Navigating Volatile Markets in a Buoyant Sector

Amid a buoyant construction sector, 2021 has seen a number of factors combine, resulting in a surge in demand and a limited availability of some essential materials.

Wayne Fletcher of Austin Fletcher discusses the impact this has had across the industry.

The pandemic. Aggressive stockpiling. International competition. Import and logistical complications. Staff shortages. Market manipulation. These are all reasons I’ve heard mentioned amid disruptions in the supply market.

The real reasons are probably a combination of all the above – plus a few more that may or may not be entirely factually accurate! However, one thing most industry professionals will agree on is the cost of materials has been incredibly volatile in recent months, and this is likely to continue for the foreseeable future with tender prices rising as a result. Under certain circumstances, supply issues can cause a project to grind to a complete halt. We have been lucky not to have any issues resulted in a complete stoppage, but we have certainly seen our projects, and certain contractors, hit by supply chain delays and/or price increases.

For those who have already entered a contract, conditions may vary greatly from those envisaged when it was signed. The big question is, who pays for delays and increases in material costs?

If faced with this scenario, the first thing to do is to check the contract to establish which clauses and provisions are relevant to the current situation. Building contracts usually permit extensions of time due to a force majeure event. If the delay can be proven to be a result of COVID-19 and the specific contractual clause refers to a ‘pandemic’, this should be grounds to grant an extension as COVID-19 is a classified pandemic. This may not be the case however for those who are now embarking on new contracts as it could be argued that the situation is now a known factor. A point that should be considered when drafting and/or entering into new contracts going forward.

When considering the impact of increased material costs during a live project, the impact will mean significant stress for the contractor which, in turn, will lead to financial risks, most of which have likely not been factored into the price. Again, all parties should review their contracts – not all contracts, especially those which are amended, deal with issues in the same manner.

Due to its nature, a cautious and collaborative approach to the current situation would be advised to ensure the integrity of relationships between all contracted parties and the project is maintained.

For future projects, the best course of action, where possible, is to account for the reality of a volatile market upfront. Undertaking feasibility studies and obtaining early cost advice will help you make realistic choices about the viability of your development, while identifying and minimising risk where possible.

At Austin Fletcher, we will help you cost a project thoroughly, taking into account, and advising on, project risks, putting you in an informed position prior to making strategic decisions. For live projects that have been impacted by delays or other contractual issues, we are able to provide advice and help to negotiate solutions, enabling a project to get back on track as quickly and efficiently as possible.

If you are embarking on a new project or need advice on how to resolve any of the above issues, give us a call – we’d love to help you in any way we can.