Contractors seek clients' fairness with steel price spike

THE GLOBAL sky-rocket in steel prices has forced TT Contractors Association (TTCA) president Glenn Mahabirsingh to seek changes to the FIDIC Red Book so that contractors do not operate at unavoidable losses.

Current construction contracts are based on firm price contracts, meaning there is little to no room for adjustments to material prices agreed to on contracts.

Construction materials have seen prices hikes up to 90 per cent within just a couple of months and as it stands, an amended clause 13.8 from the FIDIC Red Book, by which local contractors are guided, would force them to absorb the difference in the costs of materials.

"When a contractor tenders for a contract, they may allow for a small fluctuation of pricing (for materials). However, given the competitive nature of the industry at this point in time, some contractors may not even allow for fluctuation. So now we're seeing a 90 per cent increase in prices, you put the construction budget in a negative position.

A notable example is the price of reinforcement rods which soared from $4,200 per tonne in November to $8,000 two months later.

The clause (13.8) states, "No adjustments shall be made for cost increases/decreases which take place during the period stipulated for carrying out the works except if the same is a consequence of the introduction of or changes to statutory regulations."

This is impractical given the circumstances surrounding worldwide supply and prices.

Mahabirsingh said, "Contractors are asking given the volatility in materials prices, which is driven by international factors, including covid19, that contracts be changed to fluctuation-price contracts."

He suggested the fluctuation can be limited to the basic materials identified.

The sharp and sudden increases are due to global factors, including demand, the impact of steel mills (by covid19), international freight prices, and availability.

"The way forward is that perhaps contractors can have a discussion with their clients, demonstrating the increase and possibly seek compensation.

"In the 70s and 80s," he said, "the contracts used to have a fluctuation clause. In more recent years, he said, they were removed at the contractors' risk."

He said it would also be wise for clients to consider the feasibility or their original ideas and perhaps consider their engineering and design options.

Bloomberg this week reported a 35 per cent increase in steel prices in the past year in China – the world's largest steel manufacturer.