Bottlenecks in Supply Chains: The Construction Industry Explained

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Bottlenecks in Supply Chains: The Construction Industry Explained

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Supply Chain Disruptions

When contractors estimate costs and bid on a project, they make certain assumptions about the lead times for certain materials and components. Availability, costs, and lead times all became far more difficult to predict during the global pandemic. Prior to that, bottlenecks in supply chains and disruptions tended to be limited to certain regions and were usually the result of extreme weather events and natural disasters, political instability and civil unrest, labor disputes, and so on.

The supply chain disruptions that began in 2020 were not limited to individual countries or trade partners. Worldwide shutdowns intended to stop the spread of Covid-19 had the unintended effect of crippling international and domestic transportation of goods, including construction materials. Labor shortages, high fuel prices, natural disasters (such as Hurricane Ian in September 2022), and the war in Ukraine have had a devastating cumulative impact on construction supply chains.

While it’s no longer common to see harbors clogged with dozens of cargo ships waiting weeks to be unloaded, the construction industry is still experiencing longer than normal lead times and higher than usual prices for some materials. For other materials, the situation is beginning to improve and should continue doing so in 2023.

2023 Construction Material Supply Chain Projections

Projections from Mortenson suggest ongoing shortages of copper and mechanical and electrical products, continuing in 2023. Supply issues with copper worsened with the war in Ukraine and instability in China, with no substantial improvement yet in sight. The lead times for mechanical and electrical products and components still are measured in months and can be up to a year. In an extreme example, the lead time for 2-megawatt generators is as long as 80 weeks.

On the other hand, the availability and prices of aluminum, semiconductors, lumber, and roofing materials are expected to stabilize. And with semiconductor manufacturers moving some production back to the U.S. and expanding production capacity, supply is likely to stabilize in 2023–but lead times are still longer than pre-pandemic.

But bear in mind the construction supply chain is unpredictable. And different construction materials are affected differently—some may be in short supply while others are readily available.

Impact of Bottlenecks in Supply Chains and Disruptions

The two most obvious results of supply chain bottlenecks and disruptions are longer than usual lead times and higher prices, making it difficult for contractors to complete projects on schedule and within budget. One way to deal with long lead times on certain construction materials is to consider using alternative materials. That can help short-term, but eventually, it drives up demand for those alternatives.

Contractors should work with engineers and architects during the design phase to avoid choosing construction materials that are known to be experiencing supply chain problems. Project schedules should be developed considering supply chain issues and long lead times. Maintaining strong relationships with suppliers also is important to avoiding project delays.

Protect Your Bonding Capacity

Obtaining the necessary construction surety bonds is essential to operating and growing a construction business. Both public works projects and private construction jobs can require the contractor to furnish bid bonds, performance bonds, payment bonds, maintenance bonds, and other construction surety bonds that provide financial protection for project owners.

Sureties look at several factors when deciding how much they’re willing to guarantee for any project or for all of a contractor’s projects underway at one time. Chief among those factors is the contractor’s industry experience. Any history of bond claims due to a contractor’s failure to complete projects on time and without cost overruns can be very damaging to the contractor’s bonding capacity. Sureties also look closely at a contractor’s business practices, including their procurement process. Even if a problem is due to supply chain bottlenecks, project delays, and cost overruns can do a lot of damage to a contractor’s reputation and have a negative impact on bonding capacity.

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