Blog 037 - No Gear, No Idea?

You don’t have to be an astute follower of the Trade Press to know that we are currently experiencing a materials shortage in the industry and, from what I currently understand, are staring into a darker abyss for the coming months.

The shortages are not isolated to specific trades either, Hanson have had to cut allocation on cement, the timber suppliers are uncertain when their next deliveries are coming in and the steel industry is the same. The next concern that these suppliers have is not just when will the material come in?, but when it does, how much will it cost? Over the past month or so, each supplier I currently use has had the hard blow of writing to all their clients to notify them of price increases that have been levied further up the supply chain.

So what does this mean for the Specialist Contractors? Well, it depends on your market sector and the types of contract you undertake, but in reality, it isn’t great for anyone.

If you’re a Labour Only Specialist, now is the time to really check in with your clients and stay in discussion with them about their ordering and material lead times. Materials may well be their risk, but if they run out, its you that is likely to be stood down or dropping back to fit components as they arrive. Take the lead and make sure your clients are on top of the situation.

If you’re a Supply and Fit Specialist, then, to be frank, you’re in for a rough ride. Like most Specialist Contractors you have probably locked into a series of fixed price contracts, which will leave you responsible for any delays or increased costs, not pretty. So what can you do?

1. Speak to your suppliers about what they can do to bring the material in early to reduce lead times and beat the price increases. Beware though, they will most likely need paying for this so make sure your cash flow can withstand pre-purchase of materials

2. Approach your client about the issues, offer them the opportunity to de-risk their own programmes by paying you for materials off-site. This is a good team-based solution in my opinion

3. Consider the effects of storage. Is it worthwhile? Can you find somewhere on site for free?

4. Check your Subcontract, is there a provision for fluctuations? If there is, then you may need to start tracking indices data to determine if you have a recourse to claim additional costs from your client?

5. There are many other options and it is definitely a time where the Specialists will need to be very thrifty and ensure that wastage is cut to a complete minimum. Replacement materials will be hard to locate and painstakingly expensive to purchase.

6. Most importantly, make sure you operate your contract, whether that is a notice for a Relevant Event (Client risk maybe?) or an Early Warning Notice, make sure you comply with any conditions precedent in your contract. Your client's duty to attempt mitigation measures will not be possible if they do not know!

If this crisis really grips, we risk projects stalling or potentially, those that are not fully procured, becoming untenable. This is a crisis that could risk the construction recovery, stalled projects mean less work, less work means less demand and that may cause the next major migration of the European labour force out of the country. If this happens, when the material issues rebalance, we will have a serious labour shortage which will increase prices, stall projects…. you get the picture.

A call to clients:

Clients, don’t make your Specialist Contractors suffer alone

Yes they might be on a fixed price contract, but holding them rigidly to it seriously leverages your project. Get in the trenches with them and see how you can help de-risk the project, possibly providing storage areas on site, maybe paying materials off site or even using group buying power to influence the supply chain. What is for sure, is that a delayed or worse, insolvent Specialist Contractor will do far more damage than getting involved now and lending a hand. Those price increases that are in the Specialist’s fixed price, they’ll be in your re-let package if you lose the Specialist. I don’t disagree that you sold the risk and Specialist Contractors should not be relieved of any bad bargains, but consider the bigger impact on your project and see how you can contribute to solving issues before they manifest on site.

If you want to discuss the deepening risks to your business or how to protect your business, your supply chain or project during this testing period, drop me an email, I’d be pleased to help.