The impact of COVID-19 is continuing to be felt by the construction industry with shortages in materials and skilled labour causing major disruption. The residential construction sector has been particularly hard-hit by these shortages, with some builders estimating wait periods of up to four (4) months for materials and labour necessary for works to commence.
To assist in understanding how your residential building contract deals with such delays, we have prepared this fact sheet which considers:
- causes of delay;
- available remedies; and
- risk management.
1. Causes of Delay
WHAT IS MEANT BY ‘DELAY’?
In this context, ‘delay’ means a delay in the progress of the works that will impact the builder’s ability to complete the works by the date for practical completion stated in the contract. A delay could be caused by any number of things, including but not limited to the unavailability of materials necessary to carry out the work.
However, not all delays will be claimable under your construction contract.
WHEN CAN A DELAY BE CLAIMED?
Most standard form contracts used for residential building projects (new homes, renovations and pool construction) contain clauses that entitle the builder to claim an extension of time to the construction period if the works are delayed by a ‘claimable delay’. What constitutes a ‘claimable delay’ will depend on your contract. Below we look at whether delays caused by the unavailability of materials and labour can be claimed in the most commonly used residential building contracts in Queensland.
Notably, regardless of the terms of your contract, section 42 of Schedule 1B of the Queensland Building and Construction Commission Act 1991 limits the circumstances in which a builder can claim an extension of time to only those where the delay was “not reasonably foreseeable” and “beyond the reasonable control of the contractor”. You cannot contract out of this requirement.
Queensland Master Builders Association (QMBA) contracts
The standard form QMBA residential construction contracts (Levels 1 and 2) contain the broadest claimable delay terms in respect of the current shortages plaguing the industry. Under such contracts, builders are entitled to claim extensions of time for delays caused by the unavailability of any labour or materials necessary to carry out the works provided the delay was “not reasonably foreseeable” and “beyond the reasonable control of the contractor”. In the event that 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
The ability for a builder to claim an extension of time under the standard form HIA contracts (QC1, QC2 and QC3) is considerably narrower. In respect of delays caused by the unavailability of materials necessary to carry out the 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 listed as a cause of delay in the standard form HIA contracts. However, it is open to a builder to 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 listed or otherwise) 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 of claiming a delay in the current industry climate.
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”.
If you have a QBCC Level 1 or 2 Renovation, Extension and Repair Contract, delays caused by the unavailability of materials and labour will only be claimable if that delay event is specifically stated in the contract schedule and the delay is “not reasonably foreseeable” and “beyond the reasonable control of the Contractor”.
Whether or not delays caused by supply chain issues are ‘reasonably foreseeable’ and ‘beyond the reasonable control of the Contractor’ is dealt with below.
ARE MATERIAL AND LABOUR SUPPLY DELAYS ‘REASONABLY FORSEEABLE’?
Supply chain delays and material and labour shortages have arguably been apparent since the beginning of the year. This means that it may be difficult for builders to claim extensions of time for delays caused by the unavailability of materials for contracts entered into from January 2021 if such delays were foreseeable at the time of entering into the contract.
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’ will depend on the individual circumstances of each residential construction project.
At face value, such delays are almost undoubtedly beyond a builder’s control – there is very little a builder can do to rectify the current local and international supply chain issues. However, in some circumstances, 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 specification
If it is open for the builder to select an alternate product and the builder does not do so, then any delay caused by the unavailability of material will most certainly be within the builder’s control.
Unavailability of labour
Similarly, delays caused by the unavailability of labour also appear to be ‘beyond the reasonable control of the Contractor’ at face value. 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 any 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.
2. Available Remedies
WHAT REMEDIES ARE AVAILABLE FOR A CLAIMABLE DELAY?
If the works are delayed and the cause of delay is a claimable delay, the builder may claim a reasonable extension of time to extend the timeframe for the works accordingly.
HOW IS AN EXTENTION OF TIME CLAIMED?
To claim an extension of time, a builder must give a notice of the delay to the owner within a certain time period of the delay becoming apparent. This timeframe is usually provided for in your contract. However, if your contract remains silent in this respect, Schedule 1B of the Queensland Building and Construction Commission Act 1991 provides that a notice of delay must be given within ten (10) 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 claims it costs during any period of delay. However, delay events that are beyond the control of both parties are typically excluded (i.e. inclement weather).
Further, 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.
ARE THERE ANY REMEDIES AVAILABLE TO OWNERS?
Depending on the contract and subject to whether the builder claims for an extension of time, an owner may be entitled to claim monetary compensation from the builder for each day the works are delayed beyond the completion date. Such compensation is typically referred to as ‘liquidated damages’ or ‘late completion damages’.
The rate an owner is entitled to claim from the builder per day of delay is usually provided for in the schedule to the contract and should be a genuine pre-estimate of the loss (if any) the owner will suffer as a result of the delay.
3. Risk Management
If you are considering entering into a residential construction contract, it is a good idea to draft specific conditions that contemplate the potential effects of material supply delays to manage the risk for both parties. This could involve:
- allowing additional time in the construction period to accommodate for unavoidable delays, including delay in the supply of building materials; or
- including additional claimable causes of delay enabling the builder to claim an extension of time for such unavoidable delays.
If your contract is already on foot, you may be able to negotiate options to balance the risk between the parties and vary the contract accordingly. For example, given the current supply chain issues, parties to a contract may agree to use an alternative product or supplier to avoid delay. Such an agreement should be recorded in a variation document.
This article provides general information and should not be taken to be legal advice. Each contract and set of facts are different and therefore you should obtain specific legal advice.
If you have any questions regarding causes of delay or would like us to assist with your current or future contract, please do not hesitate to contract our team on (07) 3139 1874 or at firstname.lastname@example.org.