The cost for steel used in construction projects like this building is increasing. Photo / NZME
The cost for steel used in construction projects like this building is increasing. Photo / NZME
The impact of the Covid-19 lockdown in 2020 has resulted in soaring costs for construction materials in Tauranga as city leaders are warned the current lockdown is expected to make matters much worse.
And ratepayers are likely to foot the bill.
In a report to Tauranga City Council [TCC] commissionersin a virtual meeting on Monday, council general manager of infrastructure Nic Johansson said the situation was "critical".
A review was conducted to assess pricing and delivery time risks in the supply chain market for common construction materials such as steel, bitumen, copper and aluminium used in council projects.
Costs, in general, rose across all New Zealand construction materials in the past 12 months, Johannsson said.
However, since August 2020, the cost for steel had increased 48 per cent. The cost for bitumen increased by 45 per cent.
Causes included: increased commodity prices for raw materials such as steel, copper, aluminum and petrochemical products; increased demand and cost for skilled labour; increased shipping costs due to fuel price rises, reductions in shipping routes and higher demand; increased transport costs in New Zealand partly due to limited truck drivers; and impact of exchange rates on overseas supply items.
Johansson referred to bitumen, a common material the council uses for road surfacing.
"Until this year, bitumen was manufactured at Marsden Point Refinery and imported by Downer and Z Energy," Johansson said in the report.
Tauranga general manager of infrastructure Nic Johansson. Photo / NZME
"With the cessation of refining at Marsden Point, all bitumen will need to be imported from this year.
"Z Energy have indicated that they plan to stop bitumen import in late 2021 leaving only one established importer of bitumen. This means that TCC will increasingly be impacted by general fluctuations in international bitumen pricing, exchange rates and shipping costs."
Johansson said based on current trends, many suppliers were predicting further cost increases in the latter part of 2021 "and it is likely that this trend will continue until at least early 2022".
In the meeting, commission chairwoman Anne Tolley asked what impact the level 4 lockdown was expected to have on the cost of local building materials.
"We know it's at least another two weeks [in Auckland], it could be longer than that," Tolley said.
Johansson responded: "it's critical, really."
"The economists are telling us the tail of this one will be very long. It will have a compounding effect to what we've already put in the report," he said.
"This was work done leading up to this lockdown and obviously this lockdown isn't going to help - it will be a compounding effect."
Tolley said: "It's a good heads-up that we could see costs increase at an even sharper rate."
After the meeting, Johansson told the Bay of Plenty Times there was still "a significant amount of uncertainty about future supply chain trends" but the council was ready to adapt.
"These construction material increases will have an impact on the council's Long-term Plan, which will see a steady growth in infrastructure spend over the coming years," he said.
Johansson could not say before deadline what this equated to financially but said the council was actively looking at ways to minimise the impact of predicted cost increases.
"The next step would be to look at strategies for how to do that while not compromising the programme of works," he said.
"We will also be working with our contracting partners to efficiently manage the supply chain risk of project materials."
The cost for materials such as bitumen is increasing, sparking concern from Tauranga City Council Photo / NZME
Graham Burke of the Construction Industry Council said the increasing costs were being felt across the country.
"There's been a lot of pressure on the supply chain, most of it led by overseas," he said.
"There's been huge increases in shipping, big increases in base prices in a lot of products, and of course, we have high demand and we are in a market-driven economy."
Burke said councils needed to be mindful of this "upward pressure on prices" when setting out budgets for key projects. He also said New Zealand, in general, needed to shift away from the tradition of awarding projects to the lowest tender. There were many instances where the original budget was not the final budget, he said.
"You may spend a bit more but this may actually save you money."
Burke said the impact of lockdown won't have helped matters and the cost of shutting sites down for two or four weeks would need to be covered.
