Cooperative communication is the most sensible solution to construction price increases

April 13, 2022

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With the industry in the middle of a materials procurement and shortage crisis, parties should make certain the terms of a contract are drafted carefully to ensure the transfer of risk in construction price increases and delays reflects their requirements, says Mark Christie, senior associate at law firm Clarke Willmott

The question of whether it is possible for contractors to pass the cost of these construction price increases and delays on to their employers under existing contracts is not clear cut and will depend on the express wording of the contract itself.

In the current climate, with the current uncertainty in the global markets due to the Covid pandemic, Brexit and the Ukraine conflict, among other things, contractors are likely to be wary of agreeing to the standard form JCT provisions without expressly including any amendments – as the standard forms are unlikely to provide any relief against the time and cost implications of materials shortages on their projects.

Some standard form JCT contracts include optional “fluctuation” provisions which, if stated by the parties to be applicable, may entitle the contractor to be reimbursed for certain price changes to specified items or currencies, or inflation throughout the duration of the project.

However, in the case of “fixed price” JCT contracts with no such fluctuation provisions agreed, there are usually only very limited circumstances in which a contractor can seek to claim back additional costs or time for any price increases/delays to the works caused by the unavailability of materials.

In the event an identifiable element of the works specified in the agreed Contract Documents is not “procurable”, under the JCT Design & Build Contract 2016, the contractor has the option to seek the employer’s consent to substitute any materials or goods.

Construction price increases

JCT Design & Build Contract 2016 Clause 2.2.1

An interesting clause in the standard form JCT Design & Build Contract 2016 is Clause 2.2.1 – which essentially states that the Works shall be “so far as procurable” as set out in the Employer’s Requirements or Contractor’s Proposals.

This means the contractor may not have to strictly comply with the technical specification agreed for the construction of the works if it can demonstrate that the goods and materials were not “procurable”. However, whether something is “procurable” or not is not straightforward and will be heavily fact dependant – I suspect that it means a situation where the contractor simply cannot get hold of the required materials at all rather than, for instance, some kind of delay or additional cost in procuring them for the works.

While a contractor could seek agreement from the employer under Clause 2.2.1 of the contract to substitute materials or goods due to the fact certain materials are no longer “procurable”, an employer would appear to have the absolute discretion to withhold its consent to any proposed substitution.

In those circumstances, a contractor who is unable to get the employer to agree to the proposed substitution would be left with the option of trying to argue that the employer’s failure to consent was unreasonable and possibly constituted an act of impediment or default under the contract. However, given the JCT’s wording, such an argument in my opinion is fairly unlikely to succeed.

Clauses should be drafted carefully to reduce the risk of construction price increases and delay

In the current climate, employers are therefore likely to find a landscape where the terms of the contract are much more heavily negotiated by prospective contractors for specific reliefs and remedies in the event of any price/delay issues for key materials constituting the works.

Employers would be well advised to try and ensure that any such clauses are drafted very carefully to ensure that the transfer of risk in construction price increases and delays is kept to the absolute minimum where commercially possible. If an employer was to agree to something drafted too widely then it could quickly find that the price and timescales for the works under a contract quickly get out of hand.

With that said, on any project, if issues arise caused by delays/price increases to the works, proactive and cooperative communication between the parties in an attempt to resolve the situation without resorting to a formal dispute will normally be the most sensible solution.

Mark Christie