Between a rock and a hard place

Cost increases have dominated the headlines the last several months, with glass and metal suppliers upping prices in response to rising raw material and operating costs. Add skyrocketing aluminum prices and steadily increasing labor and fuel costs to the mix, and you have downstream contract glaziers and retailers feeling the price pressure. A competitive bidding environment and still shaky construction market compound the problem, making it difficult for glass companies to pass increased costs onto customers.

"Material suppliers seem to have absorbed a lot of hits in the first year or two of the downturn, and they can't afford that many more. Prices [for materials] are going to stay up higher," says Rick Hamlin, executive vice president, national estimating, system design, Trainor Glass Co. "However, the end client still wants to get the best number for a project, and the glazing contractor is going to get squeezed."

At press time, the Bureau of Labor Statistics Producer Price Index for all construction materials had risen 7.5 percent since May 2010, with the price of finished buildings rising only 1.8 percent over the past year, depending on building type, according to the Associated General Contractors of America. "New cost pressures bubbled up in May, even as prices moderated for a few items," said Ken Simonson, the association's chief economist, in an AGC release. "Meanwhile, contractors have largely held the line on their bids in order to win work, while demand for construction remains tepid at best."

Passing the buck

"We have been in this down economy for two years and have gotten past the point where we can absorb [cost] increases," Hamlin reports. However, passing on increased costs to customers is a difficult strategy, due in large part to low-bid competitors, glass company executives say.

"We are experiencing increased material cost, operating cost and labor cost, but due to the low volume of work to bid on, it appears that the successful bidder has not incorporated the [cost] increases into their bid," says Denny Hilboldt, president, Hilboldt Curtainwall Inc. "We have not followed suit. We have hung on to the old adage, 'Having no job is better than having a bad job.' Our bids have been based upon 2011 costs, resulting in a low backlog."

Hilboldt expects the pressure from low bidders to continue. "For the time being, until there is an increase in the volume of work to bid on, prices to the owner will be suppressed," he says.

According to Rod Van Buskirk, president, Bacon & Van Buskirk, low-bidding competitors are increasing the pressure more than manufacturers and fabricators. "Sharp companies understand profits feed growth, so they listen to their market and maximize profits whenever they can. Other companies ... pay no attention to their profit potential or their increasing costs of doing business," he says.

Contract glaziers and retailers are also under pressure from the end customer, who continues to demand low pricing on nonresidential and residential projects. "There is a natural pushback by our customer and his customer," says Bill Enderle, senior estimator, Key Glass. "The [general] contractor can't pass [cost] increases on to the owner, so we don't get to pass them on."

Ray Adams, president, Coastal Industries, says he's feeling a similar pushback in the bath enclosure market. "Our customers are being asked daily by the homebuilders they service to [lower their bids]. In an industry that is going through the worst period since recordkeeping began, it is very difficult to get the increases needed to stay ahead," he says.

However, "Clients can only push back so much," Hamlin says. He and Van Buskirk keep their customers aware of material cost increases, as does Enderle. "Our customers understand what is happening," Enderle says. "The price increase is included in our costing, so our [bid] will cover it. We keep [customers] informed, so they know we need a commitment in order to lock in a price. They [then] tell the owner."

In addition to communicating cost increases to customers, contract glaziers, in particular, need to bid smarter. "We have tried to differentiate our bid by offering value alternatives," Hilboldt says. Glaziers also need to be precise and efficient in bidding, and in their work at the shop and on the jobsite. Companies need to have "very exact bidding and control of scope," Enderle says. "Make every task in the shop and on site as efficient as possible, and insist on the highest quality. We can only afford to do things once; there is no money to do it over."

Jeff Meyer, president, White Bear Glass, says that glass companies also need to "push the value of the material and our expertise" to help justify higher bids. "For a window job in a building ... the windows won't be changed for 50 years, while the carpet will get changed eight or nine times during that same period, and the paint will be re-done several times. We don't put the value on the fact that our products are great and last a long time. We only have one shot to supply our materials on most projects