Building Materials Shortages: New guidance from the Construction Leadership Council

 

In June we published a note highlighting the shortage of materials in the construction industry, the risks which this could lead to, and gave practical guidance to parties to construction contracts.

On 7 July, the Construction Leadership Council (CLC) issued an open letter to the industry which highlighted that, whilst the industry had benefited from a stable environment for a long time, it was now entering a volatile period, which is likely to remain for “a while to come”. The CLC guidance noted the following challenges:

• rapidly rising freight costs, container availability and global transportation challenges
• a shortage in global raw materials
• a shortage of available haulier staff and capacity 
• transitioning from CE to UKCA marking with insufficient product testing capacity
• establishment of new cross-border systems and processes
• new EU related immigration rules.

The CLC highlighted that some of the standard form contract provisions already seek to address price fluctuation provisions, most notably JCT and NEC4 secondary option X1. The CLC encourages parties to consider adopting these (or similar) provisions to ensure that the risk of price increases is appropriately allocated between the parties.

This is sensible advice for those in the process of negotiating new contracts. It may however require changes to other standard form (or those agreements based upon JCT and NEC4 which do not adopt the options above) or bespoke contracts, and training in how such provisions could be interpreted.

Parties who have already entered into construction contracts, and who have not chosen to incorporate such provisions will need to consider the best practical methods for mitigating and managing their commercial risks of their ongoing project. In addition, to the extent there is ambiguity, consideration will also need to be given as to how best to avoid the escalation of disputes over which party is liable for the risk.

We provided practical guidance on a number of strategies in our previous note. For specific project advice, please contact one of our construction and engineering team listed below.