Material shortages and cost increases

There will be times when materials for jobs are harder to come by, I think in recent time that is more prevalent but it pays to always understand that this is an issue you will come across at some point or another, and how best to deal with it from a business perspective.

Firstly it’s important to understand that how material shortages and cost increases should be dealt with will start with the contract you have in place and the tags and clarifications you have stipulated. Many of the tags I have written over time have excluded the increase of material costs if the job acceptance is after a certain time. It is reasonable to do this, because often you are pricing a job maybe a year before you would actually need to put the first spade in, and some costs increase more than others. Steel is a good example! If you DON’T want to include a tag for increased costs, then you will need to do a bit of crystal ball gazing and allow more for the items you think are likely to increase. This is riskier….. but if you are in a situation where you need to supply as clean of a tender as possible then sometimes it is necessary to be a bit creative.

The above helps to cover increase of cost, but what about scarcity of supply? You have signed up for a job and suddenly there are no floor coverings available? How will this affect you? It may not affect how much that flooring costs, but what it might affect is the length of time the job takes to complete. THIS is a problem for you, because the longer it takes to complete, the longer it will take you to get to your next job. Your profit is a percentage of turnover, so you want to complete jobs in the shortest time frame possible so you can pack in as many as you can in a financial year. You also have time calculated onsite overheads to think about, if the flooring is going to take an extra month to arrive, who pays for the hire of the fencing and portaloo and security onsite during that time?

It shouldn’t actually be you….

It should be a cost to pass on if you need to (appreciate it will depend on the circumstances). It is better to have a tag in your contract that variations can be applied for if supply is delayed for time dependent onsite overheads and any other additional costs. BUT beware that this could be contested if it is seen that the items were not ordered in a timely fashion – so prepare to be able to show the date that the order was made.

If you are jobbing and pre ordering is harder, then it might be worthwhile looking to stockpile regularly used items. If you don’t have storage then get some, and make sure the cost of it is calculated into your offsite overheads percentage. It might make you ever so slightly more expensive, but if you have the gear to do the job and the other guys doesn’t… then guess who’s gonna win the work!