Supply Chain Disruptions – Options for Owners & Contractors
The SKCA’s Advisory Council held an emergency meeting in May to discuss the current challenges in materials supply and price escalation in the construction industry.
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With the increasing delays in construction materials for a multitude of reasons, demand has sky-rocketed and prices are escalating quickly.
Cancellation of projects would be detrimental to everyone.
Instead, we implore everyone to mitigate these issues early on.
The below messaging is being shared with members, municipalities, the provincial procurement body, and the Infrastructure Owners Forum.
Share the risk.
- It is unreasonable and unfair to place all of the risk with the contractor when they have just as little control over the situation as a designer or owner does.
- Consider a material payment adjustment clause in tender documents to allow for fluctuations.
- Owners should be understanding of sudden price increases, and likewise if the price decreases, contractors should be willing to adjust their pricing accordingly.
Avoid starting a bidding war on supplies.
- This achieves nothing but skewing the market.
- Even the players with the most money are not guaranteed products. Many overseas material supply contracts are not being honored, and Canada is behind in the pecking order for shipment container space.
Owners & Designers
Remove extensive negotiation periods (i.e. 30-day awards) from proposals and consider awarding within 7-10 days.
- You will have a much better chance of securing materials at (or as near to) the price at the time of tender.
Engage with contractors early.
- Collaborate with your contractors to address price and material supply issues early in the tender process.
- Identify which critical components in the project will have a scheduling impact if delayed.
Be open to alternatives.
- Keep an open mind to alternative methods and products.
Beware the under-bidders
- Awarding based on lowest price is riskier now more than ever.
- Responses to tenders that are drastically different from where most bids appear to be hovering are probably not realistic. If it seems to good to be true, it probably isn’t.
Identify which supplies are not replaceable.
- Owners need to have an open mind to alternative products, sourcing methods, or building processes, but they must also be aware of what cannot be adapted.
Keep an eye on which materials are ‘hot’.
- It may be worthwhile to track the costs of certain materials over time, to best estimate the trends.
Consider advising Owners to either award earlier (see above) or request that they allow contractors to provide alternate price on bid forms for shorter award periods.
- This allows the Owner to decide to go with the price now, or later.
- This also helps to reduce over-bidding, though we recognize that this is not a perfect solution.
- It is important to order materials as soon as you know you will need them, but do not hoard materials ‘just in case’ as this will only worsen the situation.
- You will pay the price later for underbidding today.
- In some cases, supplies are increasing as much as 50+%, and owners are unlikely to cover the increased material costs if its not in your contract.
Communicate early and often.
We are all in this together!
Feel free to reach out to the SKCA at anytime for assistance with broadcasting information to industry.
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