Protecting yourself from Supply Shortages

Construction

We have recently received a large number of enquiries from building contractors in both commercial and residential sectors in relation to delays in the supply of building and construction materials, particularly timber.

Building contractors have said the delay for some products is in excess of 6 weeks and material prices have doubled in recent months due to the effect of the global pandemic on the production and supply of materials.

Extension of time provisions in common contracts

Commonly used building contracts have mechanisms to claim an extension of time for material delays such as:

  • The standard HIA Residential Building Contract for New Dwellings allow a builder to claim an extension of time if the cause of the delay is ‘beyond the reasonable control of the builder’;
  • The MBA BC4 Residential Building Contract allows a builder to claim an extension of time if the cause of delay is for trade or material shortages; and

It is strongly recommended that Builders:

  • Review their contracts and ensure they are entitled to an extension of time for material delays; and
  • Ensure they are complying with the contractual processes for notifying and claiming an extension of time as some contracts have time bar provisions which may mean the right to an extension of time is lost if the process isn’t followed.

Rise and Fall – Claiming an increase in price due to increased cost of materials

In respect of the ability for Builder’s to claim an increase to their price as a result of the increased cost of materials the standard HIA Residential Building Contract for New Dwellings and the MBA BC4 Residential Building Contract are fixed price contracts and do not provide any mechanism to recover an increase in material prices.

To overcome the above, it is recommended Builder’s either:

  • Incorporate materials for which there may be supply issues as provisional sum items; or
  • Include a special condition entitling the Builder to an increase in the price for a rise or fall in the cost of specific materials.

Takeaway

As the situation appears to only be getting worse, Builder’s should ensure they are adequately protected from the consequences of delays in the availability to procure materials and additional costs incurred.

Keystone Lawyers can assist building contractors with ensuring they are adequately protected going forward. If you have any concerns with your current contracts, we can also assist you to understand and manage your risk exposure.

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