17 August 2021

Contract concerns for builders following government restrictions

This article was originally published by Lauren Croft for Lawyers Weekly (17 August 2021) and has been reproduced with permission. See also related article: From lockdown to supply chain strain - builders face new legal minefield - by Sean Carroll for Building Connection.

Following increased lockdowns and after-effects of COVID-19, builders will now face the risk of breach of contract.

Growing supply chain constraints mean that builders are now at risk of breaching their contracts, said Bartier Perry partner and commercial litigation specialist Robert Kalde

“The eventual opening of the entire construction sector in Greater Sydney and more widely isn’t the end of the challenges – in fact it may just be the beginning,” he said. 

“You can’t simply flick a switch and restart a complex construction supply chain, especially given it is already under severe strain with global shortages and prices for building materials such as steel and timber up by 50 per cent.

“That means construction timelines and costs are blowing out and builders risk wearing the blowback.”

Supply chain delays caused by COVID-19 and government restrictions do not automatically release contractors and subcontractors from their obligations – and whilst developers and home owners are currently waiting for more news before enforcing their rights, Mr Kalde said these “wait and see” attitudes could quickly shift. 

As a result, builders could face the threat of being liable under their contracts to pay liquidated damages to principals if the projects are delayed. Additionally, clauses in contracts designed to accommodate supervening events may not cover the effects of the pandemic.  

Bartier Perry partner Mark Glynn added that builders are generally engaged under fixed-price contracts, which means they face the additional strain of also being liable for increased costs while they wait for materials to be delivered or sites to open up. 

“Just who will pay for a crane sitting idle on a construction site or scaffolding or extra security costs for a site could quickly become a point of heated contention between parties,” he said. 

“In the 2020 lockdowns the public battle was between retailers and landlords over who bore the financial pain out of COVID. In 2021 and into 2022 we could see that play out in the construction sector.”

To minimise risks Mr Glynn said Bartier Perry was advising builders and subcontractors to talk to their clients, review their existing contracts to make sure the effects of COVID-19 are covered and keeping the likelihood of shortages in mind when scheduling new work.