Industry bodies, including the Construction Leadership Council (CLC) and BEAMA, have issued recent statements on the availability – or rather a lack – of resources, components and materials within their members’ supply chains.
The CLC summarises:
“basic trends of the last six months remain, with global demand far in excess of supply leading to product shortages, rapid and sustained price inflation, long lead times and uncertainty regarding deliveries. It is also clear that the global shipping industry is far from recovered from the disruption caused by the coronavirus pandemic, with congested shipping routes, container cancellations and higher costs still evident”.
Meanwhile, a survey conducted by the Electrical Distributors’ Association found that almost 85% of wholesalers anticipated product availability issues as a challenge going forwards.
What is causing the supply chain issues?
The challenges are reported to arise from various factors:
- Price increases: The CLC reports an average price increase for products and materials of 10-15%, in line with the Office of National Statistics figure for May of 10.2%. As a result, they note that some merchants are destocking certain products that are no longer economic.
- Reductions in production capacity: Whilst BEAMA recognises that this is primarily attributable to COVID-19 impact in early 2020, many supply chains are not (or are not consistently) manufacturing to their full capacity.
- Labour shortages: Hauliers/HGV/LGV drivers are in short supply and very difficult to recruit. This, in conjunction with the UK’s growing “pingdemic”, makes lead in times difficult to predict and contractors more nervous to accept the risk of supply chain delays.
- Increased demand: BEAMA notes a marked spike, since the middle of 2020, in demand for the types of steel and plastics used in cable management products, together with many other applications both in the UK and the rest of the world, which has further increased as businesses seek to bounce back and complete unfinished projects.
Of course, the impact of Brexit should not be forgotten, particularly for projects / supply chains within Northern Ireland, as the industry grapples with changing regulation.
How can a contract help to mitigate these risks?
Transparency and collaboration seem widely accepted in the industry as key to ensuring success.
As Andy Mitchell (Co-chair of the Construction Leadership Council) notes in a letter to the construction industry earlier this month, most construction contracts include provisions for managing volatility, without the need to make contract amendments. However, the majority of industry standard form contracts were most recently published prior to the materialisation of the unique issues arising from COVID-19 and Brexit. Against this new landscape, honing in on the detail of project-specific risks is essential.
Examples of typical principles likely to be relevant to this discussion are:
- Responsibility for changes in law;
- Scope and consequences of force majeure;
- Responsibility for actions of regulatory bodies;
- Early warning mechanisms; and
- A contractor’s ability to engage / replace subcontractors.
Finding an appropriate level of detail in this regard will be a critical way for stakeholders to ensure clarity in contracts and thereby reduce the risk of disputes / inaccurate pricing.
Alongside pricing, stability and accuracy of supply remains the overarching concern and regular, accurate and transparent communication throughout the supply chain to the end client is deemed vital by all. It is important that all parties recognise the extent of the extraordinary challenges we are currently experiencing and adopt a flexible and collaborative approach to finding solutions.