by Clair Mooney | 22 Jul, 2021 | Material Shortages
Yesterday, Richard Waterhouse from NBS hosted a panel discussion with industry experts on the UK construction materials shortage.
Due to a global rise in demand and a tight supply of construction materials, the shortage of construction materials in the UK continues to impact the industry, which includes vital products such as bricks, steel, cement, timber, and paint. This has led to delayed projects and increased costs, compounded by other factors such as the blockage of the Suez Canal and the ongoing effects of Brexit.
The panel covered what’s causing the shortages, its impact on the construction industry, and how to manage the barriers it’s creating, especially for manufacturers and specifiers.
The panel consisted of
- Iain Mcilwee, CEO at Finishes and Interiors Sector (FIS)
- Charmaine Dean, Marketing Manager at Catnic
- George Mokhtar, Director – Technology Business Lead at Turner & Townsend
- Lee Jones, Head of Manufacturer Solutions at NBS
The session is now available as on-demand here: https://register.gotowebinar.com/register/5341225594095062539
by Clair Mooney | 13 Jul, 2021 | Labour, Material Shortages
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.
by Iain McIlwee | 5 Jul, 2021 | Main News Feed, Material Shortages
This month we have seen further announcements on price rises, whilst at the same time we can see in the latest tender price reports from MACE showing that current tender price inflation is running at just 1.5% at the moment and expected to rise to a meagre 2.0% next year. It doesn’t take mensa maths to work out what this is doing to margins. Whilst we try and get our heads round the fact that despite rising costs of labour and materials and a healthy pipeline emerging prices are being squeezed in this way, we have updated our headline and supporting guidance on managing your business in a time of shortage below.
Talk to your clients about the challenges in securing material and the importance of early appointment to give you time to prepare.
Be wary of design liability. It is also vital to consider the specification, switching elements because you can secure them as an alternative may not necessarily support full certification and warranties as a system, to fulfil programmes. Any change to materials and products installed should be EQUAL AND APPROVED or you may be absorbing risk and design liability. Beyond inadvertent design liability, we are also seeing (for a combination of reasons, not least cost and availability of insurance) pressure on subcontractors to take on design liability within their contract. Do you fully understand what is the liability and cost of this, does your insurance cover it? We strongly urge you to exercise caution.
Before accepting a contract, make sure you can fulfil it. It is vital to check you can secure the material and at what price, does your supply agreement guarantee a price?
Double check your estimates. With pricing erratic, double check your maths – estimations need to be on point and there is literally little margin for error. Make sure you state that the quotation is only valid for a short amount of time, and that it is dependent on material supply (do you need to update statements on estimates, quotes and to issue new advice to your team?). If you are trimming supervision to make the maths work, what could be the risk and cost in terms of quality and safety?
Consider the resilience of your supplier, how long have you worked with them, how well do you know them, how important are you to them, how confident are you they will deliver? There is some support and guidance on this in the FIS Project Risk Assessment Tool.
Consider the resilience of your customer, through FIS you can get free credit checks. This isn’t a panacea, but we have seen a number of failures in the construction sector and if margins continue to squeeze there will be more. In the wake of the burden of retentions and aggressive tendering meaning profits will be lost and won in variation and change – will you get paid, how much and just how contractual is this job likely to be at that price?
Be realistic. Before signing a contract with potentially onerous delay responsibilities ensure you have checked these carefully, are all these risks in your control to manage? If you are already locked into a contract and experiencing delays/inflation then look to your contracts and follow the process – remember it is likely that, regardless of blame and responsibility, you will be obliged to ensure that as soon as it becomes “reasonably apparent” that work is likely to be delayed, notice must be given to the relevant party. If prices are spiralling, talk to your customer, negotiate.
Check for damages. If you are yet to sign, it is well worth ensuring that supply related delays that will in many cases be beyond your control cannot be a factor in determining liquidated damages. Remember force majeure relies on events being unforseeable.
Dust off those fluctuation clauses. Before you sign a contract check the fluctuation clauses too (albeit they typically seem to be scratched out of the standard contracts). If you cannot negotiate a shared risk approach with your client (and we are getting reports that clients are starting to accept fluctuations), you need to seriously consider pricing in risk moving forwards – what could worse case scenario mean to your business if prices drifted?
