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If you’re a facilities manager, you may have noticed a disturbing upward trend in your spend over the past couple of years. You’re not alone. After the mass closures caused by the pandemic in the second quarter of 2020 followed by reopenings and some major changes to the way companies operate, it’s logical to assume COVID-19 can be blamed for rising costs. But there are several other factors brewing below the surface. Altogether, these circumstances are creating the perfect storm for rising costs in facilities management.
Let’s take a look at how these factors are working together — to work against businesses. And more importantly, how you can get a handle on it.
Upward Trend In Facility Spend
The ServiceChannel Facilities Spend Index™ monitors commercial trade service costs and spending patterns based on $22 billion dollars in services delivered to 391,000 locations on the ServiceChannel platform. The Spend Index is an important report for facilities managers to keep an eye on so that you can find out where your budgets are growing faster than industry spending, assess the trends in your invoice costs against the Service Cost Index, and explore different markets by filtering by trades and regions.
Some highlights from the current report include:
- Spend is growing after recovery from pandemic lows – 33% increase in facilities spend YOY since 2020 Q2 shutdowns. Mid-way through 2021, spend is 15% higher than 2020 and 5% higher than 2019.
- Costs have been rising – Overall service costs nationwide were 9% higher in Q2 2021 than a year earlier, driven by an 11% increase in material cost.
- Cleaning spend remains elevated due to pandemic – Janitorial spend was 15% higher in Q2 2021 than Q2 2019.
Industry Specific Findings
Spend in the HVAC trade varies seasonally, with peak seasons in the summer and winter when systems are taxed. In Q2 2020, HVAC spend fell by 25% when businesses were shut down, but it has quickly rebounded. In Q2 2021, HVAC spend increased by 48% YOY.
While reopening businesses is one obvious reason for the increase, HVAC invoice costs have also increased by 5% annually since 2018 due to a 2% rise in labor rates and a 12% increase in material costs per year. As vendors’ costs have increased, those costs are being passed on to businesses.
Another interesting finding from the HVAC marketplace data shows that the top performing 25% of HVAC providers cost 62% less than those in the bottom 25%, and they arrive onsite 4 days sooner. This means that vendors that are able to keep costs down while providing better service will continue to be rewarded with more business.
Not surprising, janitorial spend has increased to meet the additional demand for cleaning to keep customers and employees safe during the pandemic. Janitorial spend peaked in Q4 2020 with a 24% increase YOY, and in Q2 2021 it was 15% higher than two years ago. Even more alarming, as the scope of cleaning changed and more frequent and deep cleaning was required, the cost of janitorial services rose by 85% YOY in Q2 2020. The amount spent on cleaning materials, like disinfectants, more than doubled.
As janitorial companies are forced to hire more employees, pay premium wages for essential workers, and purchase additional cleaning materials, these costs are passed on to businesses that use their services.
Plumbing is one trade that tends to see relatively steady trends in spend and invoice costs. The exception is with rising labor (+4%) and material costs (+6%), which have resulted in a 2% increase in plumbing service costs annually since 2018. Nationwide plumbing spend was 1% higher in Q2 2021 than two years ago, but 42% higher YOY due to businesses reopening post-pandemic.
Similar to the data for HVAC vendors, the top performing 25% of plumbing providers cost 38% less than those in the bottom 25%, and they fix issues on the first visit five times more often. Businesses value reliable, affordable plumbers.
The electrical trade also tends to stay relatively steady, but it was the hardest hit during the Q2 2020 shutdowns with a -41% decrease in spend YOY. After reopenings, electrical spend nationwide grew by 63% YOY in Q2 2021. However, spend remains 4% lower in Q2 2021 than two years earlier.
Similar to other trends, marketplace data found that the top performing 25% of electrical providers cost 37% less than those in the bottom 25%, and they arrive onsite over 4 days sooner.
If you perked up at those stats about the top performing providers having lower costs while still providing better service, consider looking at your client terms to see if they’re affecting your service levels. For example, if you have two calls today with different vendors, and you’re paying COD or NET 15 on one, and NET 45 or NET 60 on the other — which vendor is going to provide you with better service? Take a look at your terms and see if you can negotiate more favorable rates and service if you’re able to pay faster.
Factors Contributing To The Rising Cost Of Facilities Management
Now that we’ve explored rising trends in costs and spend, let’s take a look at the driving factors behind the increases.
Increase In Raw Material & Labor Costs
The cost of construction materials and labor indirectly affects businesses – even routine maintenance calls may be more expensive with wiring or screws costing more to manufacture. Additionally, more than 300,000 construction jobs are unfilled due to the increase in demand and the lack of skilled labor. On top of that, President Biden’s $2 trillion American Jobs Plan is putting additional strain on materials, construction, and labor costs. The result is that contractors are forced to pay a premium for skilled workers and pass these higher costs along to businesses.
When it comes to the cost of raw materials, everything is on the rise:
- Oil – Oil prices have increased 80% since Oct 2020. Oil is essential to construction projects, from the manufacture of construction materials to transportation and equipment operation on job sites. Crude oil prices could continue to rise throughout 2021 as Americans resume pre-pandemic practices like travel.
- Steel – US steel is 70% more expensive than global prices, but inventory and shipping challenges make importing difficult, even though it would still be cheaper to buy steel from China or Europe despite the 2018 steel tariff.
- Copper – Copper prices reached a 10 year high in Q1 2021, and copper will be in even higher demand as we move toward green energy and electric transportation. Many construction materials include copper, including pipes and wires, so plumbing, electrical and HVAC trades are all affected by the increasing cost.
