Almost since the pandemic first began, supply chains have been thrown for a loop, causing delays and driving up costs for many businesses and consumers.
Inflation has compounded the economic consequences of disrupted supply chains, sending costs even higher.
From January 2021 to January 2022, the consumer price index, an inflation metric that measures how much consumers pay for goods and services, rose 7.5%, the largest 12-month increase since February 1982, according to the U.S. Bureau of Labor Statistics.
As gas prices grip the attention of La Plata County residents, the county and city of Durango face sustained challenges from supply chain and labor disruptions and inflation. All three are driving up costs and extending lead times, in some cases forcing the delays of planned projects. With no end in sight, the two governments are adapting by building time into their operations and postponing projects or shrinking their scope. All while keeping a close eye on their budgets.
“There’s been huge price increases in asphalt. There’s been shortages in certain materials in piping and plumbing. (The obstacles) vary a bit from project to project, but they all have multiple challenges with the current economy and business environment that we’re in,” said Jennifer Holland, capital improvement program director for the city of Durango.
Across the board, supply chain disruptions have affected nearly every city project and many city operations.
Piping materials that previously took two weeks to order are now taking six to 10 weeks. The market for vehicles has been nonexistent as the city tries to replace patrol cars in its police fleet. The vehicles the city can order are weeks behind schedule.
“We’ve got to order a bunch of new police (Chevrolet) Tahoes this year because a lot of them are ending their useful life cycle and there’s none to be had. The cupboard is bare,” said Jarrod Biggs, assistant finance director for the city. We’re just really struggling to get delivery on vehicles and then lead times on everything are long.“
Upended supply chains are even affecting previously simple purchases such as curb stops and fire hydrants. For one of the city’s piping projects last year, fire hydrants were delayed past the end date of the project, so Holland and the city had to substitute stocked supplies from the Public Works Department while they waited for their order.
“For maintenance purposes, what we have on stock is our standard,” she said. “We really don’t want to accept substitutions. But sometimes we have to, and we did encounter some of that last year.”
Supply chain problems have cropped up for La Plata County as well, with significant cost increases and lead times that threaten to delay projects for months.
Like the city, the county’s Capital Equipment Replacement Fund has had trouble acquiring vehicles and parts to complete routine maintenance. Lead times for HVAC units and other equipment now run anywhere from eight to 12 weeks. For roofing supplies, the county must confront eight-month delays.
“Even little things like doors from Home Depot are eight weeks out where we used to be able to pick them up there in stock,” said Lee Gurule, director of general services for La Plata County.
Supply chain delays and limited equipment have boosted prices for critical supplies.
In 2021, La Plata County budgeted $1.38 million for a 6,000-square-foot storage facility the county is building for the Sheriff’s Office. In its 2022 budget, after spending an estimated $101,000 last year, the county raised the price for the facility to $1.51 million.
The cost of steel for the project has increased 30%, Gurule said.
Supply chain disruptions have forced the county to reconsider the timelines for many of their projects. With roof membranes and insulation in short supply, contractors have told the county that roofing projects could be delayed eight months.
“We’re not sure we’re going to be able to do them because that’s going to put us right in the middle of winter,” Gurule said. “Even if we get them on the street now, I don’t think we’ll be able to complete them this year and we’ll probably have to push them into next year.”
Labor shortages have compounded supply chain disruptions and hampered construction projects for the county and the city, though both governments have found enough contractors bidding on their projects.
“A lot of the subcontractors are having a lot of trouble finding help, so they’re strapped,” Gurule said. “They’re wanting to take on additional work, but they’re having trouble finding the labor to be everywhere at the same time.”
So far, the county has largely been able to find bidders for its projects amid labor concerns. Last year, Gurule had only one concrete project in which the county received no bidders. However, many of the county’s current projects are smaller in scope and few require intensive labor.
“We’re doing OK because we don’t have any big projects,” he said.
Biggs has also been following the labor market and its effects on the city’s bidding process. Disruptions have been few, but he has noticed fewer bids for projects that require more labor. With limited options, the city has pursued contractors beyond Durango for some of its projects.
“I think some of our labor-intensive projects like concrete work we aren’t necessarily getting as many bids,” he said. “At the same time, we’re also trying to cast a wider net for firms that might come up from Albuquerque or down from Denver.”
While both the county and city have found sufficient suitors, Biggs said that could change as the year progresses. Contractors are lining up their schedules for the year, but with limited labor, city projects that go out for bid closer to the summer may find few companies that have the capacity to take on additional work.
