DOES THE RUSSIA UKRAINE WAR LEAD TO A CONSIDERATION IN YOUR CONSTRUCTION CONTRACTS?

Material costs are still affecting the construction industry.  Supply chain impacts too.  The volatility started with COVID-19 (and, in certain cases, before with the imposition of tariffs) and has continued through present date.

But what about the war between Russia and Ukraine and the impact this has had or may have on the supply chain?   I think the spillover from the war (with oil, gas, the energy sector, etc.), including the imposition of any sanctions, is not fully realized other than the concern exists in an economy that is already battling through material costs and supply chain disruptions.

How does this affect you?

It may not.

Or you may regularly enter into construction contracts in which you would be smart to address material costs and supply chain impacts.  The reason being is that everything from a risk standpoint should begin with your construction contract.  Not addressing an issue does not actually mitigate the risk.  Confronting the issue does mitigate the risk because you are contractually addressing a concern and know where the other party stands relating to that concern so that business decisions can be made.

This does not mean the Russia and Ukraine war provides you a get-out-of-jail free card for every material cost or supply chain issue you deal with.  It does not and should not.  That would not be fair, right?  What is currently affecting the construction industry should not be a basis to shield from accountability or causation.  You still need to connect dots by tying a material cost escalation or supply chain impact to an actual event.  The key is ALWAYS to understand how this will be dealt with in your construction contract and there are many ways to do so.  Sure, the volatility of the market makes it difficult to predict any material cost in the near future and whether certain products will be impacted by supply chain disruptions.  Recognizing the risk is the first step in trying to negotiate the allocation of that risk in your contract.

Remember, simply calling something a force majeure event post-contract does not actually make it so, particularly if you know about the event and the potential of the risk at the time of contract.  

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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