By Clive Thurston
Special to Ontario Construction News
We all knew, as this pandemic spread, that it was going to have an impact not just on the cost of our projects but on the supply chain that feeds it.
There have been several articles recently concerning the escalating costs and impact on the supply chain most importantly the uncertainty of delivery times. This is not the first time that we have had this problem. It occurred some years back with steel and created havoc in the industry.
Then, as now, the cause was not the fault of the suppliers, the sub- trades, or the general contractors. It was an international issue of which none of us had any control.
Thankfully here in Ontario through the hard work of the Ontario General Contractors’ Association (OGCA), many owners were willing to come to the table and negotiate compensation to contractors impacted by the sudden price increases. Some even agreed to clauses as they went forward considering national markets and pricing schedules that clearly showed that the prices were escalating beyond any norm or acceptability or risk that trades and suppliers and generals could manage.
There were a few owners who were less than sympathetic, but it ended up costing them because delays were occurring as people just could not get the steel and that was through no fault of the general contractors and their teams and that resulted in disputes usually ending in litigation.
Since that time have, have we learned anything? The pandemic hit the industry hard, particularly in the supply chain area. A recent article by the OGCA’s president Giovanni Cautillo entitled Supply Chain Uncertainty spells this out very clearly. The industry cannot count on delivery dates for materials or equipment, and as well, suppliers and trades responsible for those items are in no position to guarantee timelines. This clearly means that it is vital for project awards to move forward as quickly as possible. What that clearly means is that the award of projects is vital to ensuring that we can move forward as quickly as possible. As Mr. Cautillo points out, closing dates in excess of 30 days are unfair and impossible to maintain.
In this age of electronic technology there is no excuse for an owner not to be able to award a project after closing within 30 days. If the close can’t be ready within that timeframe, the project might not have been ready for the street in the first place – indicated by numerous RFIs and addendums delaying the project close. These matters relate to another topic about how we procure projects and I’ve been there before, but let us continue to focus on the reasonability of dealing with the impact of COVID-19 on our industry.
The challenge is the pricing and supply delivery problems don’t relate to a single product, such as steel. COVID-19 is is now impacting all materials and equipment necessary for the construction of residential, ICI, and heavy civil projects. What is the best way to deal with this?
There needs to be a process in place that deals with this either under the Delay Clauses or Change to the Contract Price, contained in most contracts. Owners that are willing to entertain these discussions will find that the contractors, trades, and suppliers will be fair and work to mitigate the impact of these costs to the best of their abilities. The failure to recognize the reality of this situation and simply to insist that it is the contractor’s problem with the owner washing their hands of it will not work and will only lead to more disputes and confrontation in the industry.
We have experienced suppliers who will not supply the materials unless these challenges are dealt with before tendering, so what is the general to do? For an owner to simply say: “It’s your problem to deal with” flies in the face of the reality that we are finding ourselves in today.
We must all look for ways to deal with these challenges that are fair and reasonable. There are material pricing schedules published internationally that track the ongoing cost of materials As well, there are pricing studies here in Canada showing the increase in materials like wood.
The information is there. We need to be realistic about our schedules and the terms and conditions in our contracts. We are all in this together and we must face it together or fail.
In the past the OGCA had suggested some sample language, which I have slightly altered to meet today’s challenge:
“Should the award of the contract be delayed past the 30-day acceptance, period and should the contractor suffer, beyond his control, significant increase in the cost of labour, material or equipment, the owner will review a possible escalation price of these products and services based on the market conditions.”
What can we do to face this challenge?
For projects that are already underway, and the contract language exists, I would strongly recommend that the consultants, the owner, and general contractor with input from the trades meet to discuss the challenges at the earliest possible opportunity.
Trades and suppliers need to notify the general as early as possible of delays that they are going to face, and that information needs to be passed on to the consultant and owner as quickly as possible. Communication and timeliness will be the key to averting disaster for existing contracts
Owners must be realistic in the face of the pandemic’s impact on the industry supply chain by sitting down early and meeting with the parties, processes can be worked out and arrangements made on how to deal with these challenges. There is likely going to be a cost and schedule impact, but these can be mitigated if all the parties work together in a collaborative manner to address it.
When bidding projects if contractors are made aware by their trades and suppliers that prices will only be held for a certain period or equipment deliveries may not be guaranteed, that information must be passed on to the consultant and the owner prior to the tender closing.
There is no point in closing the tender and ignoring the warning that has been submitted by a supplier or a sub- trade. You are simply asking for trouble if you ignore the warning, then, in my opinion, it does become solely your responsibility as the general contractor.
If the owner and consultant are unwilling to address this and be reasonable then the General Contractor, in my opinion will have no alternative but to qualify their bid based on the information provided by their supplier or subtrade. Failure to do so could leave you open and at high risk for costs and damages
Sub- trades and suppliers must understand the terms and conditions under which they are bidding particularly the closing date and acceptance period, that the owners are asking for if you cannot meet that date or if you are aware of supply chain issues, that information must be provided to the general contractors to whom you are bidding.
Failure to do so means that you have agreed to the terms and conditions of the Tender and if those terms and conditions include a 130-day closing date than you are living with that and you will have to hold your price for materials and labour for that period. Do not invite trouble, communicate often and early to avoid these problems.
I believe strongly that it is only through close collaboration and early communication that we can address the challenges facing us due to the Covid pandemic. We have found ways to address the additional costs of health and safety, we have found ways to address how we bid jobs, but some things just cannot be quantified or anticipated, and it is then that we must work together to find solutions and minimize the impact on our projects.
I urge all parties to be open, communicative, and reasonable in addressing the challenges that we are facing on delivering our projects let us not turn away from these problems and pretend that they belong to somebody else, we must work together.
There will no doubt be many more articles, webinars and other information on this topic over the next few while in fact I am aware that CCA will be doing a webinar with a panel of top lawyers from the industry discussing escalation clauses I urge you to follow the CCA website for the date and time of the session and I highly recommend it. The speakers are all top legal experts in the construction field and I’m sure that they will have a great deal of
information and useful recommendations for us.
Clive Thurston is the OGCA‘s former president. He can be reached at (416) 399-2250 or email clive@thurstoncs.com.