What A Diesel Shortage Means for Construction Industry

Diesel Shortage

We’ve hit a low in diesel inventories not seen since 2008, according to Business Insider. In fact, our U.S. supply is below emergency levels. When refineries slowed production, many construction industry-related businesses, including freight transportation companies continued to operate at the same level of consumption.

According to the laws of supply and demand, this shortage will impact inflation prices and:

  • ConstructionForbes says, “Many power trucks and excavators use diesel… The increased cost of transporting raw materials will drive home-construction prices even higher when people already have to deal with soaring loan rates. This would also impact the mortgage industry since consumers will think twice about borrowing money…”
  • Consumer goods and 2022 holiday items
  • Fresh produce
  • Trucking/transportation

Escalation Clause One Solution to Construction Industry Challenges

It’s too soon to panic, say industry experts. Construction companies may encounter more problems in day-to-day operations, but nothing that will threaten construction as a goods-producing industry.

Mansfield Energy says the diesel shortage will be painful but manageable. Its recent report says, “At the local, load-by-load level, supply will still be available for those for whom diesel is a business-critical priority.”

Before bidding on projects, seek legal guidance to develop guidelines and standards that can minimize and offset uncertain fuel and material prices. Construction law professional Maria Di Stravolo Elliott said contractors should consider escalation clauses in pricing contracts.

An escalation clause allows a contractor to impose price increases in materials upon the owner after a contract has been signed, thereby shifting the risk of absorbing the price increases from contractor to owner. -BarleySnyder

Often, clients are reluctant to waive fixed-price guarantees. Some buyers believe they absorbed higher prices that resulted from delayed construction they feel could have been avoided.

One way to make requesting an escalation clause into a fixed-fee contract more buyer-palatable is to educate your clients about the impact of future uncertainties that can include pandemics, fuel and materials shortages, and transportation issues. Contractors willing to absorb some of the (materials, fuel, etc.) price increases will inspire greater confidence.

For strategies that can increase your business opportunities next year, contact Construction Monitor.

This content is for informational purposes only and does not constitute legal advice.

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