Nickel Moved and Your GC Looked at Steel
You bid 316L in March, bought it in July, and the escalation answer came back pointing at a carbon steel index that never budged.
An electrician fighting about copper is fighting about a slice of his contract. On exotic-alloy work your pipe, fittings, and valves are 45 to 60 percent of contract value, and the index that governs them is a separate published number most GCs have never opened. A delayed notice to proceed stretches that exposure further, and your price doesn't change with it.
The size of it
A 10 percent surcharge move on a job that's half material is a 5 percent hit to contract value, which on the margins this trade runs is a third to half the profit on the job. The longest-duration work and anything with a slipping NTP absorbs the most of it.
Stainless is priced as a base plus a published alloy surcharge that resets monthly on nickel, chrome, and moly content. 316L contains roughly 10 to 14 percent nickel and 2 to 3 percent moly, so it tracks nickel, and nickel is up 10.6 percent over the last twelve months. Mill quotes on alloy pipe hold 15 to 30 days or ship at price in effect, while your lump sum to the GC stays exposed for 90 to 180 days. The surcharge is a line the mill publishes and controls, so there's nothing to negotiate, and when you ask for relief the GC reads a flat steel index and tells you material hasn't moved.
Three moves, in order
Step 04: Estimating system
The estimate maps one to one onto the job cost codes, so variance means something the day it appears.
What else costs process piping contractors money
The same mechanism in other trades
What process piping owners ask
Stainless alloy surcharge wrecked my margin between bid and buyout?
You bid 316L in March, bought it in July, and the escalation answer came back pointing at a carbon steel index that never budged.
What does it cost?
A 10 percent surcharge move on a job that's half material is a 5 percent hit to contract value, which on the margins this trade runs is a third to half the profit on the job. The longest-duration work and anything with a slipping NTP absorbs the most of it.
What do I do first?
Date-stamp every alloy quote inside the estimate and put the mill's expiration on the face of your proposal, with the surcharge shown as its own line.
What are process piping contractors supposed to be making?
Process piping runs 24% gross margin, 16% overhead and 8% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 1 point above it. The CFOS target is 11.5%.
Which part of the system fixes it?
The step is number 04, estimating system. The estimate maps one to one onto the job cost codes, so variance means something the day it appears. It comes from chapter 4 of CONTROL: The Construction Financial Operating System.
Everything on this page is something you can install yourself, andCONTROL is the order to do it in. If you would rather buy the finished result, SPM The Construction CFO does this work for process piping contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, run by the same author.
Wrote CONTROL, the 8 step system behind these figures. More about the author.