The impact of the COVID-19 pandemic can have severe financial consequences if your construction contract risks are not properly managed.
Liquidated damages, increases in the price of labour (due to inefficiencies caused by social distancing and now having to work 7 days a week in some cases), increased costs for materials or equipment used or ordered (for example, in some cases cabling prices have increased by over 20% in a month) for incorporation in or associated with the project are some of the major reasons for future and/or current cost overruns.
NECA Legal NSW held a webinar on Managing Contracts in the changing Coronavirus landscape on 27 March 2020 which is relevant nationally - click here to view.
The majority of construction contracts have liquidated damages clauses exposing subcontractors to substantial damages, calculated on a daily rate, should construction projects not be completed by the date for practical completion.
In the current Coronavirus pandemic environment, contractor’s exposure to liquidated damages may be affected by suspension of works or parts of the site being shut down, productivity and progression of the works may also be diminished due to inefficiencies caused by social distancing or stringent OSH requirements further delaying projects.
NECA has received numerous enquiries from members on the verge of walking off site because of compounding Coronavirus pandemic issues making site conditions untenable. Walking off site may expose you to substantial liquidated damages and significant damages for breach of contract. Some contracts even make provision for the Principal/Builder to claim general damages over and above liquidated damages.
Should you be faced with such a drastic situation, contact NECA (WA) Legal to obtain legal advice before acting on (08) 6241 6129.
A site shutdown caused by the Coronavirus pandemic may allow you to claim an Extension of Time (EOT). A change in legislation restricting work methods (i.e. social distancing on site) may be grounds for claiming an EOT or variation. Delayed supply of material caused as a result of the Coronavirus pandemic may also be a Force Majeure event under your contract, allowing you to claim an extension of time. These all depend on the terms of your contract.
We ask NECA members to ensure that any claims for EOTs, delay damages, disruption costs and costs of suspending works (if the contract provides for these) are made within the strict timeframes provided by the contract and made in the proper form. Failure to make any EOT claims or claims for additional costs incurred in a timely manner may result in you being barred from making such claims at a later stage.
NECA (WA) Legal are available to assist you in putting together EOT claims, which in respect of some contracts may include you claiming costs due to a site being closed down through no fault of your own.
Disclaimer: this is general advice only and should you have any issues which require legal advice, contact NECA (WA) Legal for advice relating your specific circumstances and contractual provisions.
NECA Legal will be able to assist you with questions relating to the above. Should you require contracts to be reviewed, amended or new clauses drafted to protect you in this changing environment, NECA’s experienced solicitors (at subsidised legal rates for NECA members only) can provide cost effective legal services to you, which may substantially reduce your risk profile within the contractual chain during these uncertain times.
NECA (WA) Legal
(08) 6241 6129