Global Conflict, shipping chaos and the ripple effect on construction projects – 3 key tips for contractors

The rapidly evolving conflict has highlighted again how exposed construction projects are to international supply chains.

Disruption to key shipping routes, vessel re-routing and port congestion will ultimately contribute to longer delivery times and have the potential to impact the critical path in construction programmes.

For the construction industry, the combination of war-related shipping disruptions have several practical consequences and it shifts project risk and contract administration into sharper focus.  As shipping delays flow through to project schedules, extension of time (EOT) claims will become increasingly relevant.

This article discusses what contractors should be doing now to manage these claims effectively so as to strategically position themselves to deal with any disputes that arise as a result of this in the near future.

Understand the risk allocation under the contract

First it is important to know what your contract says in relation to supply chain disruptions as contracts differ widely on how they treat such disruptions.  Even in cases of war or shipping disruptions, entitlement to time or cost depends on how these matters are treated under the contract.

Some contracts may treat events such as war as a force majeure event while others may address them under broader delay provisions.

In some cases, supply chain risk is placed on the contractor limiting the ability to claim anything under the contract.

Understanding these nuances will assist contractors in framing their claims appropriately and avoid costly assumptions about entitlement.

Record keeping and contract administration

Secondly, the strength of a claim is ultimately dependent on the records the contractor possesses to substantiate it.  Contractors should ensure that they retain clear records of:

• supplier communications;
• freight booking confirmations;
• communications with freight forwarders;
• shipping route changes; and
• evidence that alternative suppliers or shipping routes were not reasonably available.

In disputes that may arise a few years later (depending on the size of the construction project), these contemporaneous records carry far greater weight in proving that the disruption directly delayed the delivery of specific materials/equipment which were required for the project.  This position ought to be contrasted with retrospective explanations which may not necessarily demonstrate how the event actually affected the particular project or the critical path in the construction programme.

Notice requirements under the construction contract

Finally, it is important to be aware of key notice requirements in the contract.  Under the Australian Standards contracts, notice requirements are critical when a contractor seeks to claim an EOT or recover costs associated with delay.  One cannot simply rely on the fact that shipping delays arising out of global conflicts is obvious.  Contractors will still be required to comply with the notice requirements under the contract to protects its entitlement to an EOT and/or costs under the contract.

Therefore it is crucial that the notice of the delay is given as soon as the contractor becomes aware of the delay.  For example where a contractor receives an update from a freight forwarder or a supplier that a shipment will be delayed due to global conflict and/or shipping disruptions, the contractor must ensure that it notifies the relevant party (usually the Superintendent) of the delay as soon as it becomes aware of this and not wait until the materials/equipment are delivered to site.

Conclusion

Shipping disruptions pose tangible risk on construction projects.  By understanding the contract, acting early on delays and maintaining contemporaneous project records contractors will be better placed in navigating supply chain disruptions efficiently.  If your project is affected by shipping delays or other global disruptions, seek legal advice early so that:

• you understand the risk allocation under your contract;
• your contractual claim is framed with a better chance of success; and
• claims are being proactively managed to avoid costly disputes down the track.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.