The New Normal for the Construction Supply Chain
Posted: July 31, 2020 | Tradewinds
Barry LePatner, a construction attorney, advisor, and the author of Broken Buildings, Busted Budgets: How to Fix America’s Trillion-Dollar Construction Industry, sees critical changes happening to the construction supply chain due to the COVID-19 pandemic.
Among other crucial changes, Barry LePatner says the “new normal” for the construction supply chain will struggle with a massive reduction in subcontractors, suppliers, and manufacturers who were forced out of business.
DCD Magazine asked Barry a few questions on how he sees the future shaping up, and the effect he feels it will have on architects, engineers, contractors, project managers, and estimators.
DCD Magazine: The price of some materials, like concrete, has fluctuating a lot in the past few months. How do you see the COVID-19 pandemic affecting material prices for items used in construction?
LePatner: This will, for the construction industry, prove to be a classic case of supply and demand. It will also reflect a clear distinction between product manufacturers who have not been impacted by the COVID-19 moratorium, and those small to medium-sized manufacturers and distributors who will not remain in business in the months ahead.
DCD Magazine: Do you see a disruption of the supply chain of construction materials that will be severe enough to affect scheduling of projects?
LePatner: I have spoken for the past two months on how truly disruptive the COVID-19 stoppages will be having on the construction industry supply chain. Tens of thousands of subcontractors, suppliers, vendors, and manufacturers of materials and products used in construction will go out of business. Replacing them, as reliable sources customarily used by architects, engineers, and contractors, will be difficult. Identifying replacements for these needed team members — especially those located outside the U.S. — may take as long as 18–24 months to rebuild confidence in these new sources, and to do the due diligence necessary to assure their reliability for delivering on future projects.
DCD Magazine: How might contractors and project managers work around those supply chain difficulties and material shortages?
LePatner: The key will be to quickly develop new relationships with established vendors and suppliers who can demonstrate they can be reliable partners on future projects. This will not be easy; the requisite due diligence needed to identify quality providers will entail receiving satisfactory proof of prior reliability, financial security, insurability, and careful checking of satisfied clients.
DCD Magazine: What sort of contingency would you recommend construction estimators build into their estimates when working on projects to be built for the near future?
LePatner: Everyone in the industry must come to recognize that the impacts of the pandemic will be felt through most of 2021. Projects will go forward under constraints of extended schedules and more fixed price budgets. Finding skilled trades for certain work may be difficult and will slow some projects. Finding domestic product and materials manufacturers in the U.S. will become imperative, as sourcing overseas will be constrained. Budgets will go up and owners will have to accept these additional costs.
DCD Magazine: How should project managers prepare to deal with the potential crises of a reduction in suppliers and labor?
LePatner: There will a greater need for risk management to identify the many increased risks of designing and construction of all projects. Over one million construction workers have lost their jobs, according to the AGC, and many of these may not return. Finding replacement workers will not be easy. There will, in the short term, be fewer projects being competed for by many contractors. Identifying and pricing these risks will create a major challenge for all in the business.
DCD Magazine: Are there specific steps that project managers should be taking now to prevent delays in future projects?
LePatner: First and foremost will be the need for PMs to carefully assess their own ability to produce a project with the new health and safety constraints being imposed by state regulations. This will entail recognition that worker distancing will result in slower completion of each scope of work on a project. Not recognizing this will lead to schedules that are unrealistic and should be avoided at all costs.
DCD Magazine: What type of changes would you recommend in construction contracts to ensure that a contract is followed in good faith by both sides? Is there a specific clause or agreement you would recommend?
LePatner: Everyone in the design/construction process will need to consult their own attorneys to ensure that their contracts reflect these new contingencies. Naturally, clauses known as force majeure, that address events that impact performance by intervening forces such as major weather events, governmental stoppages of work, and future stoppages due to virus or disease that shuts a project, will be negotiated on each new project.
DCD Magazine: What should architects keep in mind when specifying certain types of materials in their plans?
LePatner: Architects and engineers must begin immediately to review the standard spec book they produce for each type of building they design. Where products are generically specified, they may consider doing the necessary research to specify only products manufactured in the U.S., to avoid problems with future tariffs or other shipping delays. Specialty trades should meet with their established suppliers and vendors to verify their financial condition, insurability and ability to timely deliver to ensure meeting long lead and related project installations.
About Barry LePatner: Mr. LePatner has testified before Congress on structural integrity issues, he’s the author of several books: Broken Buildings, Busted Budgets: How to Fix America’s Trillion-Dollar Construction Industry and Too Big to Fall: America's Failing Infrastructure and the Way Forward. Mr. LePatner is a nationally credentialed specialist in construction industry efficiency and cost containment. He’s spent thirty years in management, development, engineering, design, cost, and architecture aspects of construction projects, and is the founder of the construction law firm LePatner & Associates.
Image by Hans Braxmeier from Pixabay