Without a doubt, the biggest challenge for the building industry right now is the uncertainty of project delivery, with the costs of material and labour surging and delays commonplace.
We have seen reported in the media and anecdotally to us by our clients that the cost of timber has risen by some 40 per cent, steel by 44 per cent and labour in some trades by 25 per cent from pre-pandemic prices. We have all seen widely reported instances where builders on fixed price contracts have had to turn to external administration with potentially disastrous consequences to their projects and clients.
It comes as no surprise then that builders locked into contracts are trying to share with or pass on to owners the increased cost burden, or to seek moratoriums against delay costs. Often, this comes at a sensitive time in the contract delivery and places great strain on the builder-client relationship.
From our experience acting for owners, developers and builders, we’d like to share some practical tips about how to reduce your risk of disputes in a volatile market, both at the contracting phase and during the delivery of works.
Communication is key
As with any successful relationship, keeping up good communication is paramount.
Communication standards should be at the forefront of any developer or owner’s due diligence into their builder. If a builder isn’t communicating well or can’t demonstrate that they have competent internal procedures before they’ve agreed on terms, you shouldn’t expect that to improve later.
Good communication should continue right through to when the contract works have been delivered. Rarely do we see litigation where the parties have kept each other properly informed, and where we do, those cases are the most likely to settle early and with minimal cost as the issues are well defined.
Understand the contract
Our second tip is to make sure that you have understood how the contract works and to follow it and insist that it be followed.
For example, the failure to properly notify about contract variations and extensions of time are two of the most litigated issues that we see. Developers and owners need to be very clear (by putting it in writing!) when additional work and cost has been agreed to and be alive to when a builder is entitled to additional time. This is particularly important in the current environment, where we are seeing builders insist on expanding the circumstances that entitle them to claim for delays when negotiating their terms.
That warrants a careful discussion with your professional advisors during the contract negotiation phase to ensure that you fully understand what obligations and processes you are comfortable with and have agreed to. As an added tip, communicate clearly to the other party and to stakeholders (including superintendents or owner’s representatives) your expectations that the processes agreed upon are to be followed.
Keep an open mind
Our next tip is a pragmatic one. When the unexpected happens, evaluate the circumstances objectively. It doesn’t hurt for each party to approach the issue with the mindset of a partner – to communicate openly and transparently; to look for shared solutions to external problems; and to expect to have to make sensible compromises when called for.
In this rapidly changing environment, even when original goals become impossible to achieve, mutually beneficial outcomes are still possible. We help our clients to be realistic about the position they are in and to recalibrate to achieve the best they can in the circumstances they find themselves in.
That means encouraging our clients to get in front of issues as they arise and to seek professional advice early to identify and manage risks before they become insurmountable. There is a balance to be struck between pressing to get an outcome and not pushing so hard that the project becomes impossible to deliver.
In many cases the lessons of today are the same as they have always been, but with the added unpredictability of the current environment. Investing in the client-builder relationship and giving it the care and attention it needs has never been more important.
