Management of Supply Chain Risk: Keeping Your Project on Time and Budget

This article derives from a panel presentation at the January 2023 AGC Surety Bonding and Construction Risk Management Conference in Bonita Springs, Florida. The panel consisted of engineers, insurance experts, a contractor, and an attorney and covered strategies to mitigate supply chain issues to keep projects on time and on budget. The panel addressed, among other things, contract clauses to mitigate supply chain risk, including material escalation, force majeure, substitution of materials, notice, and termination. This article digs even deeper than the panel discussion and provides updates on the lessons learned from the COVID-19 supply chain disruption and its impacts on legal risk allocations for construction projects.

Part I of this article provides a brief background of the economic hardships suffered by the construction industry arising from supply chain disruptions. Part II examines the different types of applicable legal doctrines and theories that might apply to a supply chain issue, including (a) common law theories, (b) contract clauses for price escalations, (c) contract clauses for force majeure, (d) contract clauses for change orders, and (e) common law doctrine of commercial impracticability. Part III identifies special items for consideration: notice, proof, and schedule. Part IV discusses various approaches in contract negotiations to address supply chain issues. Lastly, Part V presents various approaches in project management to address supply chain issues.

I. Background Facts of Supply Chain Volatility During the COVID-19 Period

The volatility in the supply chain resulting from COVID-19 caused significant challenges for obtaining materials on a timely basis and pricing of materials. Due to these supply chain issues, the construction industry (and the global economy) suffered ripple effects caused by these issues, including:

• Construction firms were burdened with a 21 percent rise in material and labor prices between March 2021 and March 2022.
• From a construction industry survey, 89 percent of respondents experienced project delays, with the major source of said delays being materials shortages.
• For example, switchgear fabrication times were four to six months prior to the pandemic. But due to supply chain issues, fabrication times for switchgears increased to between 14-18 months.
• NAHB reported that lumber prices added $36,000 to the average new single-family home price in 2020–2021.

Supply chain difficulties arise from time to time in any industry. Historically, however, supply chain issues typically affected a specific component or material, while the rest of the economy remained stable. One of the notoriously challenging aspects of the recent supply chain problem was the overall pervasiveness of the problem. The impact of the disruption was affected more than a singular, isolated piece of equipment; the disruption impacted nearly all segments and trades in the construction industry.

When the supply chain first became volatile in 2020, some predicted that the challenges would be temporary. Some of the price volatility at that time was considered by some to have been “bottleneck inflation” caused by mismatches in supply and demand. This occurs when the supply or production of a specific item drops, yet the demand remains the same or increases, thus creating a “bottleneck” of consumers attempting to purchase the product, resulting in increased prices.

The bottleneck explanation was a favored theory for the drastic increase in lumber prices, which at times more than tripled in price from standard industry averages at certain points during the pandemic. With bottleneck inflation, a cyclical pattern will present itself. First, prices rise quickly because of the bottleneck. Second, because of the high prices, demand drops; due to the drop in demand, the bottleneck is relieved, and prices may crash. But the price crash is temporary because, third, the price drop results in pent-up demand flooding back in, causing prices to quickly rise. With the increased demand, once again, the bottleneck occurs, and this cycle of volatile price increase and crash can repeat multiple times, typically with each wave being slightly less volatile, until the cycle smooths out. This appears to have been the situation with lumber during the pandemic.

Shocks to the economic system have been both numerous and drastic during the COVID-19 pandemic. Government orders hindered or shut down segments of the economy, causing reduced supply capacity and other atypical casualty events (such as the Texas energy crisis), significantly crippled manufacturing and supply chains. Other events included wildfires, hurricanes, and the Russian invasion of Ukraine. Inflation and interest rate dynamics also created challenging economic pressures for the construction industry.

