Building our infrastructure in regular times is hard. But, in this new volatile world, it’s like the heat is on, stakes are higher, and conflicts are easier. Our guests include:
- Phillip Sexton, Capital Projects Director, with North Charleston Sewer District
- Mack Harmon is with Ferguson Waterworks
- Justin Jones is a Preconstruction Engineer with Harper General Construction
Transcript
Robert Osborne:
I know you’ve been probably saying the why question. Right? You know the question. Why is chicken so hard to find right now? Why is this item suddenly out of stock? I stopped by our local Ford dealer a couple weekends ago, and the salesman just laughed. They had three vehicles on the lot, all of them spoken for. He says they have no idea when or how many vehicles each week will show up. This is crazy times, my friends. Welcome to season four of The Outfall, where we share the backs stories of our water world. This is Robert. We’re excited to be back for our first episode of the season. We peer into the world of how water and wastewater projects are getting built. This is a world that’s usually hidden, and most folks don’t recognize how hard it takes to get all our infrastructure built. In the normal world, how projects actually get built is amazing.
Robert Osborne:
It involves multiple entities, such as suppliers, engineers, contractors, all working together in this volatile world. It’s like the heat has been turned up. The stakes are higher and the conflicts are easier. We’ll discuss it all in this episode. Enjoy. So last year Mac and Justin did a fantastic job walking us through why pipe costs were increasing. Justin Jones is a pre-construction engineer with Harper General Construction and Mack Harmon is with Ferguson Waterworks. We knew we had to get them back. Plus, I wanted to play their future prediction back to them they made last year.
Mack Harmon:
Sure. I would hope that once we get through hurricane season, if we make it through, I’d like to think by the end of the year, supply will start to catch up to some of the demand and you may start to see a correction eventually, just comp-
Robert Osborne:
All right, I’ll stop there. I know that was brutal, Mack.
Mack Harmon:
Boy, was I wrong.
Justin Jones:
Right out of the gate he’s firing you with that.
Robert Osborne:
You’re like, I thought this was an easy podcast.
Mack Harmon:
Oh man. Yeah, no. No such luck.
Robert Osborne:
All right. So tell us what’s going on.
Mack Harmon:
It certainly hasn’t gotten better. A lot of what we talked about a year ago, or it was last, I guess, about a year, really, it was the PVC was kind of starting to have some issues in COVID, was causing shipping shortages. And it was really supply chain. Logistics were causing issues for material shortages and the PVC market was really kind of going nuts. But man, now it’s really everything. Certainly did not correct by the end of the year last year and I certainly wouldn’t give that answer again. I don’t think it’ll be cleared by the end of the year this year.
Robert Osborne:
Wow. So what’s driving this?
Mack Harmon:
Well now it’s really everything. PVC has actually gotten a little bit as far as availability the whole resin issues that we were facing and the COVID shutdowns that were causing delays, all that has kind of passed, but we still have had increases. The price has gone up significantly since we talked a year ago on PVC, but the other markets have just been hit so hard with demand. Right now I think that the supply chain is starting to get a little bit healthier, people are making materials as fast as they can, but demand has continued to be at record breaking levels.
Robert Osborne:
Justin, what are you seeing?
Justin Jones:
It’s the same story. As Mack mentioned, it’s really demand on our end. It’s a blessing for us. We see tons of projects coming out and in the pipeline for coming out in the future, which is obviously what we want as a contractor. We want to see tons of projects and construction jobs coming down the line. But what’s happening is because there’s so much work out there, you just can’t get pipe on site. And like Mack mentioned, price is one thing that’s continued to go up. But from our perspective, it’s really the lead time that’s the biggest challenge because it used to be you’re ready to go start a Greenfield water plant, let’s say.
Justin Jones:
First thing you’re going to do is duct line pipe. So anything under concrete structures, you’re going to put that pipe in first. And if the lead time on duct line pipe is 32 weeks, sometimes longer for certain fittings and certain types of pipe, you really can’t start your project with pipe anymore. You’ve got to go find other scopes of work that you can work on at the beginning of the job to keep it moving and try to meet the ultimate goal for the project and not just push the start date back in alignment with equipment and pipe lead times.
Robert Osborne:
What’s been the biggest surprise? Obviously the future didn’t pan out like what we thought it was going to do a year ago, but what’s sort of been kind of a surprise for you? You guys are in it every day, but what’s the biggest surprise? Maybe start with you, Mack.
