Hydrocarbon Processing - June 2022 - 41

Plant Design,
Engineering,
Construction and
Commissioning
C. RENTSCHLER, Al Bassami Industries,
Lititz, Pennsylvania; A. PARMAR, MilliporeSigma,
a Merck KGaA Company, Sheboygan, Wisconsin;
and G. SHAHANI, Independent Consultant,
Allentown, Pennsylvania
Overcome inflation and supply chain issues
in construction
Inflation and supply chain disruptions
are not new to the construction industry,
but the severe combination of these factors
and the rapid pace of change driven by the
COVID-19 pandemic are unprecedented.
This disruptive change in essential factors
affecting construction company performance
and sustainability requires companies
to make quick adjustments to project
execution. While these and other challenging
issues have been spiking quickly
due to COVID, the problem is not short
term and will require focused corrective
efforts for the near future.
The major contributors to the latest
construction industry woes are material
shortages and spiking prices when materials
can be found. These challenges are further
compounded by a tougher labor market.
Many domestic mills and fabrication
facilities were forced to shut down when
the pandemic hit. When production facilities
were allowed to reopen, they faced
issues in receiving their raw materials, establishing
sufficient
labor and securing
reliable shipping. All of this led to material
availability issues and higher material
costs. Foreign manufactured products and
materials also faced production and shipping
shutdowns during the pandemic, and
this further exacerbated an already grave
situation regarding supply shortages.
The combination of spiking commodity
prices, supply interruptions and tight labor
markets-mainly from the pandemic
-has been fueling market uncertainty
and inflation. In some cases, the escalating
cost of equipment, materials and labor
are making projects financially unviable.
In other cases, projects are being postponed.
Projects that were already under
execution when the pandemic hit were impacted
both financially and schedule-wise.
Future viable projects will be impacted
by increased project demands spurred by
low interest rates causing price pressures
and supply shortages. Solving the problem
is not a matter of just raising prices, since
construction companies must still be competitive
to win much-needed work. Contractors
and owners must take steps to deal
with the situation as best they can by addressing
those factors within their means.
Suggested steps are discussed in this article.
More than anything, the current situation
driven by the pandemic should not
be looked at as a once-and-done scenario.
History has shown that supply shortages
and increasing inflation can be sporadic
events. While experience has demonstrated
that the price spikes eventually subsided
(in nearly all cases), contractors that
were unable to pass on the price increases
for an extended period were harmed.
Contractors should be equipped with
the knowledge and structure to fight
through the inflation situations when
they occur. An example is to reexamine
the terms and conditions of contracts, especially
if they are based on fixed or lump
sum pricing and/or completion deadlines.
It is a good idea to review sourcing and procurement
strategies for materials and hiring
plans to expand the resource pool. Lessons
learned from the current pandemic
situation are a perfect knowledge platform
for situations that may occur in the future.
Communication between owners and
contractors is key during times of inflationary
material costs. Owners should
expect different pricing and may want
to consider design variations, cost sharing
and time flexibility. Contractors must
closely monitor costs and delivery schedules
for materials and communicate this
information to the owner both during the
bid stage and throughout construction. In
the end, price spikes do eventually reverse
course-when this happens, both the
owner and contractor benefit. Along the
way, staying aligned will promote a cooperative
working relationship, avoid dissension
and lead to a successful project, even
during challenging times.
Commodity prices and availability.
Media has been rife with references to
inflation on a global basis caused by supply-demand
imbalances and easy monetary
policies.
The Associated General Contractors
of America(AGC) published an alert in
April 2022 regarding how inflation is impacting
the construction industry.1
trends presented here apply to non-resiThe
Hydrocarbon
Processing | JUNE 2022 41
Hydrocarbon Processing - June 2022

Table of Contents for the Digital Edition of Hydrocarbon Processing - June 2022
