3 Tips for Owners to Tackle Supply Chain Shortages

Will the Construction Industry’s Supply Chain Issues Continue in 2022?

Across the country, owners, contractors, and suppliers in the construction industry are dealing with the effects of delayed material availability and material price increases, with price increases anywhere from 16% for trucking costs, to the cost of steel mill products increasing by 142% since October 2020. While no contractor is certain what 2022 holds for the construction industry, Bryan Willoughby of Willoughby Construction in Jupiter, Florida, says that their team is “constantly reevaluating shortages and maintaining good relationships with suppliers to secure materials, and generally taking it day by day.”

Bryan Willoughby of Willoughby Construction in Jupiter, Florida, says that their team is “constantly reevaluating shortages and maintaining good relationships with suppliers to secure materials, and generally taking it day by day.”

So as project costs increase due to material costs, oftentimes the question becomes—who pays for the price increase? The confusion and disagreements are causing strain between owners, contractors, and suppliers (and their lawyers), leading to possible contract breaches and defect claims all around.

Here are three tips for owners of capital improvement programs to consider when looking to mitigate supply chain shortages.

1. Select Your Materials Wisely

We all know that working closely with engineers and architects on choosing materials that are not only available, but meet building code requirements, can mean the difference between finishing on time and on budget, or massively exceeding projected completion dates and budget expectations.

However, choosing contractors and suppliers may also not mean going with the traditional least expensive contract—it could mean looking deeper into supply chain relationships, contractor and supplier availability, and potential material substitutions from the beginning.

Encouraging your contractors to order materials as early as possible with a delivery window will be beneficial, as the schedule can then be projected around the delivery window. This could mean taking delivery early on certain materials and then paying to store and insure them.

Incidentally, linking your project schedule and budget is a smart move as an owner. When these are no longer independent data sources but are continually refreshed with the latest information, you can maintain accurate estimates for cost-to-completion and cash flow. Consider leveraging an advanced digital construction management system feature, such as e-Builder Enterprise’s scheduling capabilities to coordinate deliveries, subcontractors, and suppliers to highlight and project potential problems before the schedule becomes the cause of a cost and project completion date overrun.

Encouraging your contractors to order materials as early as possible with a delivery window will be beneficial, as the schedule can then be projected around the delivery window. This could mean taking delivery early on certain materials and then paying to store and insure them.

2. Re-evaluate Contract Terms

Owners should consider a fresh perspective of their contract terms, as it might be time to edit and update contracts to reflect current supply chain demands and problems. Contractors will also be looking for clauses that prevent being held liable for building defaults that occur from owner-initiated material substitutions.

Owner contracts will need to allow for payment of stored and insured materials, and deposits to secure a place in line for fabrication of required materials, and may even suggest incentive payments for suppliers to provide materials ahead of their scheduled delivery window.

Contracts should also be examined for escalation clauses as contractors are requiring escalation more frequently. This is a clause that guarantees a change in the agreement price once the value of a certain item or material goes beyond the price agreed upon in the original contract terms, authorizing the contractor to claim higher value for the contract. Escalation clauses are being used for fluctuating prices in labor, materials, and transport costs.

If all of these financial transactions are currently being tracked in a separate system, consider integrating your existing financial software with e-Builder Enterprise, which allows owners to track the budget and cash flow implications of a project schedule with accurate, connected data to plan ahead for supply chain-related complications.

3. Anticipate Shortages, and Keep Experts on Retainer

There will be times when an approved material is simply not available, and this is when bringing in the engineer or architect will be important to understand the implications of a material substitution. No stakeholder wants to see any replacement fail, and evaluation of the material substitution is a priority.

Consider keeping an engineer on retainer for your project so that you are not waiting on the approval, and allowing the waiting game to be the delay of your project. Keeping detailed records of efforts to obtain the agreed upon materials, and records of the substitution, will also be a key component of maintaining good relations between contractors and owners.

An efficient digital construction management system should be able to support the document management and communication efforts between owner and contractors, and communicating RFIs, change orders, and updated “as-built” documentation becomes part of a predefined workflow.

Takeaways

Leaders within the industry, owners of Capital Improvement Projects (CIP) require solutions that can offset and mitigate supply chain issues prior to the project start. From choosing the right contractors and suppliers, to having contracts in place that address supply chain shortages up front, easily tracking documentation throughout the life of the project, and working closely with engineers and architects for material substitutions are all ways that material availability issues can be monitored and professionally addressed.

While owners are dealing with many factors outside of their control in the construction industry, setting themselves up to pivot, adjust, and respond to supply chain demands accordingly with e-Builder Enterprise’s project management system can help owners to track these considerations with confidence.

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