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CLC urges adoption of fluctuations provisions in contracts amid market volatility

Canary Wharf London skyline — London's Canary Wharf (Image: Unsplash/Dil)

The Construction Leadership Council (CLC) has called on those responsible for developing, agreeing and managing construction contracts to adopt fluctuations provisions to combat significant volatility in the market.

In an open letter to the industry, CLC co-chair Andy Mitchell said that following the challenges of covid-19, the industry faced more obstacles in the form of the availability and pricing volatility of labour and materials.

He cited a range of factors coming together at the same time to present an “escalating challenge” to the sector, including: rising freight costs; a shortage of materials; a shortage of hauliers; transitioning from CE to UKCA marking with insufficient product testing capacity; and new EU-related immigration rules.

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Mitchell said: “This volatility is likely to be something we must live with for a while to come and could have a significant impact on the timeframes and delivery costs of many projects.

“Most forms of construction contract have standard provisions for managing volatility, without the need to make contract amendments. These provisions, such as fluctuations provisions in JCT and NEC 4 Secondary X1, provide a means of collaboratively sharing the risks associated with this volatility. We have been fortunate enough to operate in a stable environment for a long time and these clauses have been seldom used. However, they are ideally suited to providing a means for managing the volatile period we are now entering and therefore CLC strongly urge those responsible for developing, agreeing and managing contracts, existing and new, to consider adopting these provisions in their contracts.”

He also noted that design changes were likely to be necessarily as a result of product availability, creating contractual challenges in the process.

He added: “Again, the CLC would encourage a collaborative approach to be taken to managing these risks by considering actions such as allowing longer mobilisation and lead-in periods for contracts and including up-front ordering and payment to suppliers in order to secure manufacture and delivery slots for critical material resources.

“We know that we perform better as an industry when a collaborative and team-based approach is adopted. We also know that our industry is strong and is growing right now. We would therefore encourage you to consider this message and find ways to work together so that this growth opportunity is maximised, and a sustainable industry supply chain is maintained.”