As the UK continues to recover from the upheaval caused by COVID-19, the construction industry is even busier than before with many people starting new construction projects, both commercial and private residential. However, shortages in the supply of construction materials, together with inflated shipping costs and reduced availability of both drivers and construction workers, are causing significant problems up and down the supply chain.
What is the problem?
A survey carried out by Travis Perkins of 1,446 tradespeople (the Repair, Maintenance and Improvement Index) found that 88% of respondents in the construction industry had been impacted by material shortages in the last three months, with many believing that the materials shortage presented a much bigger problem for them than COVID-19. Timber, cement, roofing products, bricks, blocks, insulation, and steel remain the products in the shortest supply and the prices of these products continue to rise. There have been indications that prices are unlikely to stabilise until 2022 with some manufacturers looking to recover the current and future cost of inflation by increasing their prices multifold. Indeed, with 95% of those surveyed expecting workloads to either remain the same, increase or greatly increase in the next three months, and only 6% expecting to see a decline in the number of building materials they anticipate purchasing in that time, this is likely to continue to present a problem. It is therefore perhaps not surprising that 73% are choosing to use more or different suppliers, with 48% seeking alternative brands or products.
Another issue being faced is the availability of drivers. This is a major concern affecting distribution with some suppliers asking building merchants to collect their orders due to the lack of drivers to complete the deliveries. Regional distribution is worse affected, with the sector facing particular challenges in arranging deliveries from Scotland to the South West of England.
Similarly, with the ‘pingdemic’ still keeping people at home, and other construction workers being unable to return to work or finding work elsewhere, the wages for workers are increasing with the sharp spike in demand.
What can you do to preserve the supply chain?
1. Communication is key – whether you are an employer or contractor, it is imperative that you relay the correct information to each other to keep all parties up to date. It may be that alternative materials are more readily available and present a viable option to avoid significant delay. Employers need to be accommodating and pragmatic. Contractors need to plan ahead and think flexibly. Both need to communicate well.
2. Be realistic with the employer and contractor about timeframes – consider if there may be the need to request or grant an extension of time.
3. Early order for products with long lead times – ordering products with longer lead times first will enable you to manage your project better and ensure you have your supplies when you need them. In the above survey, 41% said they were planning ahead and buying more materials earlier to compensate for the difficulties.
4. Take payments upfront to support the orders for offsite goods – it may also be worth including a contractual provision for a price adjustment based on inflation (for example, the JCT already has fluctuations options that could be considered). An employer may not agree to this due to the lack of price certainty; however, it may be better than accepting a “worst-case scenario” cost for the materials. Protection can also be offered by way of a vesting certificate dealing with the ownership of goods.
5. Consider the upfront impact on the programme and the fair apportionment of risk – it may be that parties agree to liquidated damages, holidays or extensions of time in the event of specifically agreed potential problems with the supply chain. Including clauses that apportion the risk between the parties in the contract should be considered. In all circumstances, thought should be given to reprogramming the works to reduce delay.
Of course, this problem is not limited to the construction sector and unfortunately, there appears to be no short-term fix. The Department for Transport is liaising with the freight sector and hauliers to find a solution in the interim and long term, which will require collaboration between the government and the sector as a whole. Trade organisations and associations are also coming together to address the issue of the shortage of materials, so further support may follow.
If your construction project has been impacted by the supply shortage in any way and you need some advice on what to do next, whether related to an extension of time or otherwise, please get in touch with our highly experienced Construction team.