A combination of delayed production of construction materials because of unforeseen circumstances like Covid-19 and the ensuing lockdowns has led to shortages in construction materials like cement, steel, pitched roofing, timber, glass, and other supplies. Consequently, the prices of most construction materials continue to increase steadily across the globe.
As a property developer or contractor, these unexpected changes can significantly impact your project timelines and profit margins. Therefore, you have to factor in the possibility of price fluctuations and schedule delays to protect your profits and manage your client’s expectations. Continue reading to learn how you can plan for project material shortages and pricing.
Include Clauses in the Contract
If you are a contractor engaged in a long-term fixed-price contract, any unexpected shortage of construction materials and increase in prices will disrupt your schedule and eat into your profit margins. Your client will naturally expect the project to be complete on time and the initial budget. Also, they will not want their already strained supply chain placed under further financial pressure.
That’s why it is important to factor in these contingencies when you are designing your contract. Include clauses that clearly define who bears the risk associate with a shortage of construction materials, price increase, and any other delay. This also applies to clients who are hiring contractors for long-term fixed-price projects. It is important to let the contractor know that they will be responsible for any delays and increased costs.
Fluctuation, indexation, and escalation clauses are very common in ordinary contracts to define the person who bears the risk of delayed supply of construction materials and price fluctuations. However, many contractors and clients often ignore these clauses or delete them from their contracts, hoping that everything will go smoothly.
Therefore, it is important to check whether your contract has these clauses before you sign it. If they are included, check whether they cover the existing situation in the market. Also, consider whether the clauses are beneficial in any way and, if so, what circumstances they should cover.
Purchase Materials in Advance
Although hoarding of construction materials is not allowed, sometimes you may be required to buy your construction materials in advance, especially when there is an expected shortage. You can also arrange with your supplier to deliver all the needed materials in advance to avoid delays. Have a clearly defined project plan that can be updated regularly as the project progresses to offer a bird’s-eye view of the project. This plan will help you rapidly diagnose potential problems and solve them before they become costly delays.