Building supply shortages and contracts

With building supply shortages threatening the timeframe requirements of many contracts, it is important to understand what your contractual options are if timeframes cannot be met. Legal firm Duncan Cotterill explains how the causes of these delays relate to your contracts and your options

COVID-19 restrictions are continuing to have an impact on 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 in 2020 was a reduction in orders and production by suppliers as many predicted that there would be a downturn in the construction industry. While many larger construction projects were put on hold or were delayed, there has actually been an increase in some sectors, particularly residential renovations and new builds. There have 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 the overseas supply chain. Many of these basic supplies come from overseas, 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 contingent 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 2020 national lockdown. The delays at Ports of Auckland have been reported on since November 2020, so 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 consider 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, to others which 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 also remains key, as has been seen with all other COVID-19-related issues. Clear, constructive communication means resolution can be reached and the impact on the project is minimised for all involved.

If you have questions or would like to discuss any of the points raised in this article, please contact your local Duncan Cotterill advisor (duncancotterill.com).

Duncan Cotterill is a full-service law firm with offices in Auckland, Wellington, Nelson and Christchurch. Its dedicated construction and projects team can help make your business a success by working with you to put the deal together.

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.