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On Predictability
Our economy is under siege tied to one variability… predictability. Our leader has deliberately launched a continuous spew of outrageous changes to governance, world alliances, targeted citizens and green card holders, college curriculum, conspiracy theories (Biden is a robot?), and a constant flow of accusations, slurs and outright lies. And then there is… tariffs.
Imagine that you’re building a new hospital building and you have signed contracts with a General Contractor and an Architect for a total cost of construction of $40M. Your lender and your board have signed off and you’re starting to move dirt around for foundations. And then we find that steel and aluminum are being tariffed by 50%. Here’s a short list of ‘metals’ in a new construction bid:
- Structural steel
- Windows
- Doors
- Elevators
- Escalators
- Diagnostic equipment (Cat scans, MRI, Xray, BP cups, etc.)
- Crash carts
- Miles of stainless-steel surfaces
- Lighting fixtures (and LED tariffs)
- Electrical distribution system
- HVAC system
- Plumbing system
- Alarm systems
- Equipment (lift trucks, hand tools, surgical theater equipment, wheelchairs, sinks, faucets, screens, beds, stethoscopes, etc.)
The list can continue for pages; but you get the point. Since none of the above has been ordered yet, the tariff hit of 50% will hit every item on the list. Obviously, that’s tied to the entire COGS for each item above, but metal is clearly embedded in every item above and the cost to the metal dealer will be 50% higher; which the metal dealer will add to his price to the manufacturer of the equipment above; which will be also passed on to the GC or the procurement department of the hospital.
I’m not sure anyone (maybe AI?) can calculate what percent of total construction is based on metals. But the rule of thumb is that materials contribute 30-50% of the total cost of a new building and labor is the balance. My example has also added in new equipment as well as just construction materials; but the reality is.. new equipment is built into the total cost of build and is structured into the financing of the project.
As a swag… at 40% of $40M, $16M is total material costs. Let’s assume metals are at least 50%, so that means $8M of metals will now cost $12M. The $4M overage will likely have to be reviewed by the board and the lender(s) to approve that large of a variance.
Predictability goes out the window. As we’re struggling with a daily download of over-hyped statements, threats, denials and lies... how do we predict the construction market for 2025 or 2026?
It’s no surprise that the financial markets are swirling on a daily basis. If we can’t predict a stable economic market, then I’m sensing that we will be entering a down market.
Leadership is failing us and we have no one to turn to, to redress the excesses.
The courts are fighting for stability and sanity, but they may not hold for long.
And court actions require lawsuits and hours of preparation and legal motions.
My voice is unheard. I’m not going to join a protest march, as I don’t see that as a solution. I’ve reached out to my congressional representatives and got nice, patterned responses that don’t offer solace for me.
I’ve focused on supporting the ACLU… they’re the ones in the trenches, filling legal briefs and options to try to stanch the threats from our leadership. I ask that each of you send a contribution to the ACLU… Our industry is closely tied to construction, tariffs will deeply slow the pace of construction. If we can reign in our leader‘s grab for power we may restore confidence in the construction industry.
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