In a prior article I discussed a material escalation provision in your construction contract to account for the volatility of the material price market. While including such a provision may not have been much of a forethought before, it is now!
What about concerns with the actual supply chain that impacts the availability of and the lead time of materials? How are you addressing this concern in your construction contract?
The pandemic has raised awareness to this issue as certain material availability has been impacted by the pandemic. As a result, parties in construction have tried to forecast those materials where delivery issues may occur including those materials with longer than expected lead times. But equally important is how this issue is being addressed in your construction contract including how you want to negotiate this risk in future construction contracts.
Start with the force majeure provision. Does this force majeure provision address supply chain impacts? It may touch upon it but you may want more clarification dealing with delivery delays that impact a project’s schedule and identifying that this includes a supply chain impact attributable to a specific occurrence, such as the pandemic. Generally touching upon an issue is not the same as specifically addressing an issue for practical purposes to avoid any dispute down the road.
One way is to include or address certain supply chain impacts caused by the COVID-19 pandemic, any future pandemic, and other potential factors based on the current economic climate. If one thing COVID-19 taught us is that we need to fully address the risk of pandemics moving forward, both from a time standpoint and a cost standpoint. Another thing COVID-19 taught is to precisely word force majeure and other provisions so that parties are on the same page when it comes to a foreseeable risk.
The provision can be broad enough to include any supply chain impacts caused by the pandemic and any future pandemic and/or can include specificity based on certain materials that are known as of the date of the contract that have anticipated supply chain concerns and long lead times. While a contractor does its best to account for materials with long lead times, there are factors that can come into play associated with when that material is procured including the construction documents, the approval of shop drawings, deposits for fabricated items, transportation including where the material is being shipped from, and storage and staging issues. In other words, there are factors that can lead to delays in deliveries that simply occur regardless of the planning.
When preparing and negotiating your construction contract, consider the issues associated with material escalation and supply chain impacts.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.