Lorna Carter

+44 (0)1223 785299 lecarter@greenwoodsgrm.co.uk

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Payal Patel

+44 (0)20 3691 2079 ppatel@greenwoodsgrm.co.uk

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The Materials crisis – costs continue to rise for the 12th consecutive month

Construction / 02 December 2021

In the last year, construction material prices have risen every month and have increased by 23.6% – a truly staggering statistic. The materials shortages have started to ease. However, the cost of materials could continue to increase well into 2022.

According to the Construction Products Association, nine out of ten materials suppliers are expecting the cost of materials to rise even further over the next 12 months. The prices have increased because of the long lead times and increase in demand. This has made it difficult for manufacturers and suppliers to build up their stock levels and those at the lower end of the chain (SME Builders) often have little to no storage facilities to hold stock.

Naturally, the price increases on construction materials are also having an impact on tender prices. Contractors are having difficulty honouring their tender prices for any considerable period because of the swift rise of and uncertainty in the cost of construction materials. Construction contractors are also having difficulty in claiming for additional payment under “price escalation” as there is often a lack of clarity and consistency regarding the payment of “price escalation” in tender guidelines and contract documents. For example, many tenders do not include a clause for “price escalation” in violation of the national tender guidelines, so these contractors cannot claim any payment for unexpected rises in construction materials. Even where a tender does include a provision for “price escalation”, the formula used to calculate that escalation is often not on par with the current market prices. In some tenders, the claim for price escalation is limited to selected building materials. Contractors cannot claim payments for unusual price increases of materials that are not included in the list as eligible, for example, water pumps. For contract work that can complete within three months, price escalation clauses tend to be omitted.

Given the current climate where there are significant shortages and price increases in the supply chain, it is vital to ensure you consider all factors when preparing a tender, an invitation to tender or quoting for a job.  Always ensure that you include the relevant price fluctuation clauses into your contracts and only hold tenders open for a sensible period given the nature of the products.

If you would like help with drafting your contracts or understanding their implications, please get in touch with our highly experienced construction team.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: mailinglists@greenwoodsgrm.co.uk

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