30th May 2022
Supply chain and border disruption, and materials and labour shortages, caused by Brexit, Covid, and the 2021 Suez Canal blockage have all been well-documented and are continuing to impact businesses in all sectors. The Russian invasion of Ukraine and the continuing energy crisis are exacerbating existing supply chain difficulties across the UK. The construction industry, in particular, is now becoming more severely affected.
The Office for National Statistics has reported that the UK imported £270 million of material manufactures  from Ukraine in 2021. Also in 2021, Russia was the UK’s 12th biggest importing partner globally, with the UK importing £10.3 billion in material manufactures, as well as oil and gas, from Russia. As at May 2022, Ukrainian manufacturing and trade is now largely at a standstill. International sanctions are imposing economic costs on not only Russia directly, but also indirectly on its global trading partners . Even where sanctions may not strictly bite, many UK businesses are weighing the ethical and reputational concerns, and increased investor/consumer scrutiny, now associated with doing business with Russia. It is therefore perhaps no surprise that UK housebuilders and developers, and the contractors and suppliers on whom they rely, are experiencing the impact of these extraordinary times.
Demand for materials and labour is now frequently out-stripping supply, and cost increases and rising energy prices are impacting projects to the extent that a slowdown on growth is now being forecast amongst some commentators . The socio-political climate and supply chain challenges are, of course, coupled with the subsisting lack of land supply and consequent ‘record’ high land values. In some instances, development appraisals, costings and feasibility studies have become completely out-of-date and it may be that current issues impact the feasibility of future projects altogether. In cases where the figures do still stack up, there nevertheless remains the risk of knock-on effects, such as timing issues/delay and/or delivery of commitments from or to third parties (for example in relation to contractual warranties, third party validations, section 106 agreements, or other legal obligations).
It is anticipated that specialist sub-contractors are already feeling the effects in the immediate term; contractors at all levels will be forced to consider the prices and terms on which they can deliver future projects; and housebuilders/developers will be concerned to see whether the market is resilient enough for price increases to be reflected in ultimate sale prices.
While many of the factors at play are outside the direct control of UK businesses, what are the legal and practical steps that housebuilders and developers can take to mitigate their position?
As part of a business’ assessment of supply chain disruption on their commercial arrangements and financial viability, whether contracts or common law remedies allow the flexibility to renegotiate, or the ability to terminate, commitments will be key. So too will be the ability to avoid or mitigate disputes.
Housebuilders/developers may wish to consider some or all of the following measures to help manage supply chain difficulties in the short and long term.
Walker Morris has a broad spectrum of cross-discipline specialists who are ready to help housebuilders/developers navigate the complexities of continuing to do business, and to ensuring the deliverability and profitability of their projects, in these increasingly challenging times.
If you have any queries arising from this briefing, or need advice or training in connection with any of your commercial and/or development contracts (including in relation to any review, drafting issues, termination/suspension or related options, or any dispute), please do not hesitate to contact Louise Norbury Robinson or Kathryn Vickers, , who will be very happy to help.
 ‘material manufactures’ include vital raw materials, such as wood, iron, steel, other metals used in batteries, electronic chips and various other key components, as well as larger items such as machinery, and transport equipment, etc.
 For more detailed advice on managing sanctions and supply chain risk, see our Walker Morris briefing.
 for example, the Construction Products Association has predicted growth of 2.8% in the second quarter of 2022, down from the 4.3% that had been forecast just three months ago; Construction News and Building Magazine have reported that the latest Glenigan Index has found the value of construction project starts is 21% lower than a year ago, underlying work commencing on-site during the three months to April was significantly down on the same period last year and fell 1% against the preceding three months, and the amount of residential work starting in the first month of Q2 was 28% down on 2021.