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Construction Association Cautions that New Buy America Rules Will Only Add to the Pain by Limiting Contractors’ Ability to Bargain on Pricing for Federally Funded Infrastructure and Building Projects

The price of materials and services used in nonresidential construction jumped 12.6 percent in September from a year earlier despite a dip of 0.2 percent last month, according to an analysis by the Associated General Contractors of America of government data released today. Association officials note that the construction industry was suffering the most from inflation, adding that new Buy America rules set to go into effect as soon as next month will only make the situation more dire.

“Today’s price report shows that costs for construction continue to outpace those of other industries,” said Ken Simonson, the association’s chief economist. “Furthermore, the steep runup in diesel prices in the last few weeks is likely to make projects still more expensive to complete.”

The producer price index for inputs to nonresidential construction—the prices charged by goods producers and service providers such as distributors and transportation firms—decreased 0.2 percent from August to September but nevertheless rose 12.6 percent since September 2021. That outpaced the 8.5 percent year-over-year rise in the overall producer price index for finished goods, the economist noted.

Retail diesel fuel prices soared by 39 cents per gallon in the past week, bringing the year-over-year increase to $1.64 or 45.7 percent, Simonson added. He said construction is especially sensitive to diesel costs, because most projects require thousands of truckloads to deliver equipment and materials and to move or haul away dirt, debris, and equipment at the end of project.

Prices of several widely used goods posted double-digit increases over the past 12 months. The producer price index for diesel fuel leaped by 65.9 percent including 11.7 percent in September. The index for liquid asphalt, used in paving projects, jumped 43.3 percent despite an 11.8 percent decline last month. The index for paint and other architectural coatings rose 27.2 percent over 12 months. There were also unusually large year-over-year increases in the price indexes for gypsum products such as wallboard, 18.4 percent; plastic construction products, 17.9 percent; truck transportation of freight, 16.3 percent; asphalt and tar roofing materials, 15.3 percent; concrete products, 14.3 percent; insulation products, 13.4 percent; and flat glass, 10.3 percent.

Association officials urged the Biden Administration to reconsider plans to implement a series of new Buy America requirements associated with a host of federal infrastructure investments. They noted a recent survey of member firms showed most contractors will struggle to find materials under the new Buy America guidelines. With materials hard to find and prices continuing to spike, artificially limiting the supply of goods will only undermine the buying power of those new federal infrastructure investments, they cautioned.

“It stands to reason that further limiting the supply of already scarce materials will lead to even more inflation in the cost of those materials,” said Stephen E. Sandherr, the association’s chief executive officer. “Imposing new Buy America requirements at a time like this will undermine the potential benefits of new federal infrastructure investments.”

View producer price index data.