It also may be that the global economy has become so sophisticated, lean, and efficient that significant supply chain disruptions of this nature will become more common. The modern economy runs on leaner efficiency models, using “just in time” (JIT) manufacturing to reduce stockpiles and costs. When everything works as anticipated and with great precision, the benefits of this JIT manufacturing are clear—the risks of excessive production or storage are drastically reduced. If problems arise, however, there are limited backfill or alternative options because many individualized, granular components of the supply chain are specialized and sophisticated. And with lean, limited stockpiles, a breakdown in the chain may not be so easily fixed.

In other words, disruptive forces on the supply chain might increase in frequency, and impact, in this new modern economy. It is best for those in the construction industry—whether a contractor, subcontractor, owner, construction manager as advisor, design-builder, or design professional—to take lessons from the recent events and be prepared for best practices to handle supply chain issues in the future.

II. Legal Issues and Doctrines for Consideration in Supply Chain Volatility

The volatility and unpredictability in the supply chain lead to key questions: Who bears this risk, and what legal approaches should be considered?

A. Default Common Law Approach to Supply Chain Issues on Construction Projects

Nearly all construction projects are governed by contracts, which allow parties to freely negotiate rights, obligations, and risks. Negotiated or hard-bid contract clauses tend to govern supply chain risks on construction projects; rarely would a general principle of common law govern.

Nevertheless, as an initial starting point, the traditional common law rule is that the contractor carries the risk of economic volatility. This is because a contractor’s promise to construct the project includes the business risk of supply chain difficulties, price fluctuations, and various other project risks, unless the contract addresses the risk to the contrary.

A limited potential exception under the traditional common law is if the event causing disruption or nonperformance was a significant and unforeseeable event, such as a natural disaster, which could cause a sudden and severe shortage of a material or supply. These types of events are very fact specific and were historically referred to as “Acts of God.”

Modern common law has redefined the lens and application of the doctrine “Acts of God.” Hardships that unforeseeably and significantly hinder performance, depending on the circumstances, are presently analyzed under the common law doctrines of impossibility, impracticability, frustration of purpose, and mistake. These modern doctrines have subsumed the antiquated, narrow label “Acts of God,” and are analyzed further in Part III, infra.

Therefore, to determine rights and obligations on construction projects, the most consistent approach is to analyze the fact-specific events through the lens of primarily (i) the contract itself and any clauses that allocate risk of such type, and (ii) the common law doctrines of impossibility, impracticability, frustration of purpose, and mistake (if no contract clause is on point). Practitioners also should be careful to analyze whether the specific event, contract, and jurisdiction allow for either additional time, compensation, and/or other (usually more rare) relief akin to a rescission, termination for convenience, or cardinal change depending on the specific factual circumstances.

B. Contract Clause of Potential Application: Material/Price Escalators

The most specific and reliable approach for supply chain issues is for the contract itself to expressly address supply chain disruption such as delayed deliveries or price fluctuations. A properly drafted clause will generally be enforced to afford the agreed-upon, negotiated relief. The successful outcome of a carefully crafted contract clause—relief obtained—cannot be said for the majority of common law doctrines discussed in this article. Thus, of particular importance, Part V, infra, discusses various approaches for negotiation strategies on escalator clauses.

Typically, escalator clauses are negotiated on private commercial projects. Public projects, on the other hand, are usually nonnegotiable. Contracting officers may elect, however, to include certain price and supply chain clauses in the contract documents. This can occur by decision of the public owner, or, sometimes, during the pre-bid period, requests are made for clarification and inclusion of the clause.

Federal government projects may provide an Economic Price Adjustment clause (FAR 16.203-4 and 52.216-4). Pursuant to this clause, price fluctuations can be passed through to the government with increased unit prices. Generally, the clause is only used on large projects that last for an extended period of time. If the clause is in the contract, the contractor must notify the government contracting officer within 60 days of the price change. The unit price must change by at least three percent for the clause to be applicable, and the contract can limit the aggregate increases to 10 percent. Further, the contract must specifically list the applicable material in a schedule with an identified baseline unit price.

Recognizing the deleterious effect of price escalation on projects, the Department of Defense issued guidance on May 25, 2022, that all DOD contracts are encouraged to consider use of a price escalator clause. Without such clause for price adjustment, generally, as is the common law for fixed-price contracts, the contractor bears the risk of price fluctuations in the supply chain.