FIS has updated advice in its Contractual and Legal Toolkit, including advice on fluctuations, managing delays and extensions of time within contracts. It also highlights the role that the RICS developed and CLC endorsed Conflict Avoidance Process and Conflict Avoidance Pledge can play in helping to ensure issues related to shortage and availability doesn’t flair up in unnecessary conflict and exacerbate a difficult situation to a crisis.
by Clair Mooney | 15 Jun, 2021 | Main News Feed, Material Shortages
With shortages dominating conversations, today, FIS hosted a webinar to help review where we all sit contractually.
To kick us off we were joined by Ruth Wilkinson, Legal Director at Hill Dickinson who discussed the challenges that businesses in our sector face, including:
- What is happening on the ground and the position that clients and contractors are taking on potential delays and price variation.
- Fluctuations and common provisions are made in standard contracts.
- How to deal with existing work and contracts.
- How to manage risk and structure negotiations on your next contract.
Damian James, Delay and Quantum Expert, then focussed on the impact of delay, distruption and rising costs and how to effectively manage your contractual position through this time of shortage.
Further support and guidance is below:
FIS Latest Statement on Shortages (to support your negotiations)
FIS Contractual and Legal Toolkit (including template resources to support notifications and management of delays)
RICS Conflict Avoidance Pledge (please consider signing it).
FIS Insurance Survey (Our plan is to scope out a new approach, possibly even establishing a mutual insurance company – all pie in the sky unless we have the data. We have received a good response, but have broken the project down into gateways and need a strong response before we can progress to the next level and start committing resource).
by Clair Mooney | 26 May, 2021 | Market data, Material Shortages
The finishes and interiors sector is facing unprecedented material shortages and inflation in a number of areas (including gypsum products, steel, fixings, insulation, sealants and adhesives and timber). In the wake of this, FIS is urging the supply chain to heed the advice of the Construction Leadership Council and apply the lessons learned in 2020 about working in partnership and collaboration. This is a issue for the entire supply chain, but specialist contractors are reporting these acute challenges are being ignored in the wake of pressure to simply maintain programme. This is unacceptable, we need to be working together, alert and reactive to the challenges on the ground and focussed on the very real risks of undermining specifications, warranties and even compliance and, at the same time, destroying businesses in our rush to get the job done.
Too often in difficult times, construction gets contractual and adopts a siege mentality, parcelling up and forcing risk down the supply chain with distorted standard contracts that include fixed prices with no scope for fluctuation and rely on overly punitive delay clauses to force people to press on at all costs. The much talked about transformation needs to be built on sustainable and supportive supply chain partnerships and must start now.
We need complete transparency and clear communication from suppliers and to support a structured dialogue with clients, working together to help them to understand that these events are beyond the control of individual companies and ensuring that we work together, flexibly, to resolve and manage supply and pricing issues rather than leaving SMEs in the supply chain to swallow all of this risk.
Our supply chain has had an unprecedented and difficult year, we need to nurture it back to health, transcend these old and punitive ways or we will drive people out of business to the detriment of all.
FIS is maintaining information on shortages and their impact on the supply chain on here. If you feel you are being treated unfairly or have information to share or require any information to support your negotiations with clients, please don’t hesitate to call Iain McIlwee on 07792 959 481 or email iainmcilwee@thefis.org
The Construction Leadership Council has also issued a statement regarding shortages, which can be read here
FIS Webinar 15th June, Midday – 1pm: Managing your business in a time of shortage – book your place here
FIS is urging all companies in the supply chain to support the Construction Leadership Council endorsed Conflict Avoidance Pledge as a demonstration of commitment to a healthier approach to working together as a supply chain. Sign the Pledge Here.
by Oscar Venus | 15 Apr, 2021 | Market data, Material Shortages
The CLC Product Availability Group has issued a
statement on the availability of construction products, which confirms that demand will remain high throughout 2021 and urges
‘all users [to] plan for increased demand and longer delays, keep open lines of communication with their suppliers and order early for future projects’. It highlights timber, steel, polymer supplies and coatings as materials of particular concern, with both timber and steel experiencing very strong global demand.
Build UK is working with the Chartered Institute of Procurement & Supply (CIPS) to monitor the availability of construction materials post‐Brexit. There are no products currently RAG‐rated ‘red’, with most manufacturers reporting that the mitigation strategies they put in place have avoided significant delays or shortages, and they will continue to hold extra stock this quarter to ensure continuity of supply.
