SUPPLY CHAIN Contractors
SUPPLY CHAIN Contractors can protect themselves from supply-chain risks Global logistics blockages present risks for the engineering and contracting sectors. Tyron Theessen and Megan Jarvis of Weber Wentzel lay out steps that can be taken to mitigate that risk. Current logistical bottlenecks present high risks for contractors in completing capital projects and they need to protect themselves against penalties. Supply-chain disruptions, which emerged as a result of Covid-19 lockdowns in 2020 and were joined by rising inflation towards the end of 2021, intensified in 2022. With the war in Ukraine and the Covid-19 shutdown in Shanghai, disruptions worsened. The other side of logistical disruption and the war in Ukraine is that it is causing a spike in the prices of certain commodities so mining companies are more anxious than ever to accelerate expansion projects – even as their contractors are battling to secure the necessary inputs. For example, the shortage of microchips, which are used in a vast range of consumer products, including cellphones and automotive vehicles, stemmed not only from the closure of factories but also rising demand for technology, when more employees had to work from home. Three-quarters of microchip production is located in East Asia, according to The New York Times. Another area of acute shortage over the past two years has been steel. Not only were mills shut during Covid-19 but, when they restarted, the extent of the economic recovery was underestimated. This has caused a spike in the cost of certain steel products. The costs and timelines for importing goods have increased dramatically, with a 500% increase in the freight costs of using a 12-metre container to send goods by sea from China to South Africa. Additionally, Covid-19 cases continue to affect the outputs of suppliers, manufacturers and contractors at various levels of the supply chain. For example, an outbreak of Covid-19 at a supplier or sub-supplier compromises its capacity to complete production timeously, which in turn delays delivery to manufacturers and contractors. These delays and heightened costs are causing contractors and OEMs to seek ways to manage risks and disclaim responsibility for time and cost overruns on large capital projects. Material Adverse Event or Force Majeure clauses may not assist, as the materiality threshold may not be met in respect of the former and supply-chain disruption is unlikely to be construed as an unforeseen or unavoidable event in relation to the latter. Ricardo Gomez Angel on Unsplash Additional clauses With no immediate prospect of this problem being resolved, contractors who need to procure critical capital items reliant on inputs like steel, microchips or the logistics chain are having to consider including additional clauses in their contracts to protect themselves from the ramifications of failing to deliver within anticipated timelines. Contractors need to acknowledge that there are higher levels of commercial risk and manage these differently. Where there are concerns that a potential delay in the supply chain will have an unintentional knockon effect on the construction period, the time for completion and the defects date (and these delays are not attributable to the contractor), the contractor may consider including back-to-back provisions in their contracts with suppliers in order to mitigate these risks. In addition to providing for contractual relief, contractors should reduce their reliance on a single critical source of supply and look for alternatives. Sourcing products closer to home or using local products may also alleviate risk. The knock-on effect of risk to corporate reputation should be considered when selecting a supplier and the relevant geopolitical risk ought to form part of this evaluation. Sustainability of supply may form an important part of ESG reporting for contractors too. ABOUT WEBER WENTZEL We are the leading full-service law firm on the African continent, providing clients with seamless, tailored and commercially-minded business solutions within record times. Our alliance with Linklaters and our relationships with outstanding law firms across Africa ensure that our clients have the best expertise wherever they do business.
Born into engineering COMPANY PROFILE ENGINEERING TRACT Consulting Engineers is active across South Africa and its founder is determined to help young engineers. TRACT Consulting Mission • To grow the company and provide employment opportunities for skilled professionals and young engineers • To identify gaps in the engineering industry and provide innovative solutions • To provide cost-effective solutions to clients Biography: Idah Deka (Professional Structural Engineer) From an early age, Idah Deka sometimes joined her late land surveyor father at work in the mining towns where she was born and bred. Years later, as a youth, she took the leap to form TRACT Consulting Engineers. She says the word ‘’theodolite’’ formed part of her childhood vocabulary. Idah is a specialist Structural Design Engineer who has designed a wide range of complex structures such as warehouses, car showrooms, office blocks, cullet bunkers, structural steel for glass plants and shopping centres. Her experience in complex commercial projects forms the foundation of TRACT Consulting Engineers. Idah is also passionate about tertiary education, holding positions in various institutions as well as co-founding an education-related NPO. The highlight of Idah’s career so far is the period when she was a Structural Design Engineer responsible for large-scale commercial projects. She says it is an opportunity she will always look back and smile upon as it afforded her the chance to learn exceptional structural engineering skills. Company history TRACT Consulting Engineers is an 80% black female-owned company, Level 1 B-BBEE contributor, founded in June 2019. The company undertakes engineering consultancy services in various Civil Engineering disciplines. In the time that TRACT has been in operation, great strides have been made and a commendable client base has been built. The company has been actively involved in development projects in South Africa in both the public and private sectors. Services have been provided to private clients such as consulting engineering firms, manufacturers of transformers, mining companies, individuals, body corporates as well as to government. Aspirations and success Idah has always been interested in the operations of a company, aspiring to be an operations manager. Being the founder of TRACT Consulting Engineers allows her to be involved in the management of the company while still being involved in project delivery. Idah’s advice to other aspiring entrepreneurs is to gain knowledge in business finance, among other skills. In TRACT’s first year, Idah had weekly sessions with TRACT’s accountant, who is also a tax practitioner. This has equipped her to keep track and be involved with TRACT’s accounting and tax-related issues. She attributes her success to four things: skills, perseverance, strong family support and a strong network. “My immediate goal is to grow the company and create employment opportunities for young graduates. While working towards achieving my goals, I am mindful to enjoy every step of the process and not be destination orientated,” she says. Residential project at 1st floor level Bulkwater-supply project at practical completion Contact details E: info@tractconsulting.co.za | C: 064 133 0192 | www.tractconsulting.co.za www.opportunityonline.co.za | 19
