HM Insights

For want of a nail: The construction materials shortage crisis

In spite of the largely sunny weather a perfect storm is currently brewing across the United Kingdom which seems likely to give rise to a fresh wave of litigation within the construction sector.

Both consumers and those within the construction industry will have noticed the marked increase in difficulty in securing basic construction materials. A combination of COVID related slow-down in production, logistical staff and manufacturing staff being required to self-isolate and the import difficulties arising from Brexit have come together to present a fresh hurdle in what is always a time critical area of construction.

For-want-of-a-nail---The-construction-materials-shortage-crisis.png

 

Time will tell whether, in order to relieve the pressure, construction workers will be given the same self-isolation exemptions as retail workers are set to be given but even if this is the case the picture may remain uncertain whilst the vaccination programme is still incomplete.

The importance of clauses

Most construction contracts contain delay clauses with specific provision as to in what circumstances parties will be liable for delay in the construction project and the financial implication of these. Particular attention will need to be paid to “force majeure” clauses within the contract which address these particular points but differ from contract to contract even amongst the unaltered standard form contracts.

Given recent events more people are aware of what a “force majeure” clause entails but as a refresher it can be succinctly put as an event which is out with the control and contemplation of either party at the time of contract. Taking advice at an early stage is key to planning and managing these situation and most professionals in the industry are alive to these issues and seek the appropriate advice. As a whole the construction industry was quite pro-active in respect of adapting their approach when entering into new contracts following Brexit and the COVID pandemic. As such the situation when faced with these delays may be quite different depending on whether the contract was entered pre or post Brexit and COVID.

Implications

The widespread shortages, however, continue to add a further layer of complication. Given the shortage of these materials, suppliers have steadily increased the price of certain critical materials such as concrete, timber and formed stone. Whilst larger construction firms are likely to have a stockpile of these essential materials and are to some extent sheltered from the current shortage, smaller firms are unlikely to have these facilities and are therefore more exposed.

This has a two pronged effect upon such firms; firstly they are more likely to encounter delay whilst attempting to source these materials and secondly, if subject to a fixed price contract, they are less likely to have the financial reserves to meet the shortfall in their profit margins. I have already encountered several instances in recent months where smaller construction firms have succumb to these pressures leaving the client in a difficult position and such cases may act as a harbinger for larger firms once these surplus supplies and financial reserves have been exhausted.

It is therefore critical that for existing contracts the situation is closely monitored and appropriate advice taken so that the correct notices can be served in an accurate and timely manner. When entering into new construction contracts the relevant clauses on delay ought to be revised according to the client’s needs and, if acting for the contractor, fixed price contracts viewed with caution.

Get in touch