4th Aug 2021

Building Boom and Material Shortages in the Construction Industry - what does this mean for disputes?

You will have no doubt noticed that business is booming for the construction industry at the moment. Just a stroll in your local neighbourhood should reveal many residential projects underway from extensions and loft conversions to entire new builds. 

There is no doubt similar activity in the commercial property sector too as buildings are developed to acknowledge the change in the behaviour of both customers and businesses as we hopefully move towards a post pandemic era.

Like a coin though, there is a flip side to this boom in activity as construction companies struggle with material shortages, which in turn is leading to a considerable increase in price for the materials that can be obtained. If a business does not factor in this issue as part of its quote and contract process, then it will either end up out of pocket or a dispute will inevitably arise as they are faced with attempting to pass on the price increase to the customer.

It is of course difficult to fully account for an increase in material costs at the outset of a building job as the ultimate price will simply be unknown at this stage. This is because materials are usually purchased some if not many months after a price is agreed.

If you are a construction business, you therefore need to give serious consideration to this issue at the very outset to attempt to factor in a future price increase (if the customer will agree to it) or at least negotiate terms that should not leave you out of pocket at conclusion of the job. Given that the ‘construction industry’ is a term that covers everyone from a sole trader builder to a multinational construction plc, the options here are considerable and job specific. However, they could include not agreeing a fixed price for materials or working on a time and materials basis. Another option could be to try and share the risk of a price increase with your customer.

If, during the construction process, you are faced with the issue of a significant increase in material costs, then you will need to review the contract to establish whether that further cost can be passed onto the customer.

Whatever issues you may face as part of a construction job, the key to any dispute is communication and negotiation. If issues arise then discuss them with the customer and see if a compromise or negotiation can be achieved. Litigation should always be a very last resort.

If you require any specific advice or support in this area, please call Natasha Guest on 01423 543141, or email natashaguest@berwins.co.uk.

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