As you may have seen in the media recently or indeed have experienced first-hand, there have been unprecedented material shortages in many areas. There are many reasons for this. As described in the webinar it is a ‘perfect storm’. It seems everything that is going on at the moment, from COVID to Brexit, has caused a shift in the climate.
COVID and Brexit
Due to COVID there have been heavy delays in projects. Delays in the production of materials at the start of the supply chain have arisen due to COVID restrictions. This has been further compounded by restrictions on transit and travel.
To add to the pressure, Brexit regulations are making it harder than ever to get supplies to the UK from their country of origin. This again is for many reasons, from tariff rules to queues of lorries stuck at borders.
It would seem the odds are against us, in fact, 60% of the FIS’s members anticipate delays over the summer.
Many in the industry are concerned about the new immigration laws and labour laws. The new EU Settlement Scheme deadline on 30th June has seen many foreign workers heading home after months of not seeing their families. Experts predict the situation for the labour market will worsen before it gets better.
There are a lot of unknowns.
What To Do?
What we need to accept from here on is – we are entering a ‘new normal’. After the last 12 months, we have learned a lot about the unexpected. The key for the construction industry will be to protect ourselves and ensure we are ready for anything.
As outlined above, with people unable to come from Europe or go to Europe we will be faced with further difficulties within the European market. Much of the drylining sector labour force comes from Europe. One of the main challenges facing the sector now is labour shortages.
To add to the difficulties brought on by labour shortages, material shortages are another big issue post-COVID.
Although off-site construction activities such as design are likely to continue, supply chains are likely to feel the adverse effects of COVID. Builders’ merchants advising of a reduction or even a suspension in trade.
Additionally, it is hard to determine what effects the pandemic has had on domestic trade and production of materials sourced outside the UK. It is reasonable to expect those countries producing key materials will seek to protect the economy in their own country prior to meeting the demands of the UK.
This increased demand, however, will influence the price of these products. As has already been seen, certain materials have seen significant price increases in the last month alone.
What Does This Mean for You?
In essence, due to the nature of construction, there is often an entangled web of interactions between countries and individuals. Often when one of these parties faces financial distress, there is a knock-on effect.
The outcome is a domino effect. Resultant delays trying in securing replacement contractors often lead to non-recoverable delays and the inevitable costs being shared across the contracting frameworks.
What Can You Do?
For those who find themselves party to contracts formed in the pre-covid period, now facing all of these issues then there are a number of options and priorities…
The fundamental objective is to avoid expensive and costly disputes. The world of disputes and dispute resolution is costly. It is taxing on both time and resources, often with no definitive conclusion being available other than an assessment on a ‘balance of probabilities’ basis. If possible, contractors and clients should seek to avoid a formal dispute resolution process wherever possible.
Despite there being no clear provision in the common contract forms that talk about the material and labour shortage. There are clauses that may have a nexus to the issues arising because of the pandemic or changes of law.
In each contract, conditions are changed and amended and are ordinarily amended in favour of the drafter (the Employer or Contractor). Take care when entering into new contracts. It would be detrimental to your entitlement if the contract includes amendments to the standard provisions that shift the risk for the shortages to the subcontractors. Take particular care to look for such amendments.
Avoiding confrontation is common at the start of commercial relationships by subcontractors. But this is the prime time for a negotiation in which subcontractors can hold a strong hand.
In future subcontracts, requesting the inclusion of price escalation clauses (both are available in either JCT or NEC) can offer protection against cost increases for the subcontractor. Such clauses should ensure that the contractor covers increases at the correct rates. As well as, avoids the cost of sourcing replacement subcontractors. Including them therefore makes good business sense.
Reference the government and construction industry guidance. Comply carefully with the contract conditions and give notice when required. This is standard advice, but particularly important during changing times.
This article is based on a webinar with the FIS held on 15th June 2021, when Damian James spoke at was joined by Ruth Wilkinson from Hill Dickinson.
Watch the full webinar recording here!
If you are facing problems and need some advice then get in touch.