The impact of the Coronavirus is profound and may well extend for some time. MBANSW members should note the following in relation to their contracts.
Delays may occur for several reasons in the current circumstances but predominately for lack of materials or people.
Contracts need to be checked for appropriate clauses that may deal with such delays and possibly provide an entitlement to an extension of time. If a contract has an entitlement to an extension of time there may be particular notice requirements.
For example both the MBANSW BC4 Residential Building and Cost Plus Residential contracts have provision for extensions of time due to shortages or delays in trades or materials which affect the builder’s ability to continue with the work. No costs are claimable.
Frustration and Force Majeure
The doctrine of frustration may apply if there is an event beyond the control of the parties that makes the contractual obligation incapable of being performed because the changed circumstances renders it radically different from what was agreed in the contract.
Frustration is difficult to prove and an event that makes it more difficult or costly to perform the contract will not render the contract frustrated. Careful consideration must be made as to a party’s ability to perform its contractual obligations. This can be very complex.
Force majeure relief would require a specific provision in the contract and depends on the exact terms. They are not common in residential or smaller contracts.
What To Do
- Check your current contracts for extension of time entitlements, force majeure clauses and notice requirements (be careful of time bars).
- Shortages in materials or trades may entitle you to an extension of time but if the materials or trades can be sourced but at a greater cost then you may be obliged to use them.
- Check with suppliers if they can deliver and what if they can’t.
- Reconsider entering into contracts that you are contemplating and/or whether special conditions are needed to take into account COVID-19. You should be particularly careful about entering into a fixed price contract as the cost of materials in the future is unknown. Consider the use of provisional sums and prime cost items or using a cost plus contract instead.
- If you do contract, consider plenty of extra time or perhaps don’t have a completion time at all. Also consider a cost plus contract if possible. For a fixed price contract the question of the cost of materials and trades in the future is problematic.
- Discuss any difficulties with your client.
If you have any difficulties or enquiries then please contact MBA Lawyers on (02) 8586 3517.