The availability of labor and materials responds rapidly to the realities of supply and demand. If there is a shortage of an item, even for a limited time, the price of that item goes up almost instantly. In the current circumstance, the beginning of materials shortages already is pushing up prices, and the sure-to-follow labor shortages will do the same. Manufactures have little incentive to resist price increases, and the common reaction to a labor shortage is to overpay in order to attract or keep them.

I wish I could say that only some of these issues will impact only some projects. However, the reality is that all these issues have either occurred or will occur and will, without question, impact all projects. With these factors affecting work captured for already thin margins, profits will suffer and the escalating potential for loss could be disastrous—particularly in an industry in which inflation clauses are difficult to get.

The effects of these issues on an industry attempting to come out of a terribly challenging market may seem unfair, but they are definitely predictable. In the U.S., construction is the second-riskiest industry only to the restaurant business, and the risks are magnified during a market recovery, particularly after a long downturn. 

Thomas C. Schleifer, Ph.D., is a management consultant, author and lecturer. Schleifer is also a research professor at the Del E. Webb School of Construction at Arizona State University. He can be reached at tschleifer@q.com or 480-945-7680.