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Supply chain and inventory management issues continue to plague U.S. businesses.
Creighton University’s Mid-America Index, a monthly regional business survey of nine states including Missouri, noted in October that “supply chain disruptions remained the top risk for the final quarter of the year.” These challenges have been especially difficult for the construction industry. Skilled contractors are used to managing complex inventories and processes, but recent supply chain issues – and the associated challenges of input scarcity (including labor) and rampant inflation – have upended longstanding approaches to project delivery by complicating budgets and timelines.
Supply chain-related risk
There are some tactics available to both project owners and contractors to help them overcome supply chain-related risk. But while there is a wide variety of viable approaches to overcoming the supply chain challenge, one approach decidedly does not work: adopting a winner-take-all mentality that sticks one party with all the project risk.
In thinking through how to structure agreements to account for and share risk to the satisfaction of project owners and contractors, a few issues recur as sticking points that require careful thought and planning:
Across the finish line
Good faith efforts at negotiating equitable terms are usually rewarded with design and build partners who are incentivized to get things done to specification quickly and efficiently. Conversely, project owners who fail to consider risk-sharing mechanisms are simply limiting their options. Inflation and the scarcity of key inputs have dogged the construction industry for nearly two years; as a result, contractors and subcontractors have become skilled at managing these kinds of risk.
Intractable owners taking a project to market will find no bidders or bids that are multiples higher than anticipated. While supply chain dislocations could lessen in 2023, it seems unlikely that we will see pre-COVID-19 levels of efficiency any time soon. If you want to build in this market, all parties need to engage in creative risk-sharing mechanisms to get projects done.
Laura Robinson is a litigator in Husch Blackwell LLP’s Springfield office handling construction project disputes, and Brent Meyer is an Omaha-based partner with the firm in the real estate, development and construction team.
Robinson can be reached at email@example.com.
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