Building work fraught with challenges as we emerge from lockdown - Gillian Jamieson

Many of us cast a critical eye over our living spaces during the confines of lockdown, with demand for home improvements soaring in its wake. Simultaneously, disruption to mill and factory production lines, rocketing freight charges, a dearth of HGV drivers and post-Brexit administration costs and delays have resulted in shortages of construction materials and exorbitant price increases.

Gillian Jamieson is a Partner, Anderson Strathern

If embarking on a project, how can you minimise delay and achieve value for money? As a contractor, how do you minimise exposure to price increases and damages for late performance caused by lead-in times for materials? How can either party terminate the contract?

Contract pricing is particularly challenging in the current climate. Actual build costs have the potential to fluctuate dramatically between acceptance of a tender and project completion. Contractors need to weigh up the risk of pricing themselves out of the market against changes in economic /market conditions affecting profitability. There is still potential for Covid-related delay and disruption, such as employee absences, or even further lockdowns.

As re-opening accelerates, manufacturing will likely increase and entertainment will consume a greater slice of household income. As demand for building work slows and availability of materials improves, consumers signing up to contracts risk paying at the top of the market.

Is it possible to pass on price increases, or is the customer entitled to benefit from price reductions and the consequences of late completion? That depends on the terms of the agreed contract. Generally, courts will uphold what the parties agreed, irrespective of whether it’s a bad bargain for either or both, so any contract that has been or is likely to be affected by Covid-19 should be carefully reviewed.

Key things to consider when entering into a home improvements contract:

Lead-in time between acceptance of a quote and performance of the work. The longer lead-in, the greater uncertainty in relation to price and availability of materials. Weigh up the pros and cons of a fixed price contract against pricing of labour plus materials; Potential pandemic effects on the ability to perform or benefit from the contract. At the start of the pandemic, force majeure clauses came under the spotlight. A broadly drafted force majeure clause may mean Covid-19 impacts could fall within it. Alternatively it could be argued it is physically or commercially impossible to perform the contract. Detailed analysis would be required to determine entitlement to terminate, but 16 months on, pandemic impacts are well-documented and parties will be expected to proactively plan for, manage and mitigate these effects; Availability of materials and/or delay. What happens if materials specified in the contract cannot be sourced timeously, or at all? Is the contractor entitled to deviate from the contract specification? Will the contractor be liable in damages for late completion? If so, will that apply if the delay was caused by late delivery of materials or Covid-related absences?; Availability of insurance.

Be wary of contracts which purport to give a business the right to vary contract terms after it has been entered into. A term is unfair and therefore unenforceable if it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. A business is not entitled to vary important provisions of a consumer contract at will. A well-framed contract provides certainty and taking the time to canvass the options and reach agreement in advance of the works mitigates the risks of a dispute casting a shadow over the project.

Gillian Jamieson is a Partner, Anderson Strathern