From natural disasters to cyberattacks to pandemics to bankruptcies to geopolitical turmoil, there are a host of reasons why the construction materials that contractors count on as being readily available might end up becoming scarce commodities. We are so used to seeing stock items on the shelves of supply houses, and getting special order items produced by manufacturers on time, that the potential for supply chain disruptions are rarely top of mind. But they are real risks. And if they happen, a contractor’s financial viability can be jeopardized.
Product shortages spark price increases, and I previously blogged (# 100) on price escalation clauses for unanticipated increased costs. But what about reducing the risk ahead of time?
Some contractors formerly loyal to one distributor now divide their purchases among two or three, hoping that diversifying their sources of supply will minimize the risk of shortages. It’s not a bad strategy – akin to maintaining two or three accounts at different banks in case one bank account is compromised. Others are buying key materials in bulk and warehousing them (or buying out a project’s needed materials on Day One and storing everything on site), a practice that took off when President Trump announced his mission to make imports more expensive.
From a legal perspective, contracting in a way that spreads the risk makes great sense. So-called “force majeure” clauses in contracts with customers need to be specific when it comes to supply chain disruptions. This may require tweaking form contracts dealing with delays in contract performance, such as the popular AIA A-201 (2017) General Conditions reference in Section 8.3.1 to “unusual delay in deliveries” as a basis for extensions of time (why not add “supply chain disruptions” too?). It may require contract language giving the contractor flexibility in substitution of products – a mandatory “or equal” provision – where an owner or architect has designated or “sole-sourced” a specific brand. A provision for additional compensation if the substitution proves more expensive may also be advisable.
On the supply side, “requirements contracts” can provide some protection to contractors who are willing to commit to buying all of their needs for particular products – or at least all of their needs up to a certain quantity – from a single supplier. Both buyer and seller commit to the deal, essentially making the buyer a priority customer in the event of a shortage. Suppliers have an incentive to enter into such contracts with customers whose volume of purchases is both large and somewhat predictable, because it effectively guarantees them a market for resale even if market-wide demand declines. To satisfy the Uniform Commercial Code provision that sales contracts are unenforceable unless reflected in a writing that makes the quantity of goods to be sold ascertainable, such requirements contracts must be exclusive. PMC Corp. v. Houston Wire & Cable Co., 147 N.H. 685, 692 (2002) (“Because a requirements contract depends on exclusivity to determine the quantity, there can be no valid requirements contract without it.”). And this runs counter to the diversification strategy discussed above.
If contractual risk-spreading solutions are not in the cards, various forms of business interruption insurance and even specific supply chain insurance are available which can mitigate financial impacts of supply chain disruptions. Some such policies are “all risk,” some are customizable, and they can cover lost profits, costs, expenses, even liquidated damages awards.
There is nothing a contractor can do to promote supply chain stability. That effort has to be undertaken on a national scale, in the political arena. And Congress knows it. Earlier this week the Senate passed the bi-partisan Promoting Resilient Supply Chains Act of 2025, co-sponsored by New Hampshire Senator Jeanne Shaheen. It charges the Department of Commerce to work with private sector and government partners to prevent future supply chain disruptions, creating a government-wide Supply Chain Resilience Working Group. The bill now goes to the House for consideration. We will see what comes of it.
Product shortages spark price increases, and I previously blogged (# 100) on price escalation clauses for unanticipated increased costs. But what about reducing the risk ahead of time?
Some contractors formerly loyal to one distributor now divide their purchases among two or three, hoping that diversifying their sources of supply will minimize the risk of shortages. It’s not a bad strategy – akin to maintaining two or three accounts at different banks in case one bank account is compromised. Others are buying key materials in bulk and warehousing them (or buying out a project’s needed materials on Day One and storing everything on site), a practice that took off when President Trump announced his mission to make imports more expensive.
From a legal perspective, contracting in a way that spreads the risk makes great sense. So-called “force majeure” clauses in contracts with customers need to be specific when it comes to supply chain disruptions. This may require tweaking form contracts dealing with delays in contract performance, such as the popular AIA A-201 (2017) General Conditions reference in Section 8.3.1 to “unusual delay in deliveries” as a basis for extensions of time (why not add “supply chain disruptions” too?). It may require contract language giving the contractor flexibility in substitution of products – a mandatory “or equal” provision – where an owner or architect has designated or “sole-sourced” a specific brand. A provision for additional compensation if the substitution proves more expensive may also be advisable.
On the supply side, “requirements contracts” can provide some protection to contractors who are willing to commit to buying all of their needs for particular products – or at least all of their needs up to a certain quantity – from a single supplier. Both buyer and seller commit to the deal, essentially making the buyer a priority customer in the event of a shortage. Suppliers have an incentive to enter into such contracts with customers whose volume of purchases is both large and somewhat predictable, because it effectively guarantees them a market for resale even if market-wide demand declines. To satisfy the Uniform Commercial Code provision that sales contracts are unenforceable unless reflected in a writing that makes the quantity of goods to be sold ascertainable, such requirements contracts must be exclusive. PMC Corp. v. Houston Wire & Cable Co., 147 N.H. 685, 692 (2002) (“Because a requirements contract depends on exclusivity to determine the quantity, there can be no valid requirements contract without it.”). And this runs counter to the diversification strategy discussed above.
If contractual risk-spreading solutions are not in the cards, various forms of business interruption insurance and even specific supply chain insurance are available which can mitigate financial impacts of supply chain disruptions. Some such policies are “all risk,” some are customizable, and they can cover lost profits, costs, expenses, even liquidated damages awards.
There is nothing a contractor can do to promote supply chain stability. That effort has to be undertaken on a national scale, in the political arena. And Congress knows it. Earlier this week the Senate passed the bi-partisan Promoting Resilient Supply Chains Act of 2025, co-sponsored by New Hampshire Senator Jeanne Shaheen. It charges the Department of Commerce to work with private sector and government partners to prevent future supply chain disruptions, creating a government-wide Supply Chain Resilience Working Group. The bill now goes to the House for consideration. We will see what comes of it.
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