland – Some company leaders from across our industry have shared expressing concerns over recruitment and retention that have been impacted by the pandemic and resulting consequences of high demand in the construction industry.

Suydan – The pandemic was challenging for everyone, including our workforce – from moving an entire workforce remote to supporting our associates who were having childcare challenges to ensuring we were implementing the right safety protocols to keep our associates safe. Recognizing these challenges and offering flexible solutions for our associates was not only the right thing to do but also allows us to continue attracting and retaining the industry’s best talent. It also gave us an opportunity to look at remote work and our capability as a company to perform remotely – it was a unique opportunity.

Every decision we made during and after the pandemic was and remains an ‘associate-first’ decision. We are constantly striving to meet our associates’ needs, inspire a feeling of ownership and help them realize their personal aspirations while serving our customers and maintaining the business. This past year has been challenging in many ways and our associates have stepped up and persevered through it all.

Do you see prices stabilizing anytime soon? What are some of the potential outcomes of this period of market volatility?

Atwell – I don’t see stabilization coming any time soon. Manufactures are hopeful, however, that this will run its course and we’ll reach stabilization by the end of the year. The market volatility has been slowing down work put in place. Less infrastructure is getting put in place, maintained, or replaced. It will have an effect on annual revenues for utility contractors and vendors. The result of the dramatic increases in material cost is inflation, which has effects on the entire economy.

Bland – There is a confluence of high demand and significant supply disruption. What we have learned through our experiences over the last several years is that if our NUCA membership comes together as one voice, we empower ourselves to overcome obstacles getting in front of the unpredictable disruptions with sound business practices to protect our industry through our most immediate circumstances and prepare our businesses to persevere long-term.

Suydan – One of the many things that we’ve learned from COVID-19 is the importance of being nimble and adjusting to change. For the foreseeable future, this is business as usual. We’re all in this together.

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