How do construction buyers cope with material shortages?

By David Vayro, Head of Built Environment Projects

With the Office of National Statistics projecting construction material price increases of 7-8% across 2021, and the impact of both the pandemic and Brexit set to cause further material shortages and extended lead times in the UK, the time and cost impacts on construction activity are not going away any time soon.

Three products to keep an eye on, in particular, are:

• Timber – prices have increased by roughly 50% in the last year and are still going up
• Bagged Cement – massive demand as we exit lockdown and creaking, elderly cement plants in the UK are exacerbating price and lead time difficulties
• Steel – British Steel have risked triggering panic buying by closing the door to sectional steel work orders

So, as buyers, how do you cope with this?

• Have you overlooked a contractual right to recover price increases? It has become the norm in recent years to make JCT contracts truly “fixed price” by routinely deleting fluctuations provisions, but it’s worth double-checking what your options are. If you are on the point of signing up, just have a look at the relevant provisions before you do and maybe it’s time to kick back…
• Do you have the capacity to order further ahead and at higher quantities? This option won’t be open to everyone as SME construction companies who have the least flexibility in this sense are disproportionately affected by these issues. Given that we are looking at this situation continuing probably to the end of 2021 – and potentially into spring 2022 – investment decisions around strategic advance ordering could be a shrewd call.
• How resilient is your supply chain? Now is the time for all that supply chain building and early engagement to start paying off. With the Construction Reverse VAT charge biting into supply chain economics, there might be some give and take to be had by looking collaboratively at responses to these issues, which could mitigate the pain for all parties involved.

The Construction Leadership Council publish monthly reports based on the research and industry engagement undertaken by its Products Availability Working Group. The next report is due around 25 June 2021 and is worth looking out for.

For more in-depth information on addressing the projected material shortages in the UK this year, or to answer any questions you may have, please contact me directly on David.vayro@primaslaw.co.uk.