The construction industry is currently facing challenges on the availability and pricing volatility of labour and materials. This volatility could have a significant impact on the timeframes and delivery costs of many projects.
Most forms of construction contract have standard provisions for managing volatility, without the need to make contract amendments. These provisions, such as fluctuations provisions in JCT and NEC 4 Secondary X1, provide a means of collaboratively sharing the risks associated with this volatility.
In an open letter to the industry Andy Mitchell, Chair of the Construction Leadership Council (CLC) is strongly urge those responsible for developing, agreeing and managing contracts, existing and new, to consider adopting these provisions in their contracts.
The contractual challenges created by lack of product availability and inability to access approved products are likely to mean design changes are necessary. Therefore, again, the CLC would encourage a collaborative approach to be taken to managing these risks.
Commenting on the statement FIS CEO Iain McIlwee stated:
“This is a welcome intervention from the Construction Leadership Council and I would personally like to thank Andy for picking up the mantel here. We have been vocal and remain concerned that clients and main contractors are still focussed on squeezing risks through the supply chain and we are getting to the point where fixed price contracts may not be tenable on certain works. We continue to urge members, before you sign a contract check the delay clauses and look at the fluctuation clauses too, if you cannot negotiate a shared risk approach with your client, you need to seriously consider pricing in risk moving forwards and ask yourself what could worse case scenario mean to your business if prices drifted or sourcing issues beyond your control delay the programme.”
Read the letter here.