“I haven’t seen our bids coming in where we aren’t getting any, but I think that may change, particularly as we go through the year,” he said. “Right now, most construction firms are filling their summer dance garden. But if we keep going and they’re out of labor and they can’t afford to hire another crew, maybe they’ll pass on some of our other things that come down the pike later this year.”
Even with contractors in place, limited labor and inadequate supplies are already causing project delays for the county. Some of the projects the county has found contractors for cannot be completed these year while others will have to be pushed to the fall.
“We’ll definitely have to roll some over into next year,” Gurule said. “We’ve got a lot of the projects contracted, but it looks like mainly everything’s going to start in September (and) October.”
When the county prepared its 2022 budget last year, it did so factoring in inflation at 3.5%, according to an email from Adam Rodgers, director of finance for La Plata County. But inflation now stands at 7.9%, according to the U.S. Bureau of Labor Statistics.
“With all the American Rescue Plan Act, infrastructure and omnibus bills, there are a lot of dollars and projects across the nation chasing a limited labor market and resources,” Rodgers said in an email.
The county and city have seen project costs swell as inflation has further worsened supply chain disruptions and labor shortages. In addition to steel costs increasing 30%, the county has seen all of its construction and maintenance work increase 15% to 20%, Gurule said.
“We’re seeing fairly modest but consistent price increases,” said Allison Baker, director of public works for the city of Durango. “One of the concerns is obviously going into paving season what asphalt prices will be because those are so reliant on petroleum-based products.”
For the city and county, rising road repair costs are a particular concern given the annual cycle of street construction and the effects of inflation on energy prices.
According to the U.S. Bureau of Labor Statistics, energy prices have increased 25.6% over the last year, with energy commodities, which include oil, natural gas and other petroleum products, rising 37.9%.
Energy prices have sent the cost of asphalt climbing. Asphalt cement prices in Colorado have grown from $401.61 per 2,000 pounds in February 2021 to $506.38 last month, about a 26% increase, according to Colorado Department of Transportation data.
“(Inflation) does drive costs of a lot of our projects,” Biggs said. “Asphalt is a really good case … the variability makes it really challenging to budget. If we say, ‘I think we’re going to spend $10 this year and that’s based on a long history, a jump like that of a good 20 to 28% really will make us have to come back to the drawing board.”
The city has tried to build some flexibility into its project budgets and factor in the effects of inflation, but the city’s Capital Improvement Program is still preparing for cost increases to surpass the higher inflation accounted for in this year’s budgets.
“We’re estimating (costs increase) at least 10% and we built a lot of that into our budgets for this year,” Holland said. “We did some piping projects last year, we know what we spent last year, and we’re adding 7 to 10% onto those before going into these projects. We built in what we thought we could, and we are looking at hopefully just making minor changes to scope if need be if we didn’t build in enough.”
Paring down the scope of projects is one way the city hopes to mitigate the effects of inflation and supply chain and labor disruptions. The city’s capital projects also have contingency built in their budgets in case their initial designations are insufficient amid rising costs.
If costs continue to rise, the city will consider postponing work until next year, Biggs said. For critical projects that must be completed in 2022, city staff members will have to approach City Council for additional appropriations later in the year if costs exceed budgets.
“We’re certainly hoping that our bids come in lower than our budget and then we have some money to work with. That’s the way we normally go about it,” Holland said. “This year if we did not build enough into our inflation, we might need to dip into that contingency for the added costs and make sure we don’t allow any changes.”
For now, Baker and Durango’s Public Works Department are concentrating on being proactive to limit the chances of price spikes or supply delays.
“So far, it has not impacted any of our schedules, but we’re looking to do advance ordering on items that we’re aware may be long lead items,” she said. “We’re trying to jump ahead of that curve and be ordering what we need a month from now today.”
La Plata County’s advanced preparations have also mitigated some of the effects of inflation and supply chains. The county began preparing for the sheriff’s storage facility in 2021 and the project is on pace to finish sometime in August, Gurule said.
The county also has fallbacks as it attempts to adapt to the current economic climate, including higher rates of inflation calculated into some project budgets and the options to delay, scale back or suspend projects. As with the city, contingency will serve as a last resort for critical projects.
“We haven’t had to dip into that yet, but there’s a possibility we may have to ask the board to dip into contingency,” he said. “Either that or we’ll have to try and use cost savings off some of the other projects or possibly projects that we don’t complete.”
With few signs that costs are slowing and delays shortening, the county and the city continue to brace for the impacts of inflation and supply chain and labor disruptions while maintaining optimism that trends will change.
“I saw a very hopeful sign that oil had dropped below $100 per barrel,” Baker said. “That’s a promising sign but it’s not yet a long-term trend, so we’re still going to err on the side of caution for the time being.”
ahannon@durangoherald.com
