Who bears the liability for any increased construction costs caused by the national fuel crisis? Sarah Wilson, construction partner at Bevan Brittan takes a look at what parties to the contract need to consider
The fuel crisis is just one in an increasing line of challenges facing the construction industry. It comes in the wake of a construction boom in the context of severe skills and materials shortages. A big question in many people’s minds in the construction industry is who will pay for these increased costs?
Increasing costs
The fuel crisis is likely to increase construction project costs, both in terms of potential delays and in the increase in fuel costs. But it is not the only challenge the construction industry is facing.
The skills shortage has been exacerbated by Brexit. Construction does not seem to have a particularly attractive image with people entering into the job market (despite the good wages) and the “boom and bust” nature of the industry tends to see a mass exodus in the “bust” period, never to return to the industry. The skills shortage has been an ongoing issue but has not been helped by Brexit.
Further, this year we have seen an unprecedented increase in the cost of various materials; from timber to roof tiles, bricks to plasterboard and bagged cement to power tools, with increases this year of 40 – 50 % being talked about. Haulage costs have also increased, and delivery dates have become very precarious – reports of months of delays for some crucial products, which is potentially causing months of delays for projects to complete.
The sad thing is that we are, for the first time since the global recession, seeing a real boom in construction, which makes the challenges of skills, materials and fuel shortages/delays even more difficult to withstand.
It also adds substantially to the cost of the project – not just because wages, salaries and costs are increasing but also the risks of delays being caused and a longer period on site being required.
Who is liable for increased costs and delays?
It is possible that some or all of these costs may be payable by the end-user/client commissioning the work, but it very much depends upon the cause of the increasing costs/delay and what the particular contract between the parties says.
In this context, the fuel crisis is probably the least of their worries, although reports of meetings being cancelled and having to keep a constant check on the situation are being reported. However, it could have been much worse, had the changes planned in 2022 for red diesel have been implemented.
As to the materials and fuel costs, the client may be responsible if it takes the risk of inflation, or the contract is cost reimbursable.
As to delays, under the NEC and JCT forms of contract, the client commissioning the work may be responsible for the delay under the force majeure clause (clause 60.1 (19) under NEC) providing the contract was executed before the issues were known about. Under JCT this means the contractor will get an extension of time, (relieving it from paying liquidated damages for delay), but no loss and expense to cover its own costs for the delay.
The difficulty for all parties is that they will not know for sure unless they can reach an amicable solution or one of them proceeds to have the matter determined as a dispute by a third party (Judge/Arbitrator or Adjudicator). This brings huge uncertainty to both parties over what could relate to huge sums of money.
It would be nice for the construction industry to have a period of full order books and good profitability, but unfortunately it seems that the challenges just keep on coming, with no real sign of letting up.
Sarah Wilson
Construction partner
