In today’s global economy, the construction industry is increasingly vulnerable to the ripple effects of worldwide events. From the COVID-19 pandemic and the war in Ukraine to tariff impacts and the recent escalation of tensions with Iran, contractors are facing more frequent and unpredictable disruptions. This article explores how global events can affect supply chains, why documentation is typically critical to connecting cost impacts to those events, and practical steps contractors can take to mitigate risks. This article does not cover every one of these items in extreme detail (each could be a standalone topic), but it provides an overview of each with general issues to keep in mind during project execution.
The Impact of Global Events on the Supply Chain
Over the past several years, events like COVID-19 shutdowns and the war in Ukraine have disrupted the flow of materials and labor, leading to widespread challenges in meeting construction schedules and controlling costs. More recently, tensions with Iran raised new concerns over oil production and access to global shipping routes. This could lead to spikes in fuel costs, price hikes in petroleum-based products, and shipment delays. While the potential for various global disruptions is not necessarily new, their unpredictability continues to make project planning and budgeting a challenge across the construction industry.
The Interaction of Force Majeure and Related Contractual Provisions with Global Disruptions
Many contracts include force majeure and other similar clauses that can offer relief from delays or cost increases caused by unforeseeable events. However, simply invoking a force majeure clause does not automatically guarantee protection. Contractors generally must show that the event directly impacted its ability to perform.
Moreover, force majeure clauses typically provide schedule relief only, such as extensions of time, but do not always allow for recovery of additional costs. And although COVID-19 certainly brought force majeure provisions into the limelight (and made them a topic of frequent discussion), it is still important to keep these considerations in mind in relation to other global impacts as well.
Further, it is important to remember that other contractual mechanisms—such as price escalation clauses, unforeseeable or uncontrollable circumstance provisions, change in law provisions, or broader change clauses—may offer both time extensions and monetary compensation for the resulting impacts. So do not always assume that a force majeure clause is necessarily the best route to relief.
Regardless of which provision is invoked, the common requirement among these clauses is clear, timely, and well-documented evidence that links the disruption to the event in question. Without that documentation, a contractor may be left without recourse even if the underlying event was legitimately beyond their control. But this is often easier said than done.
Connecting the Dots: Proving the Impact
To successfully leverage these clauses, contractors need to both identify the event that caused the disruption and establish how that event led to specific delays or cost increases on the project. Moreover, when global events affect pricing or schedules, contractors should attempt to distinguish those impacts from normal market behavior. For instance, while fuel prices might spike due to hostilities with Iran, such increases are also typical during summer months. Without clear evidence, it can be difficult to prove causation. And this is typically the first line of defense to a contractor’s request for more time and/or money.
Accordingly, contractors should strive to maintain comprehensive project records, track historical trends, document issues in real time (including issues presented by subcontractors), and leverage news sources to build a compelling case for relief under one of the above-mentioned provisions. For instance, if a supplier delay occurred because a factory in China shut down due to a COVID-19 outbreak, the contractor should document when the order was placed, the promised delivery date, the actual delivery date, and the resulting impact on the construction schedule.
The contractor should also gather notices from the supplier, news sources reporting on the outbreak and its impacts, and any other documentation that may support the contractor’s claim for relief. This kind of contemporaneous proof can be the deciding factor in whether a contractor receives schedule relief, a change order, or demands payment for additional costs.
Documentation Contractors Should Maintain
When global disruptions occur, the most effective documentation is developed in real time as events unfold. To do this, contractors should establish internal systems that ensure relevant records are consistently captured and organized throughout the life of a project. And contractors should strive to document impacts as they happen through preparing and sending timely notices.
An important initial step in preserving a contractor’s rights is providing timely notice to the party against whom the claim is being made—typically the owner or upstream contractor. Most contracts require prompt written notice of potential delays or cost impacts, and failure to give notice within the specified timeframe can waive the right to seek relief, regardless of how well the disruption is later documented.
In addition to timely notice, contractors should maintain several categories of supporting documentation. One important category of documentation includes communications with suppliers. When vendors issue notices about delays, shortages, or price increases, those messages can become possible proof that a disruption occurred and when it began. Saving these emails, letters, and related documents in an organized and searchable format allows contractors to later demonstrate the timeline and scope of the issue.
Equally important are project-specific records such as purchase orders and delivery logs. These documents track when materials were ordered, when they were received, and whether costs deviated from the proposal price. When delays occur or prices spike, these records provide a baseline to compare against and help show the causal impact of external events.
Internal project documentation can also play a valuable role. Memos, meeting notes, and site reports that reflect the challenges encountered during the project—such as labor slowdowns, equipment delays, or cost overruns—can help corroborate the real-world effects of a global disruption on operations.
Cost records are also an important component. While demonstrating a causal link between the events and the impacts is certainly an important exercise, the contractor should also be able to demonstrate the increased costs it incurred as a result. Otherwise, it might be more difficult to successfully secure a change or prevail on a claim.
Finally, contractors should gather external market data to support claims. This might include economic analyses, industry reports, government publications, or news articles that track price changes or supply shortages. These third-party sources can help draw the connection between a specific global event and industry impact.
Practical Steps and Mitigation Strategies
Beyond maintaining documentation, contractors can also take proactive steps prior to any issues actually occurring to better position themselves in the face of future disruptions. One important measure is reviewing and updating standard contract clauses. Clauses related to force majeure, price escalation, and uncontrollable circumstances should be carefully drafted to reflect current market trends and future risks. Clear definitions, specific examples, and tailored language can help avoid ambiguity and reduce the potential for disputes when disruptions occur.
Another valuable strategy to consider is to diversify supplier relationships. Relying on a single vendor or geographic region can increase vulnerability when global events disrupt supply chains. By building relationships with multiple suppliers across different regions, contractors can create flexibility that may make it easier to pivot when challenges arise. (However, there may also be important strategic benefits to working with single suppliers or vendors in certain instances as well).
Final Thoughts
The reality is that global events will continue to create uncertainty in the construction industry. But with preparation and a strong documentation strategy, contractors can better protect themselves when disruptions occur. Regardless of whether relief is sought under a force majeure clause, a change clause, a price escalation clause, or something else, the goal is to identify contemporaneous proof that connects the event to the impact, along with the associated costs. Contractors should treat documentation not as an afterthought, but as an important part of project management. By doing so, they will be better equipped to navigate the next unexpected challenge.
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