Construction industry around the world has been hit hard by economic and business related issues ever since the COVID-19 pandemic affected the world. Among the markets of construction under immense pressure are the Middle East, North America, Latin America, European Union, East Asia (P.R China in particular), Australia and of course the United Kingdom.
The United Kingdom’s construction market and industry have been facing immense pressure due to worldwide shortages of key materials.
The combination of a global surge in demand for essential materials as a lot of pending projects were revived and new projects began (since the pandemic was declared to be over), and other factors like Brexit and other economic issues compounded the following issues:
- Brexit (Britain’s exit from the European Union).
- Congested routes of transport.
- Shipping costs are rising.
- Labor Shortage.
- Climate issues.
All these factors put British construction companies, the market and the industry in a conundrum. Moreover, materials like cement, timber from Scandinavian countries, steel and aluminum were affected. Signs of relief are distant especially in the short term scenario.
Are Evaluating and Averting such Issues Fundamental?
As a consequence, evaluating the risk such issues pose and averting such kinds of issues is key to helping the construction industry thrive (not just in the United Kingdom but also elsewhere). Construction monitoring should be must. Each player in construction must ensure that the costs shouldn’t rise and delays be averted to allow projects to be completed in the face of limited resources.
Resources are indeed finite, and in the face of economic pressures due to the global economic downturn, obtaining materials is a tough job for contractors. This is because the market is laden with various uncertainties.
THis is fundamentally a commercial issue. Risk allocation does vary from one project to the other, like what is the nature of the works, how demanding are the works, what kind of people are involved and how are materials and other resources being procured.
Dispute avoidance & delay experts have identified a number of ways to approach supply chain issues. Let us now have a look at each of them.
Risk Retained by Contractors
A lot of employers maintain the traditional approach that materials procurement is just a matter for contractors to manage the supply chain available. In fact, they would like to agree a lump sum cost upfront for the complete project, and for contractors to take either benefit or risk of any changes happening in the materials’ prices.
Yet some contractors are more than willing to accept such a position. It is however under the condition that employers agree to a higher initial lump sum, as contractors do their best to offset future rises in prices.
Such an approach can also limit the range of suppliers and sub contractors willing to contract things on the same basis. Options are hence restricted which will hence affect the price.
Eliminating Pitfalls in Advance Payments
There are contractors who have also been willing to accept complete risk for materials if they’re able to place orders with suppliers nicely in the project’s early stages. It means that they’ve been able to secure a fixed price from the supply chain available. Then again, they should be able to reduce any potential delays in the delivery mechanism.
In return for such, a contractor may require their respective employer to make an advance payment for these kinds of early orders. Employers will only agree once the following risks in making such kinds of payments are understood:
- The kind of protection employers provide for advance payments to be used for the orders agreed.
- The place where the materials will be stored before delivery to the site.
- Will they be properly marked by the employer so they are not misused?
- Any requirement for advance payment bonds?
- In case such a bond is needed, who will cover its cost?
- Method of repaying advance payment.
Countering any Fluctuations
An expert witness Dubai UAE reveals that there are some contractors who have requested that fluctuation provisions are included in their contracts to save themselves against any upward price surges in the future.
Such clauses allow for adjustments to be made to contracts. This is helpful in certain situations where costs of labor or materials can skyrocket.
