Tue 21 Mar 2023

What can I do to insulate my supply chain?

The supply chain is a key part of the construction industry; most tier-one main contractors now sub-contract most, if not all, work on projects, with supply chains stretching across the globe. This means that ensuring you have a robust supply chain is key to avoiding disruption.

Brexit, Covid-19, global inflation, and the invasion of Ukraine have all had an impact on supply chains over the last few years and there are key lessons that can be learned from this. When China's (the second largest global economy) factories were hit by local lockdowns, production of textiles and processing of crude oil dropped in spring 2022, resulting in sharp drops in its retail and factory activity.  Similarly, the invasion of Ukraine and resulting sanctions on Russia disrupted access to steel, iron, nickel and chemical products, which were manufactured in both Russia and Ukraine.

How then can your supply chain be managed to mitigate and minimise disruption and escalating costs?  There are a variety of issues which lead to disruption in the supply chain including poor communication, increased materials costs, missed deadlines and unfulfilled orders.

Whilst most contractors will have preferred suppliers, it seems sensible to utilise multiple suppliers on larger projects to reduce the risk of disruption. If for example, a single supplier is relied upon to provide cement and that supplier is unable to fulfil your order, your project is left without cement, unable to proceed.  In addition, you may have left yourself open to a claim for liquidated damages by the employer/client. If, however, the provision of cement is evenly spread across multiple suppliers, the risk of the project being left without any cement is lessened.  If supplier A is unable to fulfil its order, you will still be able to procure from suppliers B, C or D and avoid a situation where you are left with no cement at all. 

Early intervention and collaboration are also encouraged in the NEC suite of contracts, for example by the use of Early Warning Notices which require the contractor to bring attention to matters which affect price or time as they occur, rather than holding back claims until the end of the contract.  In addition, the NEC contracts have an express obligation on parties to act in a spirit of mutual cooperation. 

Finally, flexibility and embracing innovation is key. It is important to ensure this trust, flexibility and cooperation filters down the supply chain. Where parties work together, and are willing to be flexible, it is much easier to identify potential interruptions to the supply chain and find solutions, which may involve new technology or materials or alternative decision-making structures, for example having multiple layers of authority to allow decisions to be taken quickly.  We will look further at innovation in next week's blog.

Next week we will look at what you can do if you can't secure materials. If you haven’t read the previous blog in this series, you can read it here.  You can read the next blog in the series here. 

Should you require assistance with any aspect of a construction contract, we have a large and experienced construction team who would be happy to discuss this with you.

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