Navigating the Disruptive Construction Supply Chain

The construction industry continues to face headwinds, as pricing volatility has become the most recent disruption to ensuring contractors can execute projects on time and on budget. The fluctuating price of steel, aluminum, and copper, for example, have dramatically impacted project budgets, timelines, and material procurement strategies, causing contractors to get creative. Meanwhile, legacy supply chain issues persist while labor resources are scarce, compounding the pressure contractors are under to work quickly and efficiently, as the demand for complex capital projects skyrockets. In this landscape, there are several ways to help mitigate risks in a volatile market and ensure project efficiency/success. 

1. Consider using new contract models 

Electrical contractors are always working to manage their cash flows and credit lines, but an increased focus on bids relative to start dates and material price fluctuations is more important than ever. Due to the unpredictable nature of the current market, contractors should avoid firm fixed contracts for long-term projects. For example, it's impossible to know what pricing models will look like a year from now. So for projects that may not get underway until the fall of 2026, contractors should consider a more flexible contract model that can adapt to price fluctuations.

One way to do this is pegging product prices to commodity prices to provide flexibility in contracts. In this model, material prices are quoted based on current market conditions, but if the price changes by a pre-defined margin, the contract can be adjusted. This allows for adjustments based on actual costs, providing a way to manage price fluctuations and reduce risk for contractors.

“Cost-Plus” contracts should also be considered. This contract type is ideal when a scope of work is not clearly defined, or when estimating project costs at the onset is difficult. This contract style ensures contractors will recoup all of their direct costs and agreed-upon profit margin. These contract models help manage the risks associated with supply chain volatility and ensure project success.

2. De-risk the supply chain

Price uncertainties and supply chain strains have led to more onshore manufacturing and local sourcing for raw materials. As more products are built within the United States, we expect to see a lot more complex capital projects executed onshore.

Contractors need to plan ahead, taking into consideration much longer-than-normal lead times on certain products and materials, and give themselves a longer runway to place orders and keep projects on track. Transformers and electrical gear/equipment, for example, have been hit hard, with certain products taking an average of 40 weeks to procure and transformers up to a year or more.

Savvy contactors are also building long-term partnerships with partners to help de-risk their supply chain and achieve long-term gains. Instead of approaching sourcing on a per-project basis, contractors are considering the materials they will need for the next several months and collaborating with a sourcing partner to aggregate multiple projects to ensure material availability. This often happens with electrical equipment. The downside for some contractors to this approach could be the issue of materials storage for future jobs, but, in some cases, partners can also store materials for a fee. 

Securing production capacity is another creative solution contractors can use to ensure long-term gains. We’re seeing more utilities and data centers signing deals essentially purchasing slots in a manufacturing cycle. 

3. Optimize labor resources to ensure project success

Even with the best laid plans to proactively source materials and have them available when needed on a project, if there aren't enough skilled workers to get the job done, the success of the project is at risk. And considering the average age of an electrical contractor is 58, there’s a retirement boom coming, compounding the skilled labor shortage. While it’s encouraging that many companies are investing in training programs to address the skilled labor shortage in the construction industry, the immediate challenge is still there.

Many businesses are turning to their partners to provide labor-saving solutions that either boost overall productivity or help maximize skilled labor. Services like as pre-kitting or pre-fabrication can help optimize time on the job site by having lower-skilled tasks performed off-site, allowing skilled workers to focus on what they do best. After all, you don’t want your limited skilled labor spending time unpacking boxes or breaking down materials. Other innovative solutions can help reduce overall labor costs by reducing the number of workers required to do certain tasks, such as pulling cable.

At the end of the day, project execution is an art. Ensuring that the timeline stays on track is contingent on having both the right products and the labor resources needed.

There are many forces in play that continue to impact material availability, labor shortages, and more. It cannot be stressed enough — to navigate continued disruption across the supply chain, electrical contractors must get better at planning ahead and avoid getting caught up in the daily incremental changes. We can’t control the tide, but we can control having everything we need on our boats to more efficiently weather this storm of uncertainty.