The building and construction industry has been shocked by the recent demise of construction company ProBuild, and before that the collapse of Privium. Unfortunately, these are unlikely to be the last collapse.
While it’s hard to judge from the outside what caused the collapses, and there can be many contributing factors, there is no doubt that the impact of Covid, huge increases in the costs of materials (such as steel), and delays in delivery of materials is hurting most of us in the building and construction industry.
We have been hearing a lot of the same concerns from builders and construction companies recently, so we’ve listed some common questions we have been getting lately and some ideas about how you and your company can protect yourself.
Q.1: Building contracts are usually ‘fixed price’, but the prices of materials, trades, and subbies have gone up significantly, which we have to absorb, which affects our bottom line. Can we insert a condition into our contracts where we can pass on price rises if they are too significant to cover?
Response - We can assist with new conditions to cover specific items and circumstances, but there are also opportunities already in the standard ‘Master Builders’ and ‘HIA’ contracts to restructure your pricing to cater for increases. For example, in some situations, provided the builder properly drafts their contract and gives written notices, some items of work (materials, labour) can be classed as ‘Provisional Sums’ and some price rises can be passed on to owners. Care must be taken to ensure your contract is drafted properly and you comply with the terms.
Q.2: Build programs/timelines are often affected due to issues with availability or delays with resources (materials, trades, and subbies). This can change daily, making it difficult to keep jobs on schedule. Can we include a condition where we can adjust the finishing date due to reasons out of our control and as such not have to pay liquidated damages past the completion date?
Response - To avoid potentially sticky situations, we can always assist with adding new clauses to cover possible delays. We can work with you to draft those clauses and assist with ‘covering notes’ to owners explaining the current industry situation. However, the standard Master Builders and HIA contracts do already have some mechanisms to help you deal with delays outside your control. Both contracts provide that for certain types of delays, if the builder gives the owner notice of the delay and the parties discuss it, then the builder can get ‘EOTs’. We can help you understand this process to fully understand the helpful tricks and mechanisms in your contract, and give you some tips and advice on how to manage delays.
Q.3: The owner has selected a bathroom item that is no longer available. Can we add a clause so that we can substitute a new item for a similar price/product?
Response – Like with Question 1, we can help add a ‘special condition’ which covers this situation, so where there are delays or availability issues that aren’t the builder’s fault, there can be a substitution and a price adjustment. Also, under most building contracts there is the ‘Prime Cost Item’ mechanism, which covers the builder in the situation where an item to be selected by the owner is suddenly not available, or goes up in price. The Contract Price can be structured to nominate Prime Cost Item allowances, and provided your contract is drafted properly and the builder follows the contract process properly, the builder can be protected from unexpected supply and cost issues.
If you have concerns or queries about your building and construction contract, any outstanding claims or payments, or generally in relation to your contracts or your business, please contact Sean Webb from our experienced building and construction team on (07) 4052 0703.