- Lumber – Lumber prices are also at an all-time high. Construction prices are more than twice the price in 2021 versus 2020. There are many factors driving the increase, including reduced output from US lumber mills, the 2017 lumber tariff on Canadian imports, and the increase in demand for both residential and commercial construction.
Increase In Construction Employment Demand
According to U.S. Bureau of Labor Statistics (BLS) data released by Associated Builders and Contractors (ABC), it’s estimated that construction companies will need to hire 430,000 workers in 2021 to keep up with demand. The same data found that construction’s seasonally adjusted average hourly wage was 7.7% higher than the private sector’s hourly wage. This means that now is a great time to get into a career in construction!
With more than 7 million people still unemployed in the US as of September 2021, this should come as great news. But a significant amount of time, money, and resources must go into recruiting, educating, training, and upskilling new and existing workers. When contractors have to pay more for skilled labor, construction prices are naturally going to go up.
What does this mean for business’s facility maintenance costs? In the near term, routine service and maintenance may not be affected, but new construction and remodels may be delayed and/or more expensive. Another side effect could be trade workers leaving their current positions for more favorable jobs. This could leave electrical, plumbing, HVAC, and janitorial vendors short-staffed and forced to compete and pay premium wages to attract new employees.
Decrease In Skilled Trades Workers
In addition to higher material and labor costs and an increase in construction demand, tradespeople are rapidly aging out of the workforce or retiring due to burnout, resulting in a decrease in skilled trade workers.
The 2021 Skilled Trades Report from Angi contains some really insightful information and statistics around this key factor contributing to rising facility management costs:
The median age of skilled tradespeople is 43, about 10% older than the general population. Additionally, 27% of tradespeople are within 10 years of 62, the official social security retirement age.
Older trade professionals often have an established base of customers with pricing that’s been grandfathered in and stagnant for years. As younger generations enter the field, they are demanding higher wages and raising rates to be more in line with industry standards.
Older Entry Age
Of the aging trades workforce, 33% joined the trades between the ages 16 and 20, while 18% joined between the ages of 25 and 30. For people entering the trades today, that ratio is flipped: only 7% are joining between the ages of 16 and 20, while 35% are joining between the ages of 25 and 30.
Why the shift and what does it mean for the trades workforce? College. There has been a 60% increase in college enrollment since 1980. When inflation is taken into account, the two- and four-year collegiate costs have risen more than 300% over those years. With a growing number of people enrolling in college straight out of high school and college becoming more expensive, the number of skilled tradespeople is decreasing at the same time that students are taking on massive amounts of debt.
Many graduates find themselves in their mid-20s facing a dismal job market for their specialty and no way to repay their student loans. When a philosophy degree can’t pay the bills, many turn to the trades, hence the older entry age. The challenge with this is that they have less experience, and are often making less money, than their counterparts who started a trade career between 16 and 20.
A Concerning Labor Shortage Continues
Compared to a year ago, 77% of tradespeople view labor shortages as a problem, up from 71%. The shortage is worsening and the squeeze is being felt beyond the bottom line. Business owners cited four areas where the labor shortage is impacting their business: slowing growth (30.2%), less time for family and time off (30.1%), having to turn down jobs (29.7%), and decreasing revenue (26.7%).
As a result of this, 68% of companies have had trouble hiring skilled workers, and 33% of those said they simply could not find employees to fill open positions. Of the businesses that are either somewhat or extremely understaffed, 48% said they could not find employees to fill open positions, and 35% said the people they did find did not seem suitable.
The challenge with the aging workforce and shortage of skilled workers is that businesses are going to feel the crunch in terms of higher facilities management costs. A facility manager who’s used the same HVAC company for 15 years may suddenly find themselves searching for a new vendor and experiencing sticker shock in the process.
The Solution? Streamline & Automate Facilities Management To Save Time & Money
It’s one thing to acknowledge the problem of rising facilities management costs. It’s another to attempt to solve it. As a facility manager, you have no control over the labor shortage or the cost of raw materials.
What you DO have control over is which vendors you choose to hire. But the reality is that it’s time-consuming to call every commercial plumber in your zip code, get and compare quotes, vet the company, and go through the hassle of setting them up as a vendor. Then when you need service, you hope they aren’t short-staffed and can honor your service agreement in a timely and affordable manner.
There’s a better way.
A national facilities management company, like Trillium Facility Solutions, has high-volume contracts with vendors that enable us to get more favorable rates for the hundreds of businesses that we work with. We work with both large, national vendors as well as local mom-and-pop shops. Our goal is to match your business’s needs with the best service provider, at the best price, when you need it.
Most importantly, we do everything on your behalf. We find and vet vendors, negotiate rates and client terms, and schedule service for you. At the end of each month, you get just one invoice from Trillium and we handle payments to vendors.
And, the convenience and financial benefit goes both ways. When providers join our nationwide network, we help them grow their businesses without incurring sky-high marketing or advertising costs. We keep them busy, their employees are fulfilled, and in turn they feel less impact from rising costs and a sluggish workforce. They’re better able to keep their rates stable while continuing to provide excellent service.
You save time, money, and resources. Your facilities management needs are handled and you have a dependable company on call 24/7 to get any job done. Instead of stressing over the rising cost of facilities management, you finally have a handle on it when you partner with Trillium.
Find out why more businesses are trusting their facility management services to Trillium Facility Solutions. Get in touch with any of our amazing team members who are standing by ready to serve! Call (844) 818-5713 to learn more.