I was talking to a couple folks and they were saying that Katrina is going to drastically increase the price of PVC. Apparently the factories were in the LA MS area and with the gas prices that PVC pipe will be going up!
I didn’t hear if this was all PVC products (IE Azek) or just pipe.
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WWPD
Replies
We've already gotten letters from our plumbing contractors and their vendors that prices are not being held on past quotes, and that quotes are not being given for upcoming bids. All pipe and fittings will be billed at the price that's in effect on the day of shipment. Fun stuff- luckily our contracts all have "force majeure" clauses to cover us for such things.
Bob
Bob,
Just curious, but wouldn't a shift to ABS be cheaper? Both plumbers I use prefer ABS anyway.
ABS is good! Lot of plumbers like the Buzz, associated with the use of PVC Glue!
"Just curious, but wouldn't a shift to ABS be cheaper?"
Honestly, I don't know, for two reasons. First, I don't know if the manufacturing of ABS is reliant on petroleum as PVC is, so I don't know if the ABS prices will be affected as well. Secondly, I haven't seen ABS on any of the commercial work around here- ever. Even the use of PVC is limited, since you've got to be concerned with plemun return ceilings, in which PVC is not allowed by code. The big rush for PVC lately has been for high-rise residential work, which is the new hot commodity in central and northern NJ.
Bob
It may be or it may not. I imagine many will switch to ABS, but the increased demand will drive that price up as well.
"luckily our contracts all have "force majeure" clauses to cover us for such things"
Bob, how does this work? I'm really, really interested in such things just about now.
A "force majeure" clause essentially relieves you of cost increases which not reasonably foreseeable and are due to acts of God, war, etc. If costs rise simply due to inflation, normal cost of living/escalation, etc., you end up having to eat them. In a force majeure event, you're entitled to the additional costs.
Of course, you have t show what the costs were at the time of the bid and what the costs are at the actual time of purchase, and you have to prove that the reason for the cost increase was a force majeure event. In the case of the PVC piping, I've gotten letters from two of out plumbing subs, each with 3-5 letters from their suppliers (and even the pipe manufacturers) stating that the pricing can not be determined until time of delivery due to the destruction caused by Katrina. If the owner balks, you go to court, and it's then up the judge to decide.
Given the magnitude of this event, which has been front-and-center in the news for the past month, I think it'd be a no-brainer to win in court.
Bob
So, you have a measure of protection, but it hardly seems as simple to administer as a materials cost escalation clause.
It's essentially the same as an escalation clause, but covers unforeseeable price changes only, rather than just "escalation". If I was an owner, I wouldn't sign on just a general cost escalation clause- how do I know you've done your due diligence to get the right price? With the force majeure clause and the backup we'd have from the subs/suppliers, it's a far easier case to plead.
Bob
In some situations I think an escalation clause would be easy to use. You grab a handful of prices on typical items, maybe 2x4s and 1/2" plywood, and index a part of your bid to those. The owner can check the prices too. If they go up (or down) it's some basic math to correct the contract price.
I'm assuming your clause does not provide a direct mathematical means of adjusting the cost of the project based on materials prices... it just establishes that you are allowed to do so. I'd expect to have a judge sorting it out if it needed doing.
Granted you probably deal with some fairly esoteric materials that are harder for the owner to check on, given the type of project you do. It might be harder for the owner to accept your cost basis up front.
From the homeowner's perspective an escalation clause appears one-sided.If the cost of materials goes down after the contract is signed does the homeowner receive a discount?Seems to me material price increases should be the contractor's risk, barring extremes.I'm curious, how much has the PVC increase affected the cost of your project in percentage of total cost of the project?
Well, let's suppose you're the owner and I'm the contractor. I can offer you two scenarios with regard to the cost of your project materials. One is that I set a fixed price for your job that includes the materials and will not change. The other is that the materials are charged to the job as I buy them, at whatever the current price is, with no guaranteed maximum.
In scenario 1, I will take the absolute max amount I can dream of the materials costing me... and add a healthy chunk because it could be more than that. There is a very strong chance that you will pay me much more than what they cost, because I am in no position to be giving you stuff below my cost. At least you'll know in advance how big a check you will be writing, so take some comfort in that.
In scenario 2, you will pay the actual cost of the materials. There is no chance you will pay me some hefty 'premium' for the fact that I am taking risk. You will not know in advance how much the materials will cost (just like I don't). No risk for me, it's all yours.
Here are some numbers from an estimate sitting on my desk (I am trying to decide if and how to turn this estimate into a job budget, or just offer the owner T&M for some or all of the job). Total project cost ~$250K, materials ~$85K, subs (including their materials) ~$70K. If we assume that the subs' materials are half their total invoice, then we have about $120K (85+35) in materials alone for the job.
Suppose during the next 6 months the cost of materials increases by an average of 25%. The appliances may not increase that much, but the lumber and concrete could easily increase by more than that. There have been plywood and OSB spikes of 50% or so in the past month.
Suppose I'm risk averse and I'm actually going to plan on a 35% average increase just to cover myself. The $120K in estimated materials will become $162K on the proposal I give you. $42K to cover myself. It might not even be enough. Maybe I should go higher, or maybe I should just skip your project and find one with less risk and an owner willing to assume whatever risk there is.
Last thing: with a typical materials escalation clause, the owner pays less if the materials go down. It's essentially T&M with respect to materials. The materials component of the job is 'indexed' using quotes for materials at the time the bid is submitted. Later the actuals are compared and an adjustment made.
Dave,Thanks for giving an example with real numbers. I understand OSB and lumber prices can have a hugh impact on the cost to build.My question is - on the project your bidding what is the total dollar cost of the PVC? What is the total dollar cost of the increase due to the hurricane?
Very little PVC on my jobs. Drains are ABS and what PVC there is would be for electrical conduit. My interest in this is not specifically in PVC, or any other material in particular, but in all materials as energy prices, storms, and other factors push costs up, sometimes very suddenly. I do fixed price work so obviously I have a lot to lose.
There are (or were) a number of plastic producers in the LA-MS area. They make the raw material that other manufacutrers turn into all those plastic things we all love, everything from PVC pipe to food containers to trash bags to... you get the idea. It ain't just PVC pipe that is going up! (I don't know about the source materials for ABS, but certainly anything PVC based...)
Probably all petroleum based building products will be going up. Several factors all work in that same direction. Demand will spike for the products, supply will be hurt because many of the products and much of the raw stock is manufactured in the storm affected area, and the raw material is oil.