Similarly, some state contracts, including state highway, roadwork, and bridgework contracts, often include price escalator clauses for materials, particularly indexed materials such as steel, asphalt, and fuel.

C. Contract Clause of Potential Application: Force Majeure

Force majeure clauses are express contract clauses that address risks outside the parties’ control and are sometimes referred to as protections against “Acts of God.” The reference to acts of God, however, is a misnomer because acts of God typically mean natural disasters, not economic hardships or market issues. But a force majeure contract clause need not be limited to natural events. The parties can define risks and remedies as they so please. Accordingly, a contract also may identify a variety of man-made events (e.g., riots or unusually slow supply chains). Most construction contracts identify a combination of specific man-made and natural events for which relief is afforded. While relief can be jurisdiction-dependent, typically the party seeking relief under a force majeure clause must establish that the claimed impacts resulted from no fault of the claiming party, that the event impacted the ability to perform, and that the event was unforeseeable. Prudent practitioners will confirm the controlling jurisdiction’s law on force majeure clauses because much variation and nuanced differences exist in enforcement, interpretation, and application across states.

In construction contracts, supply chain issues are typically addressed as force majeure–like events. For example, Section 8 of the AIA A201-2017 General Conditions affords an extension of time for various events—labor disputes, fire, unavoidable casualties, adverse weather conditions, and “unusual delay in deliveries.” But the AIA General Conditions does not address “price.” Instead, it addresses “delay” only. Further, the clause only expressly provides for an extension of time; it does not specifically provide any relief for price fluctuations in the supply chain.

Likewise, the ConsensusDocs 200 Standard Agreement and General Conditions Between Owner and Construction, Section 6.3.1, affords an extension of time but does not expressly provide additional compensation for force majeure events. Similarly, the FAR force majeure clause affords an extension of time but not additional costs. In Appeals of BCI Construction USA, Inc.,one of the few cases addressing COVID-19 as a basis for a claim, the ASBCA held that the contractor bore the risk of additional costs for labor or materials arising from supply chain issues due to COVID-19 and granted government’s motion for summary judgment on the issue. But the Board also held that whether the contractor was entitled to an extension of time as a result of the issue was a genuine issue of fact for resolution at trial.

The fact that additional compensation is not identified in a force majeure clause does not, however, necessarily mean that compensation is barred. But “unusual delay in deliveries” in construction contracts would typically be categorized as an event outside the fault or control of either party, which is generally an excusable, but non-compensable delay.

A contractor-friendly boilerplate force majeure clause could be drafted to address price fluctuations or to provide additional relief, such as a time extension plus additional compensation. Many owners, however, might balk at such clauses. Typically, if relief is negotiated for price fluctuations, a negotiated price escalator clause is more common than boilerplate force majeure clauses.

For contractors seeking to protect themselves when negotiating force majeure clauses, care must be taken in drafting such clauses broadly to ensure that the identified force majeure events are not interpreted as exclusive. For a contract to afford relief for economic hardship—such as price inflation or supply chain delays—it is best practice for the contract to expressly identify the said risk and the specific relief afforded (time, money, or both).

Contractors in search of relief have sometimes tried to rely on “catch-all” provisions in force majeure clauses. The gist of catch-all clauses is that relief may be afforded for unforeseeable causes beyond the control and without the fault or negligence of the contractor. It has been held that catch-all relief could apply to unusually severe and unanticipated supply chain disruptions.

Reliance on the nonspecific catch-all provisions, however, is unpredictable. Depending on the language of the clause and the specific jurisdiction, courts have held that market conditions alone do not qualify as force majeure events. It is also important to recognize that catch-all provisions are dynamic and dependent on the facts and timing of the events. For example, if a contract was entered in January 2020 (three months prior to the March 2020 global pandemic), the contractor would be in a better position to argue that the fallout from the global pandemic was unanticipated and unforeseeable. But if the contact was entered in June 2021 (well into the global pandemic and at a time when supply chain issues were widely reported and known), the contractor would be in a more difficult position to claim that the supply chain disruption was unforeseeable.

