Builders in Queensland are continuing to experience major supply chain problems with building materials and labour, which is having a substantial impact on the progress and cost of building works.
In the context of a residential building contract, ‘delay’ means a delay in the progress of works that will affect the builder’s ability to complete the works by the date for practical completion stipulated by the contract. A delay could be caused by any number of factors, including the lack of availability of materials necessary to carry out the work.
Not all delays will entitle a builder to an extension of the date for practical completion. Consequently, disputes often arise as to whether a particular cause of delay justifies an extension of time for the builder to carry out works under the contract.
When can an extension of time be granted?
Most standard form contracts used for residential building works (including new homes, renovations, retaining walls and pool construction) include clauses that allow the builder to claim an extension of time to complete works, if the works are delayed by a ‘qualifying cause’. What constitutes a ‘qualifying cause’ will depend on terms of the contract.
Regardless of the terms of your contract, section 42 of Schedule 1B of the Queensland Building and Construction Commission Act 1991 limits the circumstances when a builder can claim an extension of time to delays that are “not reasonably foreseeable” and “beyond the reasonable control of the contractor”. Section 42 cannot be contracted out of.
Queensland Master Builders Association (QMBA) contracts
The standard form QMBA residential construction contracts contain broad qualifying delay terms with respect to shortages burdening the building industry. Under such contracts, builders are entitled to claim extensions of time for delays caused by a lack of availability of labour or materials required to carry out the works, provided the delay was “not reasonably foreseeable” and “beyond the reasonable control of the contractor”. If the delay was ‘reasonably foreseeable’ and/or ‘beyond the builder’s reasonable control’, builders may still be entitled to claim an extension of time for the delay if it was caused by the owner or a variation.
Housing Industry Australia (HIA) contracts
There is narrower scope for a builder to claim an extension of time under the standard form HIA contracts. With respect to delays caused by the unavailability of materials required to carry out works, a builder will only be entitled to claim an extension of time if those materials were selected by the owner.
Delay caused by the unavailability of labour is not expressly stipulated as a qualifying cause of delay in the HIA contracts. However, a builder may claim an extension of time for any cause of delay not expressly listed in the contract, including delays caused by the unavailability of labour.
Importantly, all delays entitling a builder to an extension of time under the standard form HIA contracts (whether expressly stipulated or not) must be “beyond the builder’s sole control” and “not reasonably foreseeable”.
Queensland Building and Construction Commission (QBCC) contracts
The standard form QBCC contracts contain the most limited grounds for claiming an extension of time.
If you have a standard form QBCC New Home Construction Contract, the only term which may capture delays caused by the unavailability of materials and labour is the general coverall – “another cause of delay which is not reasonably foreseeable and beyond the reasonable control of the Contractor”.
Are delays in the supply of material and labour “reasonably foreseeable”?
Supply chain delays and material and labour shortages have now become quite apparent. Therefore, it may be difficult for builders to claim extensions of time for delays caused by a lack of availability of materials.
Are material and labour supply delays “beyond the contractor’s reasonable control”?
Unavailability of materials
Whether a delay caused by the unavailability of material is ‘beyond the reasonable control of the Contractor’ depends on the particular circumstances of each residential construction project.
At face value, such delays are almost certainly beyond a builder’s control. There is very little a builder can do to about the current supply chain issues. However, it may be open to the builder to substitute an unavailable product for an alternate product which is readily available. This will depend on the plans and specifications.
Unavailability of labour
Delays caused by the unavailability of labour might also appear to be ‘beyond the reasonable control of the Contractor’. However, if:
- a subcontractor is available to carry out the works, even if at an additional cost;
- the contract contains a mechanism for the builder to claim additional costs incurred as a result of engaging the subcontractor; and
- the builder elects not to engage the subcontractor to progress the works,
any delay caused by the unavailability of labour will likely be within the builder’s control.
If the works are delayed by a qualifying cause, the builder may claim a reasonable extension of the dare for practical completion.0
Claiming an extension of time
Generally, a contract will provide that to claim an extension of time, a builder must give a notice of the delay to the owner within a certain stipulated period of time after the delay becomes apparent. This timeframe is usually provided for in your contract. However, if your contract remains silent on this, Schedule 1B of the Queensland Building and Construction Commission Act 1991 provides that a notice of delay must be given within ten days of the day the builder became aware of the cause and extent of the delay.
The builder should also follow any other requirements required by the contract (such as describing the cause and length of the delay).
The contract may also permit the builder to claim their costs of any period of delay. However, delay events that are beyond the control of both parties are typically excluded (eg, inclement weather).
If an allowance has been made in the contract for a cause of delay, the builder will not be entitled to an extension of time for that delay until the allowance has been exhausted.
Remedies available to owners
Depending on the contract and subject to whether the builder claims an extension of time, an owner may be entitled to claim compensation from the builder for each day the works are delayed beyond the date for practical completion. Such compensation is typically known as ‘liquidated damages’.
The rate an owner is entitled to claim from the builder per day of delay is usually stipulated by the contract and should be a genuine pre-estimate of the loss (if any) the owner will suffer as a result of the delay.
If you are considering entering into a residential building contract, it is a good idea to draft specific conditions that contemplate the potential effects of labour and material supply delays to manage the risk for both parties. This might involve:
- allowing additional time in the construction period to accommodate for unavoidable delays, including delay in the supply of building materials; or
- including additional qualifying causes of delay, enabling the builder to claim an extension of time for unavoidable delays.
If your contract is already in progress, you may be able to negotiate options to balance the risk between the parties and vary the contract accordingly. Given the current supply chain issues, parties to a contract might agree to use an alternate product or supplier to avoid delay. Such agreement should be recorded in a formal variation document.
If you need advice about delays with your build, get in touch with our lawyers in Cairns today.