Managing supply shortages in construction projects: new Scottish Government Advice

On 28 July 2021 the Scottish Government issued a new Construction Policy Note – Resources for construction projects: CPN 3/2021 – highlighting measures that contracting authorities can take to manage and mitigate the current unprecedented demand for building materials being experienced in the UK construction market.

Projects currently on or about to proceed to site

This new guidance (applicable under the Scottish Public Finance Manual) advises that where a contracting authority has a building contractor reporting difficulties in availability and affordability of materials, plant and potentially labour in projects which are either on site or about to proceed to site the authority should:

• examine the applicable terms and conditions which are to apply where the contractor fails to deliver on time and/or to specified requirements;
• discuss the reasons for delay with the contractor and ask the contractor to provide evidence of the same;
• evaluate requests for relief or waiver of time and/or financial consequences in light of those discussions and the applicable terms and conditions; and
• take legal advice as necessary.

In addition to considering entitlement to contractual relief contracting authorities are also advised to work closely with contractors holding honest and open discussions about how supply shortages can be managed and mitigated. Such discussions should take account of what is fair and reasonable in the particular circumstances and with an awareness that a pragmatic and collaborative approach built around avoiding conflict will be most effective at delivering a successful project. This builds on another recently issued Construction Policy Notice in relation to conflict avoidance (to read our Law-Now on that CPN please click here).

Projects in development (including those where tenders are not yet concluded)

Where projects are still in development and contractual terms and conditions have not yet been agreed, contracting authorities are urged to take immediate steps to assure themselves that projects remain feasible and commercially viable. Where projects are determined not to be economically viable, contracting authorities are advised to reconsider proceeding to the market at this time.

Contracting authorities are also advised to consider introducing price fluctuation clauses into tender documents and contracts. Whilst rarely used in practice such drafting when successfully implemented can help to manage cost risk, keeping base tender prices down while providing a pre-determined mechanism for assessing and evaluating cost changes that arise during a project.

With material shortages expected to continue for some time contracting authorities should ensure they are fully aware of the contractual position as regards associated delay and cost risks in relation to current projects and generally seek to take a pragmatic and collaborative approach to manage and mitigate shortages and delays as they arise.

References: Construction Policy Note – Resources for construction projects: CPN 3/2021