The shortage of key materials – especially steel – is proving so damaging that it could even change the way contracts are negotiated in the UK., according to law firm Womble Bond Dickinson.
It was recently revealed that construction disputes have more than doubled in value in the space of just one year, with three quarters of those surveyed saying that their projects had been affected by the pandemic.
Jessica Tresham, construction partner at Womble Bond Dickinson, said if materials shortages are not resolved soon, the industry could return to the sort of client-contractor confrontation not seen since the 1980s.
“Contractors and developers alike are being left in completely untenable positions because the cost of developments is varying so greatly,” she said. “Steel alone is subject to price fluctuations of up to 30% – and the cost of steel is a major proportion of many modern projects.
“Delivering a project for the agreed cost is becoming difficult – and in some cases, where materials can’t be sourced, completely impossible. We’ve come a long way since the ’80s, when it felt as if everyone was sparring all the time, but this feels like the closest we’ve ever come to returning to that kind of environment. We talk about collaboration and flexibility when it comes to contractual negotiations, but we are seeing businesses being forced to dig their heels in, becoming increasingly entrenched and adversarial, because their very existence is being threatened by the complete unpredictability of these market forces.”
She added: “At the start of this year we were warning people to prepare for the unexpected, and here we are. I doubt anybody could have predicted the scale of materials shortages we are now faced with.”
Jessica Tresham said that a US-style model, in which contracts are agreed with built-in cost flexibility, could be viable in the UK.
“In the US, projects will be tendered for, and contracts signed, prior to costs being decided based on factors such as market forces. Perhaps this is the way we will need to go in the UK if the market is to get moving again,” she said.