Protecting Yourself During the Materials Crisis
If you are facing material delays or discovering that the supplies you need are not available, you are not alone. From coast to coast, contractors are experiencing the materials crisis, and it is impacting not only construction but also carmakers, computer manufacturers, and other professions. Even supermarket shelves are missing certain items.
This is a challenging time for contractors since supply issues can wreak havoc on construction schedules. As a result, you may wonder when you can realistically finish your current projects and if you dare sign contracts for new ones. You may feel understandably frustrated; however, you should be aware that the strategies outlined below can help you navigate these uncharted waters.
Review and Revise Your Contracts
Take time to review all your current contracts and determine what materials provisions are already included in them. For example, look for any clauses that address delays. Some delays are considered excusable, such as those caused by severe weather, and usually they permit time extensions. But material delays are often regarded as inexcusable, which means you will have to make up the lost time with additional labor and costs. If you do not have one already, see if you can add a material delay clause, which will allow a time extension.
Also, check to see if your contract includes a price acceleration clause. When material costs go up after you sign the contract, this clause permits you to increase your price accordingly. For example, the provision might read that if material costs rise by more than 5%, you can raise your price without the need for a change order. However, you must provide the owner with documentation of the price increase.
Another option is a material substitution provision. With this clause, if you discover that a material specified in the contract is not available, you are allowed to make a reasonable substitution.
Even if you cannot revise your current contracts, keep these clauses in mind when you begin to negotiate new project agreements.
Partner with Your Suppliers and Stock Up
During this supply crisis, be sure to stay in close contact with your suppliers. Talk to them about your priorities and ask for their advice. When you treat your vendors like trusted partners, they are more likely to go the extra mile for you.
Once you know what materials you can get, start to build up an inventory of commonly used items. This approach will help you prepare for future projects and prevent some delays.
Check Out Your Insurance Policies
If you decide the stock up on supplies, make sure you keep everything safely stored and protected. To accomplish that, check in with your insurance broker and make sure you understand what your policy will cover.
For example, if you keep the inventory in a storage unit on your property, your policy probably covers it automatically if the unit is on-site for a short time. If you need to retain the storage unit for an extended time, discuss this matter with your insurance agent. You may need to provide a list of items you are storing and increase your property storage limits. This action will ensure that if materials are damaged or stolen, you are covered for their value. If you keep supplies at an off-site location, share that information with your broker. You will probably need to provide the storage facility address, the square footage of your unit, and details about security and sprinkler systems. Remember that your property insurance will probably cover any damage from theft, fire, and weather, including some water damage. However, flooding may not be covered, so you may need to purchase flood insurance, too.
Be sure to review your policy and ask your broker if your property is covered by cash value or replacement cost. With a replacement cost provision, when you file a claim, you would receive adequate funds to replace the items with the same kind of items. But with a cash value provision, you would receive funds representing the replacement cost based on depreciation, with age and condition taken into account. Another provision to look for is an inflation guard. This language permits your policy limit to increase by a specific percentage over the policy term.
Finally, ask your insurance agent if your policy covers expedited shipping for materials you require. For instance, if materials you had on hand are stolen, you may be able to order more. However, with regular shipping, they may not arrive on time. Expedited shipping can be costly, but it may be necessary to keep your project on schedule.
As you navigate your current projects and plan for future ones, be sure to keep open lines of communication with your clients, your crew, and your suppliers. By keeping everyone informed, you have a better chance of completing each project successfully. Also, it is essential that you maintain detailed records, especially regarding delays, change orders, and price increases. Keep track of your emails and your clients’ responses. Managing this documentation will help you be better prepared if you have to file a claim or mount a defense against one.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.