12 ways contractors can mitigate impacts of materials shortages and price escalation

1.    Avoid long term, fixed price contracts

2.    Check price adjustment mechanisms in upstream contracts

  >  Check the trigger conditions – unit price threshold & date threshold
  >  Check all scope is fully covered by price adjusting mechanism
  >  Insist on provisional prices for particularly sensitive / uncertain work scope

3.   Seek out Target Cost (or if possible cost-plus) contracts

  >  Check risk sharing arrangements are fair
   >  Is the Target, or reference Price index adjustable?

4.   Check price adjustment compensation limitations within Framework Agreements

   >  Challenge the status quo
   >  Avoid long term price lock-in

5.   Thoroughly ‘market-test’ pricing at tender stage

6.   Maximise product selection & value engineering opportunities

7.   Seek out opportunities for upstream ‘prime-cost contracting’

  >  Secure benefits of a two-stage or multi-stage tendering approach
  >  Reduce period between agreement of price, and delivery of works packages

8.   Use locally sourced products and components where possible

9.   Maintain strong focus on early procurement

  >  Early freeze of design solutions, integrated with procurement and scheduling
  >  Ensure design and procurement management resources in place at front end

10.  Thoroughly understand whole supply chain of products and components

  >  Sourcing origins & sub-components
  >  Manufacturing arrangements
  >  Chains of custody, shipping & storage
  >  Security of title

11.  Leverage supply chain arrangements

  >  Closer and earlier engagement with suppliers
  >  Share benefit of long-term success in exchange for preferential supply arrangements
  >  Explore partnering opportunities to benefit from economies of scale
  >  Explore innovation opportunities to benefit from supply exclusivity
  >  Forward ordering opportunities
  >  Multi-supply sourcing of standard products to diversify risk

12.  Use standardised and repeatable design solutions to benefit from bulk purchasing

  >  Embrace modular and off-site manufacturing
  >  Use on-site batching plant with bulk purchased raw material
  >  Set up off-site logistics centers and deploy bulk purchasing