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MATERIALS INFLATION & SHORTAGES: MANAGING THE RISKS ACTION


Review all your current and future jobs to assess risks arising from the price hikes/ lack of availability


Stay close to your suppliers/distributors


Maintain adequate stocks of commonly used materials/components


If you are ordering materials/ components well in advance of commencing work, seek an advance payment or at least insist that they be included in your first payment


If you are submitting a lump sum bid, make sure that your price remains open for acceptance over the shortest possible time


One option – if at all possible – is to submit a price for the work, leaving the prices for materials/components to be determined on delivery


Consider having two contracts – one for work and the other for supply of the materials/components


When doing domestic work, it is likely to be easier to include a price adjustment clause


When working for a householder, make sure you warn of possible material shortages and delays


When you have existing lump sum contracts, you may be able to pursue options to mitigate price hikes/delays in obtaining materials


COMMENTARY


Unless you have a clear oversight of existing and likely risks you are not in any position to manage them effectively


Always keep your communication channels open to suppliers/distributors. Ensure they have knowledge of your long-term needs and ask them to give you early warning of problems. Forewarn clients/customers of likely problems


Self-explanatory


You are likely to be asked to provide a vesting certificate. Tis simply indicates where the materials are located, that they are ensured and that they are held to the order of the client/customer. You may be asked for an advance payment bond if you want early payment


You could also consider making the price conditional on work commencing within a certain period following award of contract/subcontract


You will need to make clear that the materials prices will be based on their actual cost to you plus a stated percentage uplift to cover overheads and profit


Te materials contract can include a price adjustment clause


You will need to bring to the householder’s attention that your price could be increased in line with any upward movement in materials prices


Reserve a right to substitute other suitable materials. Go to SELECT’S website for the relevant amendments to SELECT’S standard domestic contract


Always notify the other party as soon as you become aware of issues affecting your performance of the contract. NEC contracts, for example, have risk management provisions. Tese enable you to give early warnings of matters affecting contract performance. You can have early warning meetings with relevant parties (including suppliers) to mitigate the risk. Across all your contracts you may be able to seek a design change (or change in specifications) to enable you to substitute alternative materials


Consider addressing the risks in your future contracts


It’s rare to have price adjustment clauses (or fluctuations clauses) in construction contracts. But there are optional clauses in both SBCC and NEC contracts which cater for increases in prices for labour, materials and fuel. Given the current uncertainty you should try to negotiate a price adjustment clause. Delays/availability of materials are more problematic since you are unlikely to have a right to an extension of time. Consider the other options in this chart such as the above action


CABLEtalk AUGUST/SEPTEMBER 2021 25


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