The building and construction industry of Western Australia, which represents about 8.7% of WA’s total workforce, is currently experiencing unprecedented times.
Some have described this as a “profitless boom” with no foreseeable end in sight. The industry is experiencing the volatile nature of global supply chains, price escalations, material availability and labour limitations resulting in onerous contractual requirements. Unsurprisingly, this has eventuated in a number of building and construction companies going bust.
In WA, the unprecedented level of activity in transport infrastructure (particularly major road and rail projects) has had a devastating domino effect on the cost and availability of construction materials.
Some of the issues which we see WA contractors experiencing (and which were also raised in the recent Building Industry Reform Package by the Master Builders Association of WA which was released on 11 November 2022) are set out below.
The management of price escalation on projects is an issue that many contractors are grappling with in the current climate. This is a critical issue given that these escalations are affecting the material and labour cost components of a project during its life. There are ways to manage this under a contract.
For instance, parties may consider incorporating in their contract a cost escalation clause and an assessment methodology for a fair adjustment for the true additional costs that are being incurred by contractors during a project.
While EOTs have been recognised and granted by principals in the wake of Covid-19, the direct costs incurred by the contractor for these delays, including the provision of preliminaries, plant and equipment may often not be granted by the principal. These costs are currently worn by contractors.
There are contractual mechanisms that can be put in place to alleviate the ‘crunch’ on contractors during these times.
For instance, parties may consider tailoring their contracts to accommodate and allow for unforeseen changes to the availability of labour as events for which EOTs may be sought.
Standard form contracts such as the AS2124 and AS4902 are readily available to parties and have been tested in the industry over the years.
However, given the changes to the market condition that the industry has been grappling with, parties should consider revising these contracts so that there is a fair allocation of risk between the parties.
If you want to find out more about your obligations under your construction contract or how you can best protect yourself from a contractual risk perspective, the Lavan team is here to help.