“A key issue we need to resolve is how to handle the disruption caused by the government-mandated lockdown, plus the costs associated with complying with the regulations promulgated under Level 3,”
Albertyn says. “There’s a lot of talk about the lockdown being classified as force majeure, but this does not solve all the issues and risks, disadvantaging contractors quite significantly.”
Albertyn explains that those contracting using a Joint Building Contracts Committee (JBCC) form of contract will be able to request an adjustment of the date for practical completion, but this adjustment will be without adjustment to the contract value. This adjustment adequately mitigates against late completion risk for contractors but does not resolve the question of expense and potential loss which will be suffered in preparing for and executing contracts under severely altered operating conditions.
“The industry needs to consider seeking middle ground between the parties, with the view to balance the risks fairly,” he believes.
In his view, it would be reasonable to allow contractors to substantiate adjustments to the contract value for expenses and potential losses incurred to complete projects, taking into account the realities of current circumstances and more demanding operating conditions, flowing from regulatory changes.
In addition to the abovementioned considerations, cash-flow management remains a major concern for both contractors and employers. As far as contractors are concerned, it will be necessary to mitigate the impact of inconsistent interpretation of payment provisions (Payment of Preliminaries) on contractors – or payments withheld without cause. Contractors are particularly vulnerable in this regard following a decade of negative margin growth and a depressed construction economy.
Derek Wheals, CEO at Tri-Star Construction says that the current situation is unprecedented, and few (if any) contracts will provide clear guidance as to how to deal with the losses and expenses the contracting parties will incur. “Both the contractor and client seem to be likely to lose. Developers will lose income and interest as a result of the delay caused by the lockdown, but they could benefit from interest holidays offered by the banks and could pass on costs to tenants in some instances.
Contractors’ costs are probably substantially larger and ongoing.
Wheals says, “Since the answers are not to be found in the contract it seems as though we will have to try negotiate our way to an amicable solution.”
There is also potentially the chance that some clients might choose to terminate contracts as a result of the pandemic, and the financial impact on contractors needs to be considered.
Albertyn says, “We are hearing a lot about the ‘new normal’ that we should shape in the aftermath of COVID-19, and MBA North believes that the industry should seize this opportunity to come together to agree on a solution that is fair to all parties.”
“For too long, the industry has been weakened by an adversarial relationship between contractors on the one side and clients and their professional teams on the other. As an industry, we went into the crisis in a very weakened state, and we must do everything we can to ensure we give ourselves – all of us – the best chance of returning to growth.”MBA North will be hosting a webinar for contractors to discuss the issues relating to a possible use of force majeure and other issues on 3 June. All contractors are urged to attend by registering at www.mbanorth.co.za