Industry seeks Government support on building materials shortages

Dear Minister,

I am writing to you on behalf of the Wales Construction Federation Alliance and with the support of CEWales. You may be aware of the concerns expressed regarding the exceptional world-wide demand and almost uncontrollable cost increases for building materials.

Since June 2019 prices for materials have increased some 38 per cent and there is little sign that the situation will improve until at least quarter one of 2022. The consequences of these unprecedent increases, driven by demand particularly in China and the USA, is that such vital commodities as timber and metals are in short supply with prices increasing daily.

We would ask the Welsh Government to work with us on these issues and it would be extremely helpful if Welsh Government issued guidance requesting public sector clients to be sympathetic on both cost and time to avoid putting contractors out of business; similarly for construction clients to adopt the same attitude to contractors, who won work when material costs were lower but are now being held to the same rates and timescales.

We highlight timber because more than 70 per cent of the material used in UK construction is imported from Eastern Europe and Scandinavia, which means the UK has little control over stocks or prices.

At Swedish sawmills, which supply 50 per cent of the UK’s timber, stocks are at their lowest levels despite record production and as they embark on their summer maintenance shutdown, along with other European countries, the situation can only get worse.

Demand for indigenous products such as cement is up 35 per cent with customers having to accept at best circa 80 per cent of monthly requirements. Oriented Strand Boarding (OSB) widely used for flooring has seen a July 2021 increase of 55 per cent; lintels 18 per cent and steel 19 per cent. From a tradesman’s perspective the impact on a first fix carpenter is that his material costs have escalated by 26 per cent since January 2021.

The impact on both large and small building contractors is significant. Work will be delayed because of lack of materials; some contractors tied into fixed-priced contracts will struggle to fulfil their commitments and could well go to the wall; others will simply walk away from contracts and suffer the consequences, while some builders will refuse to tender until the sector gains some form of stability.

The current demand has also produced a shortage of drivers, with merchants and suppliers in many cases unable to collect material from UK ports or to supply customers on time. We have the likes of Amazon and the major supermarkets, offering drivers up to £10,000 per annum extra. It may be temporary, but it is another issue to be thrown into the mix.

There is also some cynicism that suppliers and merchants are taking advantage by using the current demand to impose even greater price increases. This is not the case; suppliers are simply passing on the increases that they too are being asked to pay.

From a planning perspective, where particular materials are specified as part of a contract and those materials are not available or in short supply, local authority planning departments should be prepared to consider the use of alternative materials and those decisions made in a timely manner.

For its part, the WCFA and CEWales are urging its members to talk to suppliers and merchants and plan for long term supplies. Firms should check their contracts and ascertain what are their obligations under and whether there is entitlement to price increases. Parties entering new contracts should consider the inclusion of protective clauses.

For parties negotiating new agreements it is important to ensure that the prospective contract captures the risk allocation between the parties, clearly recording which party bears the risk for any material-related delays or cost increases.

But despite this we are aware that there are some contractors, particularly SMEs, who now find themselves at the end of the queue for materials, will not survive this crisis.

Yours sincerely

Ed Evans

Chairman WCFA