Soaring raw material prices are having a devastating impact on profitability and quality across the building services sector, according to the president of the HVCA Martin Burton (pictured), who is calling for the reintroduction of fluctuation clauses in all contracts.
Many contractors undertake projects based on fixed price contracts, which leave them exposed to the threat of significant losses as they are unable to alter their charges to reflect volatile market conditions. Fluctuation clauses would allow them to adjust prices if material costs rise significantly during the course of a project.
“This is not just a source of alarm for contractors,” said Mr Burton. “Clients should be equally concerned. They face the potential problem of contractors going bust without being able to complete work or trying to source inferior quality materials to overcome cost pressures.
“This problem has been with us in previous recessions. Who can forget things like pinhole leaks in radiators and other quality issues that occurred when inferior quality materials were used to try and cover what had become, through unforeseeable materials cost increases, sub-economic tender prices?”
The HVCA reported that copper prices had risen by more than 200 per cent in the past year and many had reported sudden leaps in the cost of steel and plastics.
Centrica, the owner of British Gas, has also recently warned the sector that its retail prices are likely to rise to take account of a 25 per cent increase in wholesale fuel prices.
“We are not calling for anything revolutionary here,” said Mr Burton. “We are simply seeking the reactivation of more flexible contract clauses that were in force in the past. I invite the rest of the construction industry to support this call.”