Oil Prices: How Oil Prices Affects the Construction Industry

_{By Cogdogblog}

Recent international issues have skyrocketed the already high oil prices and are expected to continue rising over the next months. The construction industry has been hit hard by these astronomical record-breaking high oil prices. High oil prices means higher construction costs, either building or operational costs. But what can we do? How to deal with these high oil prices?

The United States consumed 18.8 million barrels per day (MMbd) of petroleum products during 2009, making us the world's largest petroleum consumer. The United States was third in crude oil production at 5.4 MMbd. However, our dependence to petroleum-based products is one of the biggest in the world.

How High Oil Prices Are Affecting Us

Higher gas prices in the construction industry means trouble. We must look to innovative solutions, new green solutions, go back to basics and re-invent the way business is being made. Higher gas prices signifies problems when trying to figure out a good estimate for a future project. To counterbalance this situation some companies may opt to create a surcharge to deal with the ups and downs of gas pricing. However, this can be a risky decision because it will increase substantially your construction costs, but in the other hand you will want to cover your costs.

Diesel cost is the most highly influential item in the construction industry that affects all supplies, material and labor costs. Diesel, oil and gas costs composed nearly 3 percent of your hard construction cost.

Key Issues Affected by High Oil Prices

• Roofing materials composed of petroleum-based products. Try to start or discuss the possibilities of a green roof. Although it will increase your initial costs, during its life-cycle cost it will provide larger benefits to the building owner.

• Uncertainty estimating projects- Higher gas prices will increase material acquisition and material delivery cost will be higher. What can we do about it? Using a good business skill you can either redact large annual contracts for material and supplies, analyze and coordinate the timing of delivery of materials. Reduce the number of times that you order and receive deliveries, combining large material delivery under a single trip.

• Establish a Contingency Reserve - Include under your contract contingency reserve amounts to cover unexpected high material prices, including the possibility to incorporate escalation clauses under your contract.

• Turn Green - Discuss the possibility to reduce your vehicle fleet, turn to fleet alternative fuels like bio-diesel. Incorporate green initiatives, use reclaimed wood, search for deconstruction material that can substitute construction material. Train your employees in deconstruction procedure, where you can sell or re-use building materials.

• Go Local- Analyze your workforce and if possible assign personnel depending on their geographic location; this will reduce your gas and vehicle fleet costs. Encourage to use mass transit or alternative transportation methods.

• Tech Wise- Instead of travel to meetings and conferences, try to establish virtual meetings, use webinars, use more conference calls and video; and try to use sophisticated new methods for online and project collaboration systems.

• Tax Credit- Governments should also encourage companies and contractors to be less dependent of petroleum-based products, establishing tax credits, or subsidize companies with low gas or petroleum-based product consumption.
  

  High Oil Prices: Big Hitting Areas

  The higher impact on material products will be:

• Plastic Materials

• PVC Piping

• Steel Production

• Lumber Costs

• Asphalt Products

What kind of measurements are you taken to deal with high prices? How have you been affected?