COVID’s impact on the economy and the perceived contraction of the construction industry would not lead you to believe there are supply chain issues on construction projects.
Quite the opposite in fact. Through our local contacts and market intelligence our research findings suggest there are several issues in the industry that are impacting cost and schedule. There has been much said about lumber supply in recent months, however, our concerns reach far beyond that.
In my role as a Project Manager with BTY, I meet with developers and on-site construction personnel on a regular basis. For some time now, I have noticed increasing trends on issues affected by COVID, primarily around cost and schedule including material delays, manpower shortages across all trades, delays in onsite work due to local social distancing requirements, inspection delays due to local jurisdiction, staff working from home, countertop fabrication delays and appliance delivery delays to name just a few. Economic slowdown around the world saw manufacturing facilities put under pressure while they adhered to governmental restrictions and shutdowns around COVID. Raw materials, manufacturing, assembly and delivery were constrained by government attempts to restrict movement and maintain social distancing within factories. Some facilities have closed or are on restricted hours, and layoffs have occurred. All this culminates in a restricted supply.
In recent months we have seen a resurgence in the construction industry. Our business continued through 2020 with little in the way of slowdown. As we entered 2021, we saw an uptake in new projects as optimism returns to the economy. Coupled with the success, by comparison to other nations, of the US in the vaccine rollout, falling unemployment, a rising stock market and a resurgence in consumer optimism is helping to drive growth.
However, the impact of the supply chain issues is continuing to cause rising prices in materials themselves. This is driving higher contractor prices that are most likely passed on via the developer to the consumer. Furthermore, delays in delivery impacts the construction schedule. We are likely to see ongoing delays in existing projects and extended schedules for new projects. This will impact General Requirements and General Conditions (site running costs) and put budgets and contract prices under continued pressure. Our Dispute Resolution team has seen an increase in enquiries from both Contractors and Owners as each seek to protect their respective positions. We have already seen numerous Change Orders come through on projects which are simply ‘COVID’ issues, and due to delays.
How to mitigate the impact
There are several strategies and measures that developers can take to protect their projects. Three immediate steps to consider are:
• Secure the supply of materials as quickly as possible in the event of further shortages
• Build longer lead times for material orders into construction schedules
• Be sure to comply with contract terms with suppliers to mitigate any changes in prices
It can also be helpful to seek professional advice from a firm such as BTY. We can assist on multiple fronts through:
• Preparing cost estimates based on market prices and intelligence
• Analysing how price increases affect the overall development costs and impact on schedules
• Conducting value engineering exercises to align with pricing or budget constraints
• Recommend procurement routes and robust contract terms, particularly around the use of dispute resolution, mediation and ‘Force Majeure’
In such times of uncertainty and volatility, the sooner action is taken, the better projects can be protected. While material prices and supply chain management will return to normal, the uncertainty is here until nations get back to a level of normalcy. This is likely with us through 2021.