D. Contract Clause of Potential Application: Change Orders

Negotiated contracts can expressly permit change orders for identified risks, including supply chain issues. This is a specific variant of a price/material escalation clause (or a force majeure clause), categorizing it as a change order clause. Absent specific language, most change order clauses do not identify supply chain disruption as a change. Instead, change orders tend to be used for modifications to the work, extra work, upgrades, changes to the design, or unanticipated site conditions.

The common theme with modifications, extra work, upgrades, changes in design, or differing site conditions is that such circumstances are initiated by either an on-site event or owner decision to change the specifications, drawings, or scope of work. Off-site events, such as supply chain disruptions, typically do not fit the definitions of extra work, change orders, or differing site conditions.

E. Common Law Doctrine: Commercial Impracticability

Even where a contract does not contain a force majeure clause, some courts still afford relief as an excusable but non-compensable delay under the common law. One could argue mistake or impossibility; however, typically, the most applicable doctrine is commercial impracticability.

Commercial impracticability “occurs when unreasonable, excessive, and unforeseen increases occur in a contract’s cost of performance making performance senseless from a business standpoint.” To be afforded relief, the risk of the unexpected occurrence cannot be assigned to the party requesting relief, and the occurrence must render the performance commercially senseless. It has been articulated that in instances of price increases by the market, commercial impracticability may be a viable argument if the price increase in question is “so exorbitant that no buyer would be willing to pay a price which included that cost.” While this standard has articulated, the precise evidence and circumstances sufficient to establish that a price has gone so high that no person would be willing to purchase it remains unclear.

Under the common law, if there is no contractual force majeure clause, an act of God—natural disasters, such as flood, fire from lightning, or volcanic eruption—may suffice as a commercial impracticability. But, as previously indicated, acts of God at common law are typically those of a natural disaster variety, not economic price fluctuations.

Risk of price fluctuations, unlike acts of God, are typically allocated to the contractor, and an increase in costs alone is typically insufficient for a finding of commercial impracticability. Even a large increase in a specific material cost alone is unlikely to render performance under the contract commercially impracticable. This is particularly true if the party was aware of the risk at the time of entering the contract. Additionally, even if a court were to conclude that commercial impracticability exists, the remedy might be a rescission of the contract, as opposed to entitlement to the price increases.

Of interest is BAE Industries, Inc. v. Agrata–Medina, LLC, where the defendant demanded higher prices for the supply of auto parts during the COVID pandemic. The defendant’s demand was premised on the doctrine of commercial impracticability because steel prices had increased 11.7 percent and supply chain issues had increased the costs of the auto parts. The U.S. District Court for the Eastern District of Michigan rejected the argument of commercial impracticability and ruled in favor of the plaintiff (via grant of a preliminary injunction); in essence, the court required that the supplier continue to perform/supply at the contract price during the pending lawsuit.

Some courts have held, however, that economic hardships alone may allow for relief if the contract documents dictate a proprietary and/or sole source item. In some instances, the fact that a sole source item was mandated and was not available, particularly if not available from the specified manufacturer/raw materials source supplier, has permitted a finding of relief under doctrines of impracticability or impossibility. Under the “sole source defense” that derives from U.C.C. Article 2, Section 2-615, an unforeseeable and severe shortage of materials that prevents the procurement of goods or creates a marked increase in price could be a basis for relief. Some courts have extended this reasoning to performance in construction contracts (which are typically not covered by the U.C.C.). Thus, there are rare cases that afford relief to a contractor when the supply chain is dysfunctional, even outside of acts of God or a contractual clause affording relief.

III. Special Issues to Consider if Seeking an Equitable Adjustment

A. Generally, the Party Seeking Relief Must Give Notice of the Issue and Request

Regardless of whether a contractor seeks relief under a specific contract clause or a common law doctrine, prompt notice of the price escalation and associated request for relief is typically required. Notice is often dictated by the applicable contract clause, which might include the claim or change order clause. Even if relying upon a noncontractual basis for relief, notice of the event is often required; otherwise, the claim is at risk of being waived.

