Reports this week have shown that the COVID-19 restrictions are continuing to have an impact on the construction industry. When the national lockdown was imposed last year we, and others, commented that one of the effects of that, along with the imposition of border restrictions and the global impact of COVID-19, would be a potential supply and labour shortage in the construction industry.
There are numerous reports of construction projects being delayed due to a shortage of building supplies. There was always likely to be an impact on specialist products from overseas but there are shortages of even basic materials, particularly plumbing, electrical and glass supplies. The shortage of basic supplies clearly has a wide reaching impact across the industry.
The usual remedy of seeking to source alternative products will become more and more difficult as these will also become scarce and of course there is a time and cost implication of doing this. It is also necessary to get the approval of the consenting authority for a change of materials to ensure compliance with building consents and the building code which causes further cost and delay.
There are multiple reasons for the current shortages. One of the consequences of the national lockdown last year was a reduction in orders and production by suppliers as many predicted that there would be a downturn in the construction industry will many projects being put on hold. Although it is true that many construction projects were put on hold or delayed there has been an increase in some sectors, particularly residential renovations. There has also been severe delays at the Ports of Auckland with reports of some ships having to wait up to 12 days to unload which has impacted on the overseas supply chain. Many of these basic supplies come from overseas and so importation delays have a significant impact.
In terms of overall project delivery there may be limited ability for the head contractor to mitigate delays as it may not be possible to proceed with other aspects of the build until the impacted trade can finish its works. The highlighted impacted trades are often some of the first to be done on a project and the remainder of the works are consequential on these being completed.
It is likely that the risk of supplier delays will fall on the contractor and will lead to the contractor being exposed for the consequences of late project delivery including liquidated damages.
Usually there is no specific right for a contractor to claim an extension of time under its construction contract for supply chain delays. In the absence of a specific provision covering this issue a contractor is likely to be left with seeking to rely on the common extension of time ground of circumstances not reasonably foreseeable by an experienced contractor at the time of tendering and not due to the fault of the contractor (10.3.1(f) NZS 3910:2013).
It then becomes necessary to analyse whether or not supply chain issues were reasonably foreseeable at the time of tendering. Arguably COVID-19 related issues have been reasonably foreseeable for some time as these were predicted and commented on as far back as when COVID-19 began to emerge, even prior to the national lockdown. The delays at Ports of Auckland have been reported on since November 2020 and so these have been reasonably foreseeable since that time. Depending on what the time of tendering is it may therefore be very difficult for contractors to be able to successfully argue an extension of time claim under 10.3.1(f).
It is therefore vital for contractors to take into account current and potential future supply delays when agreeing a programme for a project to try and mitigate the risk of late delivery. Since COVID-19 emerged there has been the inclusion in many contracts of provisions enabling the contractor to claim an extension of time and potentially cost in the event of delays due to COVID-19. These range from being specific to lockdown scenarios whereas others cover any effect and therefore would cover supply chain issues that were related to COVID-19. Contractors should check current contracts to see whether they have COVID-19 clauses they can rely on. For future projects contractors should consider the inclusion of tag to cover this risk.
Communication between the parties remains key, as has been seen with all other COVID-19 related issues, so that resolution can be reached and the impact on the project is minimised.
For further information please contact Julia Flattery or Jonathan Forsey.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
