September 21, 2022
Written by John Korsmo, Agency President, ACG CO DA KS NE WY
The Brown family of Central Nebraska has been building churches since 1962. In fact, according to Todd Brown, the Founder of Brown Church Development Group, they have designed and built more than 2 million square feet of ministry space in 22 states across the country.
I recently caught up with Todd Brown to talk to him about inflation and how it is specifically affecting the Midwest/Rockies states and the churches they are working with.
“Inflation has had a major effect on our industry. Fuel, transportation, materials, and labor have all gone up significantly, which is a driving factor in the overall cost of construction.” Brown added, “while certain materials and areas fluctuated more or less, overall project costs are up higher than 30%, pre covid.”
This is nothing new. In our everyday lives, we are all constantly dealing with rising costs and longer wait times to receive orders. The construction industry’s current difficulties are complex and numerous. Most of the issues have to do with the supply chain, which affects availability, which can affect cost, and timeline, which can affect the ability to find dependable labor to complete the job.
The labor force is using these factors as leverage to make more money. “I have to pay my people (employees and subcontractors) a labor premium or they will not stay, and that is happening across all industries.” Recently, Brown had a subcontractor lined up for a large project, and an outside firm came in and wiped out the subcontractor’s entire team and got them to switch companies.
Contractors are having to be much more conservative in their estimates due to the scarcity of labor and materials. According to Brown, if you commit to a structural package 12 months before construction, you might pay a penalty if the project falls through, but you can return the material before a certain deadline. However, there is also likely a “drop dead” deadline where the materials cannot be returned, and you will eat the entire cost.
Because a certain percentage of projects are just bound to fall through, this is an important factor that all contractors must consider as they bid for jobs.
“Being able to be proactive and have more control over the process is helpful,” Brown said. “Our firm has an advantage in that we are both the designer and the builder. In many cases, we can lock in pricing during the design phase of the process. On long lead items (things that must be ordered well in advance) it is important to constantly know what the market is doing so you can respond accordingly in your bids.”
What can we learn from this information?
Coverage reviews and knowledge are more important than ever! Construction costs are 30%+ higher, and they will not come back down. It is imperative that you review the coverage of your building to ensure it is adequate to replace your property in the event of a total loss. (Remember, Brotherhood Mutual offers “Broadened Valuation,” which is an affordable settlement option that gives up to 125% replacement cost in the event of a total loss-which provides against inflation).
Jobs are not being completed efficiently, so you must be proactive. A job that may have taken 6-12 months in the past may not even be getting started now until month 8. Brown stated, “you might bid everything out, but find out you are 40 weeks (about nine months) out on a material needed to start the project, which means you either need to find another means or material to begin, or you will be waiting.”
Have a Master Plan and be proactive in moving it forward. Ministry space is constantly evolving and changing. The spaces that were more “institutional” in the past are now being repurposed to create more meaningful connections in the present day. It is very healthy for a church to evaluate the space they are in so they can best utilize it at present and in the future.
In closing, I know we are beginning to sound like a broken record… “Inflation is having a massive impact on the construction industry.” I have typed that hundreds of times. It is a real issue. It is affecting coverage and driving up the costs of reinsurance, and your own coverage. While we hope this will end soon, we have not seen any tangible evidence that costs are reducing or even leveling off. In the meantime, we hope to continue to provide you with useful information that will inform you to stay proactive in keeping adequate coverage on your property. Check out their website at www.churchdevelopment.net.
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