Mack Harmon:
I think the demand is a big surprise because the pricing has gone up significantly on virtually everything from a year ago, 30 to 40 plus percent since a year ago. So we were talking about pricing a year ago and now it’s continued to go up. So the demand has not slowed though. So that’s a little bit surprising. And the way that the relationship between manufacturer, distributor, contractor has evolved has been a little bit surprising in good, positive and negative ways. Lead times is such a huge thing right now. It’s trying to manage the project, trying to get the material. That is really the number one focus. So Justin’s correct in saying that price is one thing, but we all know that pricing is high, so let’s accept a high price and now let’s focus on lead time.
Mack Harmon:
Well, the problem is that most manufacturers are going to a point now where they reserve the right to institute an immediate increase or an added surcharge or reserve the right to price your product at the time of shipment. So now you’ve met the demand, but we are still facing this pricing issue where now we’ve had it on order for 25 weeks. We’re 25 weeks in, we’re still waiting on our product, and hey, all of a sudden we just got an increase that’s being forced on us. So that’s been a little bit surprising, but it’s opened us up to make sure that we are working with the Harpers and our contractors and to make sure we’re all covered.
Mack Harmon:
You still want to be competitive in your quotes and the way you approach trying to get work, but you have to protect yourself knowing that, hey, the final owner, whether it be a municipality or a private company may not accept an increase. And if that’s the case in a volatile market like this, it’s a little bit of a moving target when you price a job. We got to go in trying to protect ourselves, but we really don’t know what that final cost is going to be almost until it ships.
Robert Osborne:
Let’s take a break here and get a utility perspective. And for that, we talked to Phillip.
Phillip Sexton:
My name is Phillip Sexton and I’m the Capital Projects Director for North Charleston Sewer District.
Robert Osborne:
He has also been on the front lines figuring out how to move projects forward in this volatile world. In fact, he had told me a story, maybe it was a few months ago about the lengths they were prepared to go to ensure a project could move forward on time.
Phillip Sexton:
We were preparing to lease semis and use staff that has CDL and incentivize them and thank them for doing this, but send them over to Alabama to get the pipe, to deliver it here, and then return the trailers back to the manufacturer and then return the leased semis back to the rental agency. And so there was some additional liability insurance I think we had to get to be able to do that, but right at the 24th hour, they were able to find drivers for us and to deliver the material on time. But we were preparing for the worst, I guess, by coming up with some alternative planning. And Robert, I share that story with you because that was another example of how we in this utility in this industry are kind of having to think outside the box when it’s in the current market when it’s trying to meet project deadlines, project schedules and keep everything on track.
Robert Osborne:
Phillip was thankful for one fateful decision in 2016, that helped his utility the most in the past two years. This is proof that resilience can come in all shapes and sizes.
Phillip Sexton:
I was going back and thinking, was a decision we made back in 2016 to build a completely separate standalone warehouse for our utility. And I’m really glad that we decided to pull that trigger and fund it and stock it starting from 2017, because one of the reasons why we were able to weather the storm for the last couple of years is because we had done an analysis from a resiliency standpoint to identify what are the key materials that we need as a company to maintain collection and conveyance and treatment of flow. And luckily, thankfully for this warehouse, we had a lot of materials on hand. So we could put something in the field really quickly and respond to real time problems and then wait for it to be backfilled, so to speak, with the long lead times. And that got us by for the most part. But that was definitely something that I wanted to share.
Robert Osborne:
Of course, I had to ask everyone how they saw the future unfolding. What do you think they said? Let’s start with Philip.
Phillip Sexton:
Well, I think in the next two years, unfortunately, we’re not going to really see the needle move a lot. I really don’t. I think some of the problems that we’ve seen will start to regress to a certain extent, but I think we’re still trying to get our feet underneath us from 2020. I think whether or not we go into a recession, that’s definitely the topic right now with inflation and everything. That could exacerbate the problem that we’re already seeing. So I think for us, again, from the sewer district standpoint, we’re taking a conservative approach to timelines, to when things can realistically get done. Because I wouldn’t go as far as to say, this is the new normal by any means. And just trying to define normality is a bit of a frustrating task anyway, but I think we will start to return back to a pre-pandemic maybe in two or three years, but there are going to be another two or three years of volatility from a supply standpoint.
