Minimising Supply Chain Risk in Construction Contracts

Oct 21, 2021Business Continuity, Research, Tender Process

Construction contracts depend on the steady flow of materials into the country and supply chain. With most construction companies now embracing ‘just in time’ delivery methods, the current supply crisis, highlighted most recently by fuel supply issues, is a significant cause for concern. When you are tendering for construction contracts that may take place over numerous years, with price increases forecast by some of the industry’s biggest players, how do you make sure you minimise the risk to your business?

Supply Chain Issues

Construction TendersThe cause of supply issues is complex, a ‘perfect storm’ that has been brewing for a number of years now. Factors that have combined to lead to these issues include:

  • Increased demand for building materials due to a boost in DIY and home improvement projects during lockdown.
  • Shortage of HGV drivers. The Construction Leadership Council explained, ‘Within the UK, the shortage of HGV drivers is affecting every sector and will take many months to resolve, despite government action to increase driver testing. This is a major contributor to delayed deliveries in all construction product areas; one manufacturer reported ‘factories piled with product that we cannot get out.’
  • Staff shortages – it isn’t just HGV drivers who are in short supply as companies try to replace the staff they let go during COVID in an applicant’s market
  • With 60% of imported materials used in UK construction projects coming from the EU the impact of Brexit is also being felt in
  • Raw materials – stemming from global demand and other external factors (including the slowdown and in some instances, factory closures, outside the UK)

 

Materials affected include timber, steel, roof tiles, cement, paints and sealants, and plaster and plasterboard among other supplies.

This has then lead to price increases, with Construction News describing cost escalation as ‘unprecedented in recent times’.

Mitigating Risk

With the impact of these issues expected to be felt for some time to come, what can you do to mitigate the risk when delivering construction contracts? Adriano Amorese of Bryan Cave Leighton Paisner Law made the following suggestions:

  • Consider asking for advance payments for materials, to allow orders to be placed early in the process. This should help secure cost certainty and help combat delays caused by longer lead times.
  • Check the contract for fluctuation provisions, allowing you to share the risk and cost with the client if price increases meet certain targets.
  • Alternatively, consider using provisional sums within the contract. This allows you to forecast potential cost increases – for example, Mace recently doubled its tender-price inflation forecast to 3%,
  • Check contracts for penalties caused by delays, which may be outside of your control in the current environment. Instead, look into entitlements for additional time or money depending on the circumstances.

.Support Winning Construction Contracts

At Bid for Success, we have a wealth of experience working with clients in the built environment from surveyors and architects through to construction. If you’re interested in improving your scores on tenders to win more construction contracts, then get in touch today.

Adrian Corcoran

Adrian Corcoran is Managing Director and Founder of Bid for Success. Passionate about working with great businesses to win them new work, she and the Bid for Success team are here to help you with your bidding and work winning needs.

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