My previous post referred to the impact of actual (rather than perceived) shortages of building materials and suggested that the effect on costs and programme should be addressed early in the tender process. However, employers and their advisors should also consider whether the commonly used procurement approaches are still appropriate in the market we are now experiencing. If not, how any change in risk should be reflected in the building contract and subcontracts. The following questions arise (this is far from being an exclusive list and is in no particular order):

  • Is Design and Build procurement where the contractor takes full design responsibility and liability for supply delays and price fluctuations currently viable? Or will contractors either decline to tender or put a high price on the additional risk?
  • More tenders are being dealt with on a two stage basis, will that become the norm in this inflationary period?
  • How will early procurement of materials be dealt with contractually? Will that procurement be by the contractor or the employer? If by the employer, will the contractor ultimately take responsibility for materials ordered early? If by the contractor before the building contract is entered into how will that be documented and paid for by the employer?
  • How will materials be stored if ordered earlier than would normally be the case? Who will insure stored materials and when will ownership of the materials transfer? Who will pay the additional storage costs?
  • Are traditional fluctuation indices fit for purpose? Both JCT and NEC publish fluctuation clauses but they have not been used for some time and may not cover all elements of modern construction. If used should fluctuation clauses be limited to certain classes of material known to be in short supply and prone to price rises, such as steel?
  • How will fluctuation and other provisions that re-calibrate the risk profile be viewed by funders?
  • How do developers budget for the unexpected , will contingency sums need to rise? Should a contingency sum be included in the building contract and if so how should it be dealt with contractually?
  • Will we see more provisional sums and/or prime cost items and how will they be dealt with?

Overall a lot to think about!