Phillip Sexton:
Because I think a lot of us, what we understand now is just how fragile that supply chain really was and, or is. And it doesn’t take a whole lot to throw it out of balance. And then to get it back in balance takes a lot of time and patience and money. And speaking of money, the federal funds that are being reviewed up in DC to be dispersed, I think that’s great. I think that’s a long time coming, but I think as well, that may exacerbate some of the problems because what it’s going to do is that utilities like us are going to try to apply for some of those funds. And if we get it, then we’re going to move projects up in our timetable. So what you’re going to do is you’re going to take a problem and kind of light it on fire to a certain extent, because now you’re going to try to get even more done with the same problems existing with no real solutions. Or no quick solutions, I should say, not no real solutions.
Mack Harmon:
In all honesty, I think we’re in the same boat. I really do. I think that we’ll be dealing with supply chain issues. There’s a lot going on in the world right now with inflation and the price of fuel and wages and the conflicts between Russia and Ukraine and other unknown factors going on overseas and variables in the market, and the demand levels staying consistent in the United States, which is great. Again, it’s great to have that demand, but there really has not been a fall off. And so right now there’s no way for these suppliers to keep up. So I think that a year from now the conversation will be pretty similar.
Justin Jones:
Mack, you mentioned demand staying the same. The government pumping out a bunch of funding to infrastructure projects is, like you said, a blessing, it’s great for us, but it’s going to keep the demand as high as it is right now. And I could see that going through the funding processes before everybody really gets their money, goes through design phases. You’re a year, two years, three years potentially of the continued influx of money into the economy in our area specifically. So the demand’s not going to go down. What I will say from a contractor’s perspective is the change that you’re going to see is a reliance on alternative delivery methods for projects.
Justin Jones:
Basically finding ways to combat those long lead time items. And that could be working with engineers to try to design the piping arrangement or the site piping for a project to the 100% stage when the whole rest of the job’s at 50%. But if we get the pipe at 100%, we can go through a pricing effort early, go ahead and get that on order while the whole rest of the project’s being designed. And then we reach the end of design and pipe’s already showing up on site. So what you’re going to have to do is just work as a team to buy materials earlier in the project process. And that’s one of the only ways that I’ve seen to successfully combat what we’re dealing with, with these lead times.
Robert Osborne:
Maybe the lesson here from Mack, Justin, and Philip is not to focus on the why question, like why is this material costing so much, but focus on the how and the what’s. How are we going to still do this? How are we going to still build this? What are our options? These questions aren’t made alone in a small office. These questions demand connection with others, a combination of talents, and above all, collaboration with others to build in this volatile world.
Phillip Sexton:
I think that whether or not you go through a local supply house or vendor, or you buy directly from a manufacturer, that connection is a lot stronger than you may have thought. So for example, I kind of default back to the pipe supplier in Alabama for us. We had very specific types of pipe that we were calling out on this project. We were working with the vendor that we purchased it through. We had multiple teleconferences and web conferences to discuss the challenges of the facility just from their side. And so that really was never done, I guess. Most of the conversation was held with whoever you work with directly, whether or not they were a third party or an intermediary. So that’s kind of what I took away, was that I think those folks were much more open to the dialogue and to people like us saying, “Hey, kind of where are you at? We’re trying not to bug you, but we kind of need to know” and kind of talk and be open to alternatives when it comes to that supply chain.
Justin Jones:
One of the benefits that I’ve seen in our industry specifically is the understanding of different groups of people from suppliers to contractors, to even owners and engineers adapting and dealing with these issues. It used to be you put together a schedule and if you don’t meet the schedule, then the contractor usually takes the fall. And a lot of times, if we’re not getting the supply we need, we’re trying to push that fault onto suppliers. And that’s just a game that nobody wants to play, and you can’t really play in this world, because everybody’s going to go out of business if you do that. So the benefit that’s come out of this, I guess, is the ability to adapt as a whole project team. Everybody’s aware of what’s going on, and everybody’s accepted it.
Justin Jones:
And now it’s how do we find the right solutions to prevent delays, to deal with delays when we know they’re inevitably going to happen. And then ultimately portray cost changes to owners the correct way, making sure they’re aware that we have their best interest in mind and we’re doing the best we can, but some of it’s out of our control, just like it’s out of Mack’s control. It’s the suppliers that make these decisions and there’s nothing we can really do about it, but, but talk through it as a team and work through it to find a solution.
Robert Osborne:
Well said. Special thanks to Justin, Mack, and Philip for joining us on our first episode of season four. David, Amy, and I have been busy interviewing and working on different stories that we can’t wait to share with you. Thanks again for listening to The Outfall. As always, we love to hear your comments. So if you enjoy our podcast, please help us. Subscribe on your favorite podcast player and share the podcast with a friend. We’ll see you next time.
