KNOWLEDGE CENTRE

What are the Legal Implications of the Coronavirus Impacting the Supply of Materials in the Construction Industry?

Coronavirus and the Impact on the Supply of Materials (other than just your toilet rolls!)

If the Coronavirus is Causing Disruption to your Construction Project Supply-Chain, are you Legally Protected?

Coronavirus or 'COVID-19' continues to spread across the globe, with the World Health Organisation (WHO) referring to the epidemic as a “public health emergency”.

With Australia’s reliance on China for providing goods and materials for the construction sector higher than ever before, many of Enterprise Legal’s construction clients have started raising concerns about how the outbreak could affect their projects, big and small – and when it inevitably does, what will their rights and potential liabilities be? 

Risks to Developers and Other Principals

Most Developers/Principals of construction projects care about three main things when it comes to their project delivery, that is - will the project be:

  • on time;
  • delivered within budget; and
  • of a quality standard and within scope upon practical completion.

The recent shortage of materials from China as a result of factory closure and import limitations could see Developers and Principals alike exposed on all three of the above criteria.

Some key factors for Developers/Principals who have current projects or projects that are at the ‘sign-up’ phase to consider include:

  • what materials and/or goods are at risk of not being supplied on time;
  • delay damages – is the delay a compensable cause under the Contract which could see the Developer/Principal having to pay delay damages to the Contractor;
  • extensions of time – does the Principal have an obligation to grant an extension of time under the Contract for the delays, in which case the project completion date could be significantly pushed out:
    • without giving the Principal the right to enforce liquidated damages; and
    • exposing the Principal to potential claims from future tenants, purchasers or alike;
  • does the Developer/Principal have ‘good faith’ obligations under the Contract and how would those obligations apply in the current circumstances; and
  • what practical steps can (and must) the Developer/Principal take to mitigate its own losses in respect of the project. 

Risks to Contractors

Conversely, the risk to Contractors are in the reverse. For example:

  • could the Contractor be exposed to delaying the project without any entitlement to extensions of time, consequently exposing the Contractor to liquidated damages payable to the Principal/Developer;
  • does the Contract’s ‘force majeure’ clause adequately protect the Contractor where the extension of time clause otherwise may not;
  • what obligations do the Contractor have to its subcontractors, and what liabilities could it be exposed to in that regard; and
  • what steps does the Contractor have to take from the outset to best protect itself from unnecessary exposure. 

What Should You Do?

Enterprise Legal’s advice is ‘be alert, but not alarmed’. Make sure that you arm yourself with the knowledge that you’re legally protected and the best way to do this is to see an expert construction lawyer to get guidance and advice on what the best way forward is for your specific project, so as to mitigate any liability or other exposure under the Contract or otherwise.

Most importantly, by arming yourself with the relevant information and taking practical steps without delay, you will maximise the chance of successfully delivering the project, which is a win-win for both Developer/Principal and Contractors alike.

If you are currently a party to a construction project or planning to sign an agreement in the near future, contact Enterprise Legal’s Construction Law Team for advice today! Ask to speak to our firm director and dedicated building and construction specialist, Sharné Lategan.

Always remember, prevention is better than cure – and being proactive is the best next step you can take!

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