Nick Stewart | Construction Executive
During the global pandemic the construction industry saw unprecedented inflation in the cost of building supplies as a result of a myriad of issues. On May 7, 2021, lumber prices hit a record high at $1,670.50 per thousand board feet. This was more than six times their pandemic low in April 2020. This significant price spike was related to closure of sawmills during the height of the pandemic, low supply, soaring demand to expand existing homes or purchase new construction, the western U.S. wildfires and tariffs.
More recently, lumber prices have fallen but they are still up nearly 100% from spring 2020. Some experts believe that the recent wildfires in the western United States and upcoming hurricane season will cause prices to jump back up in the upcoming months.
Additionally, since March 2020, steel prices are up roughly 200%. The increase in steel prices is a result of many of the same factors causing lumber pricing spikes. Many steel mills shut down production or drastically reduced production during the early days of the pandemic expecting a deep recession and/or to comply with restrictive government mandates. Despite these industry expectations, demand for steel -elated products like grills and home appliances soared. These household demands for steel-based products impacted the price of steel for construction projects. Prior to the pandemic, hot-rolled steel traded between $500 and 800 per ton but hit an all-time high of $1,825 per ton in early July 2021.
WHY DOES THIS MATTER TO CONSTRUCTION LITIGATION?
The answer to this question is cost of repair estimates. In cases involving large commercial or multifamily projects, the price of lumber and steel at the time the repair estimate was generated may vary widely. A cost of repair estimate that was generated around the timeframe of the historic lumber and steel spikes is going to reflect an inflated cost of repair that may no longer be a reflect of present-day market pricing. It is essential when reviewing materials provided by cost of repair experts and deposing a cost of repair expert to determine when their lumber and steel related quotes were generated. This may involve digging deep into the repair experts’ discussions with suppliers to determine when the quote was solicited. If the quote was generated during a price spike, it may be worth determining where the repair expert received the quote and contacting the vendor to inquire if the present-day prices have dropped.
Another problem that has been common during the lumber and steel spikes is that pre-pandemic cost of repair estimates may no longer be viable. For example, a cost of repair estimate that was generated based on 2019 prices may undervalue the cost of the repair under current 2021 prices. Be careful of this. Lawyers are now moving the proverbial goalpost in the middle of litigation to account for present day pricing. Parties may have a general understanding of cost exposure related to estimate submitted early in litigation and there is the possibility that estimate is outdated. A new repair estimate may be needed to reflect present day pricing and, in most instances, that new estimate will be more expensive than a pre-pandemic estimate.
HOW TO HANDLE COST OF REPAIR ESTIMATE IN VOLATILE SUPPLY COST WORLD
The best way to handle litigation cost of repair estimates during these unprecedented times is to obtain as much information as possible on the basis of the material estimates. Here are some of the key areas to address in discovery when dealing with a cost of repair estimate:
- Determine the vendor(s) that provided construction material quotes;
- Ask when material quotes were requested and received;
- Find out if an updated quote has been requested to reflect market current pricing;
- Discover if other vendors can provide a more competitive price; and
- Determine how long a material vendor will honor the quote.
Answers to these topics will allow a construction litigator to assess how accurate a proposed cost of repair estimate is to present day material costs. If it is determined that the cost of repair estimate was generated during the time of lumber and steel spikes, that cost of repair estimate may be inflated, and it could be worth addressing that inflation with the cost of repair expert to determine if he willing to concede the unusual spike in construction materials. If the cost of repair expert is unwilling to admit the reality of the current construction material market, then it may be possible to challenge his credibility as an expert in construction material pricing. Also, it is imperative that these questions be addressed delicately as a pre-pandemic cost of repair estimate may actually pose less exposure given that it does not account for modern day inflated material prices.
In sum, while the global pandemic continues to impact nearly all aspects of everyone’s daily lives, it is important to keep an eye on how it has impacted construction materials when addressing cost of repair estimates in construction litigation. All construction cases that involve a cost of repair estimate should be vigorously scrutinized to determine if costs are an accurate depiction of the current marketplace. Finally, as a construction case progresses it is important to monitor the fluctuation of construction material pricing to determine if a cost of repair can be discredited based on outdated material pricing information.