Rebuilding After A Fire: The Rising Cost Of Construction
After his manufacturing plant suffered a devastating fire, business owner Andy Bergonzi faced an even greater challenge — rebuilding in the face of increasing construction material costs. Although he had completed a building appraisal two years ago, the cost to rebuild the structure had risen 30% since that time. Like a majority of business owners, Bergonzi did not have adequate insurance protection to cover the rising cost of reconstruction. According to a recent study, 73% of commercial insureds are under-insured by an average of 40%.
It Costs More To Build Today Than It Did A Year Ago
According to a recent survey published in Engineering Record News, the
selling price of new construction projects increased 2.3% during the second
quarter of 2006 after climbing 2.5% during the first quarter. The results of
this survey were based on three indexes that include productivity, overhead
and margins, along with labor and material costs. Indexes that measure only
labor and material costs rose 1.2% this quarter and are up 6% for the year.
Industry experts attribute the continuing rise in construction costs to several factors — the ongoing effects of Gulf Coast hurricanes, rising energy costs, the general state of the economy, and higher labor costs. As a result, experts agree that we will continue to see another year of elevated construction material prices. Consider the impact of the cost of copper, which has increased 87% during the past year. An electrical transformer, which is copper intensive, that cost $65,000 a year ago goes for $100,000 today.
From copper to bricks, the cost of just about every component used in the construction process has risen dramatically over the past year. The following chart shows how the increased cost has fluctuated during the past several months for many common construction materials.
| NOV | JAN | MARCH | MAY | |
| Wire & cable | +16.6 | +21.2 | +18.3 | +46.6 |
| Gypsum products | +14.6 | +18.5 | +21.2 | +25.9 |
| PVC products | +20.8 | +22.1 | +20.5 | +18.0 |
| Cement | +11.9 | +14.5 | +14.8 | +14.9 |
| Paint | +7.5 | +7.3 | +8.7 | +7.7 |
| Bricks | +7.9 | +7.4 | +7.0 | +6.9 |
| Fabricated steel | +3.1 | +3.6 | +4.1 | +4.3 |
| Lumber, softwood | -0.7 | +2.1 | -3.9 | +2.7 |
| Sheet metal | +0.2 | +0.2 | +1.1 | +1.8 |
| Plywood | +3.9 | -2.7 | -3.9 | +1.5 |
| Glass, flat | +3.1 | +1.5 | -0.2 | +0.5 |
All numbers represent percentages of change between November 2005 and May 2006.
Keeping Up With Rising Construction Costs
As construction costs continue to rise, it will be more important than ever to make certain your insurance is keeping pace. We encourage you to talk to your EMC agent about your building values. Don’t wait for your renewal, or worse yet, a fire or other disaster, to make certain you have adequate coverage to replace what you have worked so hard to achieve.