Identification of the alleged issue and communication of it to the counterparty is often the first step toward a solution. For public projects, notice is particularly important because prime contracts typically mandate deadlines for noticing requests for equitable adjustments, change orders, and claims. Typically, the first instance of cost overruns is experienced by the lower-tiered trade subcontractor; thus, that lower-tiered contractor must timely notice and communicate the issue to the prime contractor to allow for the prime contractor to properly investigate and certify the legitimacy of the claim for presentation to the owner. Subcontractors will typically have difficulty obtaining relief from a prime contractor and/or owner if the subcontractor failed to timely notice the event and provide the necessary proof of price escalation. In some instances, the subcontractor is expected to work with the contractor and/or owner to seek substitute materials or sourcing so as to mitigate or avoid losses in a reasonable manner.

B. Claims Will Require Supporting Documentation and Proof

Again, regardless of the doctrine that serves as the basis for relief, a contractor will likely be required to present reasonable documentation and proof of the price increase and quantifiable figures. For some events (e.g., a hurricane event that destroyed inventory and caused price increases), presentation of such evidence might be straightforward. For other events (e.g., a manufacturer’s refusal to honor prices), the evidentiary burden may require presenting information unknown to the owner. Still, even if documentation of the event is simple, care must be taken to ensure that the documentation presents clear information on the duration of the event, the measuring points for the price comparisons, and the reasonable efforts made by the claiming party to solve and/or mitigate the problem.

Best practice dictates that the contractor should present clear documentation of its pre-bid estimate of costs for the work at issue and the basis for said figures. Basis for the figures could be market quotes or historical data including the historical market prices for the labor/materials.

Documentation also must be maintained of the actual costs for the labor/materials to show the price increase and the related harm/costs suffered by the contractor. If the claim is that the price increase was caused by a specific event that affords relief, the timing of the estimated costs and associated increase(s) is crucial evidence.

C. Compound Issues of Schedule and Material Pricing

This article is not intended to address the myriad of schedule-related impacts that could result from supply chain issues, but, in summary, such risks are abundant. For example, if a project schedule anticipated work to be performed in the first quarter of 2021, but, due to owner’s delay, the work is pushed into the fourth quarter of 2021, it is possible that additional costs arising from supply chain problems only evinced themselves as a result of the work having been pushed into the fourth quarter of 2021. Thus, any supply chain losses should be analyzed closely to determine whether the risk/loss was the result of pure economic hardship or was a compound loss caused by prior events.

IV. Contract Negotiation Approaches

In consideration of the above legal framework, there are multiple contract negotiation strategies to be considered. Some of the essential tactics and strategies are discussed below.

Price Escalator Clauses: Contract clauses that provide for price escalations for either labor or material are enforceable and can be freely negotiated. Care must be taken, however, to ensure that such a clause specifically identifies and addresses key issues, such as the type of material/labor that is subject to the escalator clause; any safe harbor or threshold (whether that be time duration or price increase) necessary to trigger the clause; the comparative time “snapshot” to measure the baseline price and the increase; any index or documentation of the price increase; the manner for communicating and confirming the resolution to the price escalation; and whether there is any shared risk or split in the coverage of the price increase. For example, price increases could be split by a certain percentage, and there could be maximum caps or dynamic percentages/splits that adjust if the escalation exceeds certain benchmarks. Care also must be taken to properly document and communicate the issue per the contract. Also, escalator clauses should be coordinated upstream and downstream in the contract chain.

