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Supply chain constraints are going to be most clearly felt
where pricing is concerned. This may require re-thinking of tender strategies and how to engage with subcontractors prior to putting bids in. For those contract forms which are
based around call-off mechanisms, frameworks or similar, this may be a particularly hard ask
the past) are going to be appropriate to the new economic reality.
A second issue in relation to supply chain constraints relates to performance standards. The construction industry has always suffered from the problem of over-trading. Increasing demand and limited supply are likely to magnify this problem. The recession has seen signifi cant redundancies and a consequent decline in overall employment levels. Equally, there has been a fall off in employees coming into the industry. This means that, coming out of the recession, there is a rising trend in unfi lled vacancies – especially in relation to skilled posts. In terms of price – especially in respect of labour only subcontracts – then clearly there is the potential for infl ationary pressure. The UK government, for example, has just announced its approval of a rise in the national minimum wage to £6.50/hour later this year. This may have a knock-on effect in respect of other skilled labour costs.
Labour shortages
Shortage of skilled labour or subcontractors being stretched in too many directions at once may also affect skilled contract performance. With this in mind, it is certainly worth considering specifi c subcontract provisions and how they may relate to main contract obligations: what KPIs will the subcontractors be required to deliver and what rights and remedies are available in the event that there is poor performance? Are there specifi c provisions dealing with rework, set-off and contra-charges? Where contracts are based around framework arrangements, then is there the right to take work from one subcontractor and give it to another?
A further aspect for the supply chain, post-recession relates to materials. If there is a capacity gap in respect of labour and services, then the same is equally the case in respect of material only supply. Data from the Mineral Products Association suggests that in 2012, annual aggregate and cementation output was at a signifi cantly lower level than comparable output pre-
slump, in 2007 (192 million tonnes as opposed to 290 million tonnes). This will have pricing implications – but equally needs to be factored into other contract requirements, including programme management.
A fi nal issue relates to the changing legislative environment in which materials are supplied. Aggregates have long been under the spotlight and there are about to be still further changes to take into account. From 1 April 2014, exemptions to the environmental tax, the Aggregates Levy for clay, slate, shale and a number of other materials used for construction purposes and some other exemptions will be suspended whilst the European Commission reviews whether the exemptions are in fact lawful. This will obviously have pricing implications for certain materials supply contracts and how these are factored into positions under main contract arrangements with employers. It would be sensible to consider how this might be addressed in any contractual payment and risk allocation arrangements. The most likely areas for consideration should be any contractual “change in law” provisions – dealing with who has responsibility for the costs associated with this change, including the potential for retrospective claims from suppliers in the event that the exemptions are in fact declared to be illegal.
After so many months of pessimism associated with the sector, it is good to start seeing an increase in positive news stories. Latest of these is the Offi ce of National Statistics’ construction industry estimates for January 2014 which showed a month on month increase of 1.8 per cent in terms of output, the majority of which was in respect of repair and maintenance work which is so important to the highways sector. Good news, but dealing with an improving position is going to bring a fresh set of challenges. Maybe it is time to hug a subbie.
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