The construction industry we support has suffered through COVID with:
- Supply chain delays
- Material shortages
- Labour cost increases
- Liquidated damages exposure (through delays)
- Impact of fixed-price contracts (with costs increasing)
- Contracts incepted before COVID hit not having terms allowing for the effects of COVID or Force Majeure.
As if this was not enough, the construction industry has been hit with the worst and most unprecedented flooding disaster on record for the east coast.
The recent sad news on two very substantial construction companies Probuild and Condev going into liquidation, although multi-faceted in their reasons for financial difficulty, both mentioned the influences of COVID as a prime factor.
Other than the immediately obvious effects of damage to construction sites caused by the weather patterns, the consequences of extended construction periods (delays) due to the damage, COVID-related material shortages and supply chain issues, combined with increased costs, are ongoing issues for our construction clients.
So what can MECON do to assist its construction clients in this difficult environment?
Assessing the immediate damage to construction sites is a priority. Once proof of loss and remediation costs have been received (in whole or in part), indemnification (including progress payments) will be provided as quickly as processing will allow. Our claims staff are on alert. They know that it is vital to process these claims as swiftly as possible – whether that swiftness be in identifying areas where proof of loss or remediation costs are still required, pressuring assessors to perform quickly (difficult when widespread disasters strike and all assessors are under the pump), processing progress payments or providing advice. We will be at our best for this event.
We are totally geared to recognise and respond to the financial vulnerability of our clients and also to their stress in these trying times. Whatever concerns might be affecting our clients, we will listen and react to the best of our ability and as far as our binder and carrier will allow us to.
In response to recent approaches by builder clients, who do not want to be compromised by unexpected events such as those we have seen in recent years (either again or at all) in the future, our friends at Construction Legal Pty Ltd have kindly assisted in providing “prevention is better than cure” clauses for our client’s contracts. The following clauses are designed to avoid financial compromise from the sort of unexpected events we have evidenced lately. The message conveyed by these clauses is easy to understand, but they will likely require some amendment to make them fit the language and terms used in individual contracts. To this end, please ask clients to contact Oliver Sestakov at Construction Legal for assistance should this be required.
We hope our clients’ find this suggested Contract wording of assistance.
Suggested Contract Amendments:
Rise and Fall Entitlement
(a) Notwithstanding any other provision in this Contract, the Contractor shall be entitled to claim an increase to the Contract Sum if the Contractor can demonstrate to the Owner by written evidence that it has necessarily and unavoidably suffered increased costs of the selected labour and/or selected materials greater than that which it allowed for in the Contract Sum, as a direct consequence of changes in economic or market conditions outside the control of the Contractor having regard to the steps a competent contractor in the position of the Contractor would take in respect to mitigating additional costs.
(b) The adjustments made to the Contract Sum in this clause shall be claimed by the Contractor in a payment claim in accordance with this Contract.
(c) Notwithstanding any other provision in this Contract, this clause:
(i) takes precedence over any other term in this Contract; and
(ii) in the event of any conflict or inconsistency between this clause and any other terms of the Contract, this clause shall prevail.
Force Majeure Clause
Force Majeure means:
(a) war (declared or undeclared), invasion, act of a foreign enemy, hostilities between nations, civil insurrection, militarily usurped power, act of public enemy, terrorism, sabotage, civil unrest, revolution, confiscation, nationalisation, requisition, expropriation or embargo by or under the order of any authority;
(b) earthquake, meteor, lightning, cyclones, bushfires, natural or man-made disasters (including, but not limited to, any governmental declaration of a natural disaster), landslides, tsunamis, mudslides, hurricanes and nuclear, chemical or biological contamination, ionising radiation or contamination by radioactivity from any nuclear waste or from combustion of nuclear fuel;
(c) fire, flood or explosion caused by the events referred to in paragraphs (a) and/or (b) above;
(d) any governmental direction, order or instruction issued in connection with COVID-19 (being, the respiratory virus or illness known as “COVID-19” or “severe acute respiratory syndrome coronavirus (SARS-CoV-2)” or “coronavirus”);
(e) another other serious, disruptive matter of similar character to the extent that any of such events or circumstances did not arise directly or indirectly as a result of any act or omission of the Contractor, and that causes either party to be unable to comply with a material part of its obligations under this Contract.
Important Drafting Notes
- Contractors will need to ensure that suitable definitions of the specific terms referred to above are inserted into their contract to ensure that the clause is workable and can be properly administered under their contract.
- Similarly, contractors should also consider including a term in the contract to the effect that if a Force Majeure event lasts for more than three months, the contractor can elect to terminate. Obviously, this is a drastic move but in these uncertain times, it is better to have the option than not. Amendments to termination rights must be well considered and carefully drafted.
- Contractors should also consider whether they want to claim extensions of time for delays in the procurement of materials, industry shortage and/or supply-chain disruption outside of the control of the contractor. If so, contract definitions relating to Delay Events or Qualifying Cause of Delay (Australian Standard Construction Contract definitions) will need to be amended.
- You may wish to contact Oliver Sestakov at Construction Legal Pty Ltd to advise on contract amendments.