What happens if I can't secure the materials required?

Morton Fraser Senior Associate Alastair Johnston
Alastair Johnston
Senior Associate
27 March 2023
Real Estate

It is entirely possible that your carefully costed project will commence and you will find that one or more of the materials are no longer available or have seen an increase in price.

The effect of this will depend on the terms of your contract, particularly the details in any specification and whether any provision is made for alternate materials.

Turning again to the NEC form of contract, both the contractor and project manager are obliged to notify the other when they become aware of any matter which could increase the price or delay completion/ or a key date.  Materials becoming unavailable are likely to fall under this heading and the process for dealing with an early warning is discussed in the second blog in our series, which can be found here.

A prevention event is also a compensation event. That means that if your inability to secure materials is deemed to be a prevention event, it can also entitle you to a change in the price and/or completion date. 

Under the NEC, if an event occurs which prevents or delays completion, which neither party could prevent and an experienced contractor could not foresee, there ought to be a clause that requires the project manager to instruct the contractor on how to proceed.  Whilst this is intended to deal with force majeure type events, it is possible that a sudden, unanticipated lack of a specific material could fall within this scope.  Under NEC this is also a compensation event. That means that if a contractor's inability to secure materials is deemed to be a "prevention event", it can also entitle the contractor to a change in the price and/or completion date. 

Whether an inability to secure materials amounts to a prevention/compensation event will depend on the terms of each contract and the specific facts and circumstances of the project. For example, in spring 2021 there was a national shortage of chipboard, therefore parties entering into contracts at that time should reasonably have been able to foresee that this could impact their project and as such that would not be a prevention event. Similarly, a contractor who becomes aware of such a shortage, but takes no steps to prevent the effect (e.g. by agreeing a different material or supplier) or does not notify it in time may find that they have no entitlement to a change in the price or completion date.

Similarly, under an SBCC contract there are a number of events which may entitle the contractor to an extension of the completion date and/or more money.  The standard form makes no express provision for a material shortage so unless parties agree that this is the employer's risk or the contractor can prove that the delay caused by the shortages of materials arises due to a Relevant Event, e.g. force majeure or a change in law, the risk of this remains with the contractor. Parties are of course free to agree to share risk or allocate it any other way.

Again, the key takeaway here is for parties to collaborate and work together.  If work is paralysed due to a materials shortage, it is of no benefit to either party to become entrenched in a dispute; rather the best option is to find a solution to allow work to recommence which in turn lessens any cashflow problems through the supply chain. 

Next week we will look at what protections are available to Employers in the event of a contractor insolvency. If you haven’t read our previous blog in this seriesRead the next blog in the series.

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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