By Roland Murphy for AZBEX
Since the pandemic started wrecking already tenuous project timelines and the availability of labor and materials, experts and construction industry pundits have repeatedly warned contractors to buy and store all the materials they can get their hands on when they find it at reasonable prices and to, most importantly, start adding cost overrun and timeline factors into their contracts.
Unfortunately, many contractors, particularly smaller subcontractors, do not have the storage space or upfront capital to buy materials in bulk. For other contractors, like landscapers, materials and supplies must be bought as close to the last minute as possible.
Because of the pandemic and its exacerbation of supply and labor issues that existed well before anyone had ever heard of COVID-19, many contractors are being forced to walk away from projects or to absorb cost increases that are now several times the amounts quoted when the contract was signed.
According to a recent report in Phoenix Business Journal, many of those same contractors are also being sued for non-performance if they walk away or forced into bankruptcy if they try to absorb the newly increased costs beyond those stated in the initial estimates and agreements.
Even though surcharge provisions are not a new development in contract terms or negotiations, many service providers and contractors still fail to include them as a matter of course. Those vendors are now seeing the impacts of failing to use clear contingency language to protect themselves.
In a June 25th, 2021 column in GlobeSt.com, Robert W. Barone of Partner Engineering and Science, Inc. provided a detailed list of items for developers and contractors to consider in the face of ongoing supply chain issues. While the issue has only accelerated since then, Barone’s points are still valid. Among them:
- Establish how “locked in” contract numbers are and detail contingencies and exceptions;
- Add allowances for materials and benchmark potential price changes at the time of purchase;
- Set and confirm the shelf life of a bid. Clearly state how long a given price will remain in effect, and
- Repeatedly verify order statuses with suppliers and delivery vendors to ensure needed products will be available and delivered on time and at the agreed upon price.
Nothing could have prepared anyone for the events of the past two years, but there is enough data now to prepare to product ourselves from at least some of the ramifications as we move forward.