In 2026, a wave of price increases for building materials will sweep across the country, with cement, steel bars, waterproofing, and ceramic tiles all increasing one after another.
Many contractors complained that when they signed the contract, they were expected to make a profit, but when they completed the settlement, they lost money. After working hard for more than half a year, all the money they received was used to fill the gap in the price of materials.
After visiting the building materials market and front-line construction sites, we found that most of the root causes of losses are not the low unit price of the main materials quoted, but the deliberate omission of three hidden costs in the quotation. In an environment where the price of building materials continues to rise, these three expenses will be infinitely magnified, directly eating up all the profits of the project.
Regardless of whether it is general contracting of industrial equipment, subcontracting of home decoration, or small sporadic projects, future quotations must be billed separately. If one item is missing, there is a risk of losing money.
In the second quarter, price increases for building materials have become normal: Asphalt has soared 53% year-on-year, driving up waterproofing materials by 3%-8%. Natural gas costs have increased. Major ceramic tile manufacturers in Guangdong and Shandong have successively adjusted prices. 800-size ceramic tiles have increased by 0.2 yuan per piece. Rebar has fluctuated upwards, and cement has increased by 30-50 yuan per ton. Electric wires, copper materials, and PVC pipes have increased in price simultaneously with bulk commodities. The increase in auxiliary materials has followed the increase in main materials.
In previous years, when the material cycle was stable, hidden costs could still be covered by the profits of the main materials. Now that prices are rising month by month, hidden expenses continue to rise. Missing items in the quotation means that there is a risk of loss from the start of construction.
Master Wang, a Chongqing contractor who has been working for more than 20 years, undertook the general contracting of a self-built house last month. The quotation only took into account the main materials and labor, ignoring three additional costs. In less than two months after the construction started, the general price of building materials increased by 7%. In addition to the occupied funds and secondary transportation, the project was completed at a loss of nearly 60,000 yuan.
The first item: Building materials price floating risk reserve (the quotation accounts for 4%-7% of the total price, must be listed separately)
This is the most core addition in the current price increase environment, and it is also the hardest hit area for most quotations.
Many construction parties follow the old habit of quoting in the past, locking the total price of materials based on the market price on the day of signing. The contract does not indicate price adjustment clauses. In the event of a unilateral increase in building materials, they can only bear the loss of the price difference.
General industry standards: 5% of the total cost is reserved for civil construction projects, and 4%-6% is reserved for home decoration and small tooling.
The purpose of this fee is divided into two points: first, to make up for the difference in price increase of main materials during the construction period. The monthly fluctuation of building materials can now reach 3%-8%. For projects with a construction period of more than 3 months, the 5% reserve is a good hedge against the regular increase; second, to deal with the premium for urgent purchases caused by temporary material shortages. During peak seasons, when goods are out of stock and temporarily adjusted, building materials generally have a premium of about 5%.
Practical suggestions: The quotation separately lists the “material price adjustment reserve fee”, and the contract simultaneously supplements the price adjustment clause. When the increase in the main material exceeds 5%, the excess will be borne by Party A, thus avoiding losses from unilateral price increases at the source.
Be careful not to agree on price adjustments verbally without written terms. There is a high probability that Party A will refuse to make up the difference during subsequent audits.
The second item: secondary handling of materials +
Logistics surcharges (the quoted price accounts for 3%-5% of the material cost)
Oil prices and short-distance freight have been rising year after year. Coupled with strict over-limit control in various places, the cost of direct delivery of building materials to the construction site continues to rise. Many old communities and suburban construction sites are unable to bring large vehicles into the site. Cement, sand, gravel, ceramic tiles, and pipes require tricycles and manual short-distance transportation. This expense can no longer be generally packaged into the cost of auxiliary materials.
In the past, the quotation defaulted to materials arriving directly at the construction site, ignoring secondary transportation costs. Nowadays, in old urban renovation projects, secondary transportation costs can account for 4% of the main material cost.
In addition, fluctuations in diesel fuel in the past year have driven up long-distance freight rates by more than 5%. In addition to price increases by manufacturers, additional logistics costs have increased year by year, and short-distance freight costs for scattered replenishment are even more hidden expenses.
Pricing method: Bulk civil construction projects will be charged an additional freight charge of 3% of the material cost, and home decoration and old house renovations will be charged at 4.5% of the total material price. The quotations will be marked in separate lines and will not be bundled into the unit price of the main materials, so as to avoid overspending on later transfers and no way to add money.
The third item: the cost of occupancy of advance funds (the quotation accounts for 3%-6% of the total cost, and the advance funds are added to the project)
Nowadays, it is common in the engineering market to advance funds for construction, and Party A settles the payment in batches according to the progress. The period from entering the site to purchase materials and receiving payment is generally 2-6 months. The contractor uses his own funds to advance materials and labor, and the occupied funds generate interest costs. This is a hidden expense that is easily ignored by novices.
The annual interest rate of bank operating loans is generally around 6%. If the capital is advanced for 3 months, the capital cost will reach 1.5% of the total construction cost. The construction period will be extended to half a year, and the capital cost will exceed 3%.
In the event that Party A delays settlement and defaults on the final payment, the cost of capital occupation will continue to accumulate.
Even if the full amount is paid in advance for small home decoration, there will still be a loss of working capital occupied by stocking up in advance to lock in prices, and a small amount of capital costs will also need to be accrued.
Charging reference: 3% of the total cost will be accrued for capital losses for fully paid projects, and 4%-6% of the advance fee will be accrued for staged payment projects. Note the capital cost description in the quotation. Party A’s unwillingness to bear can shorten the payment nodes and reduce the advance period.
Supplement to avoid pitfalls in quotations: Two additional small details to keep the final profit
1. Don’t save on reasonable material loss costs: after the price increase of building materials, the loss costs of ceramic tiles, cement, and pipes will rise simultaneously. The normal loss of ceramic tiles is 3%-5%, and the moisture loss of cement is 2%. The losses are marked separately, and the unit price of the main materials is not lowered to share the loss equally;
2.
The contract states the details of the price increase: if the main material category increases by more than 5%, you can apply for a price increase based on the manufacturer’s price adjustment letter and purchase receipts. All-in-one prices and closed contracts are prohibited. Closed quotations have a very low error tolerance in this round of price increases.
The price increase of building materials is no longer a short-term trend. The high level of energy and raw materials will affect the selling price of building materials in the long term. The quotation bid farewell to the extensive pricing in the past, and three new price adjustment reserves, transshipment surcharges, and advance capital occupancy fees are the current rigid rules for maintaining profits.
Old quotation templates are modified in a timely manner, and quotations for new projects are listed item by item. When quoting, it is better to quote a price that is reasonably higher than to gamble on the market by accepting orders at a low price and missing items. Once the market goes against the trend and rises, accepting orders at a low price and missing items is equivalent to passive loss of money.
Dear engineering colleagues, are you still omitting these three items in your quotations?
Have you ever experienced a loss this year due to rising building material prices or missing items in quotations?
Leave messages in the comment area to exchange quotation experiences, like, collect and forward to your peers to avoid being scammed by friends around you and losing money!
