Uncertainty about material prices and availability is nothing new to construction contractors. They know that neither the most detailed plan nor the best-crafted contract will help when delivery falls short. "Go" becomes "no-go" in an instant, creating a ripple effect and hitting other areas of the construction project from equipment rental and staging to subcontractor assignments and jobsite security. Here's how to ease the headaches when supply-chain issues crop up.

"What once seemed like temporary disruptions have become a persistent reality," said attorney William Blasses about today's construction logistics process. "Meticulous planning can be undone overnight by a single supplier's inability to deliver."

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In this environment, said Blasses, with Kerr, Russell and Weber PLC, the standard contract is either a safeguard or a liability.

In a post on the website of the National Association of Surety Bond Producers (NASBP), he talked about logistics strategies.

It All Begins at Contract Stage

"Proactively embedding resilience into these agreements is no longer just a legal formality but a core business strategy," he said. "By tailoring key clauses to their needs, companies can better insulate themselves from costly volatility."

Blasses urges clients to consider the foundation of any agreement — clarity — before examining specific clauses.

Contracts riddled with ambiguous terms, he said, are invitations for future disputes because each party will interpret subjective terms advantageously.

"A truly defensive contract systematically replaces such ambiguity with objective, measurable standards," said Blasses. "This precision is the bedrock of an enforceable and reliable agreement."

Setting boundaries and expectations for both parties, reinforces the business relationship and avoids the potential to deteriorate it over time, said Blasses.

Market volatility spells price fluctuations in key construction materials, cautions tax and accounting firm RSM.

Supply-chain digitalization and scenario planning are "no longer aspirational; they are essential," said business advisors with the organization.

"Forward-thinking construction leaders are responding proactively," said Mac Carroll, real estate industry analyst.

They ask the right questions and invest in strategies that build resilience.

RSM clients' biggest question is how to prepare for potential cost increases.

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A focus on forecasting, communication and relationships will get contractors through the challenges, believes Joe Barbalaco, a management consulting manager. He advises clients to run a sensitivity analysis on current and upcoming projects to assess how margin would shift with changes in key material prices.

Barbalaco gives clients a list of steps they can take now:

• Ask suppliers for their forecasts on material input prices that could impact upcoming projects.

• Lock in long-term contracts with suppliers, where applicable, to purchase materials at prices that your margin can bear today.

• Diversify the procurement function through relationships and forecasting with multiple suppliers, including local and regional suppliers.

• Review inventory management strategies and revisit escalation clauses in current agreements to manage volatility and spread its impact.

• Communicate with subcontractors to understand the pressures they are facing and how they are managing them; identify hurdles you can overcome together.

• Talk to your bank to secure and protect funding capacity, such as lines of credit, to enable your firm to deal with surprises.

• Connect with your accounting firm and bonding company about the balance sheet and run best-case and worst-case scenarios to prepare for a variety of outcomes.

"Contractors should be proactive in managing price increases and communicating with owners and subcontractors," said Barbalaco. "Uncertainty surrounding material prices and material availability is not new to contractors who survived the COVID-19 pandemic and in many cases thrived."

The lessons learned from price escalation clauses during the pandemic have contractors reviewing, revisiting and building on those provisions, noted RSM.

David Luker, a risk consulting partner, recommends contract provisions for material price fluctuations as incentive for both project owner and contractor.

"One approach is to establish a material price escalation fund, which would release funds to contractors in documented cases of price increases," he said.

A material price escalation fund also returns funds to the owner when prices remain stable or decline, functioning like an allowance or contingency account.

Harnessing Data for Better Business Footing

RSM advisors said clients leveraging technology to harness internal and external data are better positioned to navigate uncertainty.

They ask construction leaders to consider which projects, teams or clients are performing best, and where client organizations can create the most value.

Barbalaco believes an enterprise resource planning system and project management software that align seamlessly with business needs are essential. With the most efficient software solution, tracking inflows, outflows and true project profitability are at a construction executive's fingertips.

"The right solution depends on your firm's size and complexity; however, the key is to maximize the value of whatever system you choose," said Barbalaco.

"Equally important is having strong data governance in place to ensure that data is accurate, consistent and accessible across systems and teams," he said. "Without a clear data governance framework, contractors risk making decisions based on incomplete or conflicting information."

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This can happen especially when dealing with multiple projects and external providers, added Barbalaco.

Grace Ellis, content manager of Autodesk, said the key for contractors to stay ahead of the supply chain game is to keep up with trends. Following supply-chain trends will help you identify opportunities and action steps for your teams and projects, she said in a blog post.

Start by focusing on planning with accurate forecasts, she urges Autodesk clients.

"Costs tend to fluctuate when the supply chain is tight, so it is essential to plan and forecast appropriately," said Ellis.

Pay attention to events that may affect the supplies you need and factor those in when planning your budget and forecasts.

"It also helps to adopt solutions that make it easy to amend costs and bids," she said.

A cloud-based platform enables all stakeholders to collaborate in real time so when prices fluctuate everyone can see changes and adjust accordingly.

Choose the right partners, advised Ellis, adding that for successful supply-chain management, multiple parties need to work well together. That includes suppliers, contractors and subs.

"For this reason, you must select the right construction partners for your project," she said.

Evaluate potential suppliers and partners by looking at the quality of their goods or services, particularly amidst recent supply chain challenges.

"Ask for references and consider their post-sale terms," said Ellis. And use a supplier management system to review and track vendor information.

"Some solutions allow you to input your supplier requirements and standards, so potential vendors or partners can determine if they are a good fit," she added.

Create clear communication processes to avoid issues and ensure everyone can relay information efficiently, the content manager advised.

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The specific process will depend on your project and team, said Ellis, but should include:

• Status and availability of materials. Pay attention to any goods or supplies you need for the project and where they are in the supply chain, she said. Look at the materials in the pipeline and determine whether everything is on track.

• Potential or predicted issues. Instill a forward-thinking mindset in your partners to empower them to foresee potential mishaps. "Brainstorm solutions with your vendors and contractors, then produce action steps if things go differently than planned," she advised.

• Changes in pricing or lead times. "You will want to know about price changes and delays sooner rather than later," said Ellis. It's crucial to make sure these are brought to your attention ASAP, then work with stakeholders to change course when needed.

• Invest in the right tools. Autodesk preaches to clients that technology is not a magic fix for all supply-chain issues but can improve efficiency and reduce risk. "Cloud-based construction management solutions enable teams to work smarter and have a better handle on all materials needed for a project," said Ellis.

• Better insights into supply product information and pricing. "Modern construction platforms can connect to suppliers for real-time quotes and pricing data," she said. "In a rapidly changing environment, having updated info is critical for putting together accurate budgets, quotes and bids."

• Improve collaboration and communication between teams. Using the right construction solution makes staying connected with your team immensely easier, believes the Autodesk content manager. With it, stakeholders can collaborate on a single platform, so supply chain updates, issues and action steps are raised and resolved quickly.

• Integrated supply chain workflows. Connected construction solutions enable the user to capture data in the field, which can then be synced with other applications. These integrations speed up admin and procurement tasks, saving time and lowering unnecessary costs, said Ellis.

• Streamlined payments and billing processes. "Connected construction also simplifies payment- and billing-related workflows," by enabling subcontractors to digitally submit pay applications. From there the processes will route those requests to project managers for prompt approval. "Modern tools can let you and your subcontractors track payment status online, reducing the need for back-and-forth conversations," said Ellis. She believes improving supply-chain systems takes time and money, but offers an organization more transparency, tighter cost control and ultimately more work.  CEG