By Kiren Narayanan - 11 Apr 2022
Supply issues in the construction industry at the moment are
well known. If you're in the industry and running the risk of
incurring penalties, there are things which can be done.
Almost all workers in the construction industry in New
Zealand at some point over the past two years have suffered supply
issues. The restrictions over the past two years have had a
significant impact on anyone involved in the construction industry.
Getting the required materials has been a struggle for all - and
because supply is simply not able to meet demand, you just have to
wait until you're next in line and can get what you need:
Sometimes, even if you're prepared to pay ridiculous prices, you
still can't get your hands on materials. The supply issue has had a
significant impact on those who have made commitments to get work
done by a certain time. And sometimes customers can be less than
understanding of the plight faced by those facing the supply
issues. So what can you do to make sure you're not stung by any
penalties for completing late?
Check your contract - extensions of time
If you have committed to carrying out work for a customer and it
is quickly becoming apparent that you're not going to be able to
complete the job on time, your first port of call is to check the
relevant provisions on the completion of the project.
Check your completion date. Do you think you'll make it? If not,
you'll need to look at how your contract deals with extensions of
time for the completion date.
Each contract deals with delays differently. The first thing to
look for is what delays are covered by your contract. Some are very
wide ranging and include anything that's beyond your control. Some
are slightly more narrow and set out a list of things. Check to see
whether the supply issue could be covered by the relevant
clause.
If the cause of the delay is covered by your contract, the next
thing to look out for is the process you need to ensure that the
completion date is extended by the necessary time. Some contracts
allow for an automatic extension of time where the listed delay
events have occurred. Others may require you to submit a notice. If
a notice is required, ensure you submit your claim for an extension
of time within any time limits set out in the contract.
Some forms of contract require those extensions of time to be
approved by an independent party. If this is the case, then ensure
those requests for an extension of time are submitted to that
independent party within any contractual time limits.
Variations
Extensions of time are the envisaged way to deal with delays to
a project. If however, there is nothing in your contract which
deals with them, you may wish to turn to variations.
Have a look at the variations clause in your contract to see
whether it caters for variations of the contract in circumstances
where something occurs that is beyond your control that may affect
the performance of the contract, or a variation for the period for
completion. While this is not the correct way to deal with
extensions of time, some less commonly used contracts rely on
variations clauses for all changes to the contract.
Similarly, if the clause does allow you to vary the completion
date, check to see whether you are required to submit any notices
for this and if so, whether there are any time limits for doing so
and whether there is any particular process for doing this.
Potential consequences
It is important to follow the steps above to avoid any negative
consequences in not meeting the completion date. If a completion
date is not met, this is a breach of contract and the customer can
seek to recover any losses resulting from the delay.
In some contracts, there is a provision for what is called
"liquidated damages", which is an agreed, usually daily sum of
money which is an estimate of the loss that would be incurred by a
delay. If the contract provides for these, liquidated damages will
accrue until the date the project is completed.
Alternatively, if there is no provision discussing delays, the
damage will be calculated in terms of any actual financial damage
suffered.
For delays which are not of your making, this is clearly not
ideal. For that reason, it is important to follow any contractual
processes to extend the completion date.
Contact Kiren
Narayan or Geoff Hardy if you have any concerns about
completion dates in your contracts or applications for extensions
of time.