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The effects of COVID-19 have been far-reaching.

Two significant issues in the construction industry that we are currently seeing are:

1. Delays caused by trade and material shortages; and

2. Considerable price rises in relation to materials.

Delays

Check the contract. If it contains a clause that says that the builder is entitled to an extension of time if there is a delay “beyond the reasonable control of the builder”, or similar, then claiming additional time will be straightforward.

It is notoriously difficult to prove delays at a much later stage, so make the extension of time either:

• As soon as the delay starts (and update it once it ends); or

• Just after the delay ends.

A short email with the extension of the claim is usually sufficient, depending on what the contract requires.

The contract is unlikely to also allow for delay costs relating to this type of delay, however, so consider whether delay costs can be claimed through another avenue such as for a delay caused by the conduct of the owner or an architect’s instruction. This is obviously tricky for delays such as an industry shutdown, but it may be relevant to other stages of the project, such as an owner’s or architect’s instruction to suspend works until after the COVID-19 lockdown because the owner is still living in the property.

Most contracts contain a provision allowing for a variation claim to be made where there is a change in a legislative requirement or relevant legislation. However, the clauses usually say that the change in legislation must require a “change in the works”. This is slightly ambiguous but is likely to mean a change in the scope of the works. If a delay caused by a COVID-19 government health order consequently causes a change in the works, the builder would be able to make a claim under this clause.

The ability to claim in each situation will, as usual, depend on the exact circumstances.

Price rises

The industry is experiencing significant price increases in relation to a range of materials including (but not limited to) timber and steel.

Where builders have signed a fixed price contract some time ago (or even in the last six months, the price increases are having a severe impact on cash flow and profit margins.

Fixed-price contracts are just that, an agreement to carry out a set scope of works for a fixed price. So where the project is running on time and the scope of works hasn’t changed, the fixed price must stay the same.

However, if a builder has experienced delays on the project caused by the owner, then the builder (depending on the terms of the contract) should be able to make a claim for delay and delay costs as a result of the owner’s delay.

Delay costs in these circumstances will be the increase in the price of materials:

• From the date the materials would have been ordered if the owner had not delayed the project;
• Until the date, the materials are actually ordered after the delay ends.

This type of claim requires some evidence of past and present material costs.

Another way a builder is able to claim for extra costs resulting from materials price increases is if the scope of works changes due to a change in the type of material. Some contracts say that if any material specified for the project cannot be obtained or can only be obtained with an unreasonable period of delay:

• The builder will seek instructions concerning substitutes to be used; and
• Any price difference will be deemed to be a variation.

An owner may find it more palatable to pay a bit extra for a different type of material if this will ensure that the project will keep ticking along rather than experience extensive delays. Of course, this will unfortunately not always be possible but if it’s an option it will assist the builder to recover some of the extra cost.

Contracts aside, there is nothing to stop the builder from negotiating with the owner in good faith and reaching an agreement to increase the contract price.

What we are experiencing at the moment is unlike anything most of us have seen during our lifetime and, regardless of legalities, it is not unreasonable for a builder to approach the owner to explain the serious impact of COVID-19 on the project costing and to see if they are willing to share some of the burden.

Hannah Shephard is a solicitor at MBA Lawyers, (02) 8586 3517.

Specific legal advice should be sought for individual circumstances.