How the pandemic has affected construction disputes

With lockdown restrictions easing in Australia and around the world, the impact of COVID-19 on the construction industry will start to unfold.

As a sector, construction has not suffered prolonged shutdowns by local and international governments, with it recognised as key to sustaining the economy and driving recovery. However, that is not to say the sector has not suffered consequences.

The industry is enduring longer delivery times and supply shortages in terms of materials and labour. Mandated infection control measures on site and in logistics, self-isolation and sickness all add to the pressure on project productivity. Delays and additional costs have been inevitable.

So far, we have seen that the parties to construction projects have been focused on these more immediate issues, with pursuing claims for contractual breaches being less of a priority. Amid the pandemic, we have also seen a willingness to work together with contracting parties, unions, financiers, and other stakeholders generally trying to be as flexible as possible.

However, with increased time delays and cost overruns, it will be interesting to see the extent to which disputes emerge as the dust settles.

To the extent that contractual force majeure clauses may cover delays and costs caused by COVID-19, this would reduce the risk of liquidated damages and other penalties to the supply chain. This needs to be balanced with the additional risks being absorbed by purchasers, whose ability to continue to participate in the market is critical.

Contractual clauses may not cover additional costs from ancillary COVID-19-related delays. Parties might instead look to the interpretation of public health orders or vaccination policies as the reasons for delays, not the pandemic as such. Then there are the issues that would have occurred regardless, pandemic or not. We foresee there will be a significant challenge to separate the noise of COVID-19 from operational or performance issues. This should not deter legitimate claims, but the parties should be prepared for an additional layer of complexity to the analysis of project disputes that will need to be resolved.

We have often seen that disputes are more likely probable on larger projects. With more activity resulting in higher costs, there is a greater likelihood that things that could go wrong. Coming out of the pandemic, an increased public sector infrastructure and construction spend presents increased opportunities for many to work on larger projects. Unfortunately, this can also lead to entities overstretching themselves in terms of resources and expertise.

This is not an issue unique to the pandemic landscape. Construction has always been an industry that sees issues arise just as often in times of economic prosperity as we do in contraction. But with so much more to manage in the pandemic world, coupled with the increased activity levels, contractors need to be extra vigilant to maintain oversight and expectations.

Overall, we are in unknown territory. Moving forward, it will be interesting to see how far the increased co-operation and flexibility extends, how the COVID-noise is separated from other lingering issues and how a renewed construction and infrastructure boom is managed.