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
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