Contingencies or Allowances: Contract clauses can be negotiated for earmarked contingencies or allowances to address the risk of supply chain disruption. This approach is in general accord with the philosophical body of risk allocation of construction projects. For an analogous example, differing site conditions are a “known unknown.” But the construction industry understands that unforeseen site conditions can arise. Traditional common law dictated that the contractor was responsible for any site conditions that arose on the project; this risk of the “unknown” resulted in contractors bidding higher prices to account for the potential risk of unforeseen events. By using a differing site condition clause, parties effectively opt for an owner carve-out contingency fund for differing site conditions, which allows for a job to be bid at a lower price excluding those issues; to the extent that any issues arise, the owner keeps the savings of unused contingencies.

A similar idea is applicable to supply chain disruptions. Parties can earmark specific funds for addressing such problems—typically by purchasing more expensive material as a substitute. Also, the general idea of contingencies is to provide funds to keep the project progressing on pace when issues arise. The reality of the current global economy is simply that more risk, volatility, and unpredictability are present for construction projects. Accordingly, it makes sense that negotiated contingency budgets in general should be higher than in the recent years.

Substitutes or Alternates: Additional flexibility to purchase available, similar, refurbished, or even different materials is another approach to mitigate or avoid supply chain problems. Contract clauses can be negotiated that specifically address substitutions, alternates, and proprietary items. This may reduce costs (if a lesser alternate is used), but parties should be wary that such clauses also could increase costs if a more expensive alternate is used that can be obtained more quickly.

Time and Material Carve-outs: For certain high-risk and volatile work, portions of the scope can be segregated and such risk can be isolated as its own time and material buyout. This may be more expensive than preferred, but it might allow for faster procurement of certain work and materials, and, for the contractor, can reduce the risk of price volatility.

Schedule Considerations and Relief for Liquidated Damages: In a volatile market with supply chain disruptions, the risks of delayed construction due to supply chain issues includes both liquidated damages and the increased risk of price volatility. Typically, liquidated damages are to enforce performance in accord with the project schedule. One approach to reduce the risks of liquidated damages is to accept the reality that extensions to the schedule are likely and negotiate reasonable schedule extension clauses as well as a blanket safe harbor period to act as a buffer, where liquidated damages will not apply. But, also recognize that if the project schedule extends, care must be taken in the construction administration and buy-out to ensure that the schedule extension itself does not result in compound issues of price volatility. This is especially true if the contract does not have a price escalation clause.

Shorter Price Holds for Buyouts and Contracting: Because prices and material availability can be volatile, decision-making for procurement and contracting can be shortened to ensure that the price and schedule are made on the best, most recent data.

Bonds and Financial Strength Pre-qualifications: Prime contractors are encouraged to require key trade contractors to post payment and performance bonds in the event of escalation problems that cause default. Similarly, requiring stronger financials for prequalifying is prudent if there is complete risk of supply chain issues on said trade contractor. Other approaches include obtaining a supply bond just for material risks.

Flow-Down and Flow-Up Clauses: The risk of price volatility can be flowed down to trade contractors to protect the contractor and higher-tiered surety bonds. Likewise, and on private projects, it may be possible to flow up clauses for allowances or relief if a specific supplier or manufacturer refuses to lock in prices.

Higher Price for the Higher Risk (If All Else Fails): If desiring to bid on a project, but no relief for likely supply chain disruptions is able to be negotiated, a “last” option for contractors is to increase the bid price for the work to account for the additional risk and (likely) additional costs.

V. Project Management Approaches

In addition to contract negotiation strategies for risk allocation, parties’ performances during the execution of the works can address supply chain problems.

Communication Is Key: From the beginning, identification and communication of issues are necessary to mitigate or avoid supply chain problems. If the owner’s proposed schedule is not possible due to the status of the supply chain, this should be raised as early as possible (even during the bid phase, if known) to prevent moving down a contracted path that is ultimately infeasible. As the design develops and the project is constructed, continued identification of supply chain issues and communication of the impact are necessary to ensure a properly coordinated schedule, sequence, and contractual allocation of risk. It is also recommended that trade contractors provide updates on the status of buyout and procurement of materials 90, 60, and 30 days prior to the anticipated on-site delivery date.

