Construction supply chain impact of coronavirus
As the impact of Coronavirus spreads to global supply chains and begins to impact the construction industry overseas, it is only a matter of time before the impact will be felt here in New Zealand, particularly due to the widespread use of materials imported from China in our construction industry.
Although many factories have now reopened in China, it will take time for them to build up to full operating capacity and there will be the inevitable lag in shipping delays. There will also be the knock on effect of pressure on the domestic supply market which will exacerbate the problem.
For projects under construction where imported products were intended to be used this will inevitably lead to delay and increased cost. Contractors are also likely to factor in supply chain issues when submitting upcoming tenders.
Where the responsibility for supply chain issues and liability for any additional cost or delay lies will depend on the terms of the construction contract. Both contractors and principals should be aware of the requirements of the contract and any steps that need to be taken.
Supply chain issues may fall under force majeure events under the contract and therefore entitle the contractor to claim an extension of time and increased costs. However, it is worth noting that a usual contract amendment is to qualify force majeure clauses so that the contractor cannot claim in relation to an event that would have been reasonably foreseeable to an experienced contractor at the time of acceptance of tender. It is highly unlikely that any contractor entering into a contract in the coming months could successfully argue that supply chain issues as a result of coronavirus was not reasonably foreseeable. This is therefore likely to lead to an increase in the cost of construction projects as contractors seek to mitigate this risk either by increasing their prices or by sourcing alternative more expensive materials.
Contractors need to ensure that they comply with any notice obligations in the contract including in relation to advance notification obligations and claims for additional costs and delay. There are usually strict timing and service requirements in relation to such notice which must be complied with.
In order to try and mitigate any delay contractors may want to try and source alternative materials for projects. There are usually restrictions on the contractor’s ability to do this without engaging with and getting the approval of the principal and so materials cannot simply be changed.
For further information please contact Julia Flattery.
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.