Petroleum blows the roof off bids

Wednesday, July 23, 2008

The end of cheap oil and consequent rising costs continue to ripple throughout the economy, as illustrated by an article by in The Daily Reporter:

As petroleum prices rapidly drive up material costs, roofers don’t know how much expenses will change between bidding and building.

But when contractors add a healthy buffer to their price to safeguard against shortfalls, they run the risk of being under-bid by the competition, said Richard Lemirande, president of Northern Metal & Roofing Co. Inc., Green Bay. At the rate prices are escalating, contractors run the risk of locking themselves into a bid that’s too low to cover costs, he said.

“When you get into a hard-bid situation,” Lemirande said, “that’s when it becomes much more difficult.”

Material prices for industrial and commercial projects are climbing faster than Don Leitel has seen in his 20-year career. The price of everything except insulation went up since last year, said Leitel, vice president of Roofers Mart of Wisconsin Inc., Wauwatosa.

There’s talk, he said, of monthly insulation cost increases between 5 and 7 percent in coming months.

“It’s tough for these contractors,” Leitel said. “I’m sure it’s been a battle for them going back to jobs where they had contracts or commitments and things weren’t ready to go.”

Leitel said sales agents often warn contractors about possible price increases, but he warned this year the threat should be taken seriously.

“In the past, sometimes it would be up, sometimes it wouldn’t,” he said. “But today, we’re in a whole different world.”

The city of Milwaukee on July 14 collected one bid for its project to re-roof an engine house. But the $225,700 bid from M.M. Schranz Roofing Inc., Milwaukee, was $74,000 higher than engineering estimates made in November, said Paul Klein, an architectural designer in the Milwaukee Department of Public Works. Klein said he expects subcontractors to start offering bids that let them change material prices to keep up with increases.

“I don’t think there’s been that kind of increase in concrete or anything like that,” he said. “Asphalt shingles are a petroleum product, and the EPDM (ethylene-propylene-diene terpolymer) roofing is a petroleum product, and I’m guessing that had a lot to do with it.”

The increases so far were driven by petroleum prices, among other production costs, Klein said.