Value Engineering and Design Assist: By working with the contractor during preconstruction, typically in a design assist arrangement, selections of materials and systems can be made in a manner to avoid long-lead or problematic selections. Such preconstruction coordination also allows for long-lead items to be specified sooner (which, in turn, allows for locking in prices and/or advance purchases). Sometimes, unique alternatives, such as refurbished materials or slightly modified materials, may be suitable if planned and researched in advance. Other times, the value engineering may result in an increase in the costs and certainty as to the ability to procure the materials (e.g., perhaps a more expensive version of the product could be used because it has better availability).

Frontloading the Purchase, Payment, and Storage: Parties can agree that project materials will be procured as soon as possible and warehoused until the time of need to ensure that the project schedule can progress most smoothly. Due to long-lead items, owners sometimes authorize procurement of (and payment for) equipment or materials during preconstruction, even before finalizing the design of the project. If adopting this approach, parties should agree that materials purchased in advance can be billed as soon as possible, even if stored off-site. Also, additional funds will need to be priced into the contracts for storage, warehousing, double-touching transportation costs, insurance, and bonding.

Additional Staffing and Administration: Increased staffing is a likely result of a challenging supply chain environment; there are obvious work increases for sourcing, price quoting, and researching alternatives. Contractors and trade contractors should be prepared to allocate more time and resources to administering buyout due to the need for more creativity and efforts to keep the buyout on price and schedule. This may mean more overhead, administrative costs, and/or personnel for project management.

Avoid Unique Systems/Materials: If a project requires a unique system and/or one-of-a-kind material, and that item has supply chain issues, it can cause significant problems. Thus, one management technique is for the project to have more overall flexibility in substitutes and alternates.

Re-evaluating the Responsibility and Staffing for MEPs: Currently, the supply chain disruption is significantly impacting the mechanical, electrical, and plumbing trades. Applying extra staffing and/or clear communication of carved-out design delegation or design assist at early project stages to focus on the design and procurement can shorten the longest lead items.

Strong Business Relationships: A well-funded project with good business relations between an owner, a prime contractor, and key trade contractors often results in the best outcomes, especially if the owner is willing to expend more money to bring the project to completion on the best quality and schedule possible. Similarly, if a trade contractor goes insolvent in the middle of a long lead item procurement, it can be very problematic for the project. Thus, financial strength of the prime and trade contractors is important to ensure that projects can continue through adversity and reach the finish line. Rigid, inflexible, hard-bid projects with contentious relationships are very challenging, risky, and dispute-laden.

Schedule Development, Monitoring, and Updates: Starting with the baseline schedule, proper consideration should be given for long-lead items. Submittal and fabrication processes (with their associated durations), along with anticipated delayed deliveries, should be factored into the schedule design and baseline schedule. During the schedule design and preconstruction phase, if possible, communication should be had with key trade contractors and/or suppliers to ascertain the likely impact of the supply chain on the schedule, and plans should be developed accordingly. If preconstruction input during schedule design is not an option (e.g., documents are let out to bid), negotiation during the bid process can be an important tool to help mitigate risk. If dealing with a public, hard-bid job with no negotiation, then use of pre-bid clarifications or inquiries is recommended to raise and address identified issues with a schedule that is poorly developed and fails to account for anticipated supply chain issues.

An accurate project schedule should be updated regularly to monitor the status of construction and essential material deliveries. Schedule updates should include inquiry and responses from trade contractors and key suppliers/vendors on the status of material deliveries or any supply chain issues. Accurate schedule updates will allow for advanced warning and give the project team time to develop solutions.

Source Locally: The use of local fabricators and material suppliers should be considered to avoid delays and rising costs of international transportation. Recently, the international supply chain has been impacted by large backlogs in US ports and the war in Ukraine. Local suppliers often offer flexibility, greater control, and reduced delivery times.

Focus on Mutually Beneficial Outcomes: Owners and contractors should focus on flexibility toward finding solutions to project issues and not take rigid, hard lines. Supply chain issues are often not the fault of either the owner or the contractor, and it makes little sense for these parties to attack each other rather than work together to resolve the challenging problem.