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Have your contracts been affected by Coronavirus?

August 11, 2020

Measures such as quarantine, border closures, self-isolation and restrictions on deliveries and travel could all have a severe impact on the ability for you and you trade contractors to complete work on time or within budget.

In order to determine how these factors could affect the timing and cost of projects currently under construction or in the planning stages, the terms of the relevant contracts need to be carefully considered.

I am a builder whose subcontractor is affected by COVID-19 (including border closures)

Q. Can I ask a homeowner for an extension of time if my subcontractor cannot carry out the work due to COVID-19?

Generally yes.

HIA new homes and renovation and additions contracts include clauses that allow for a reasonable extension of time on the basis of an ‘act of god’, delays in the supply of labour and materials or a delay caused by something outside of the sole control of the builder.

It may also be prudent to consider if the projects scheduling can be adjusted to factor in the impacts of COVID-19.

Please check your contract for the specific provisions, including requirements on how to claim an extension of time or contact a HIA workplace advisor for assistance.

Q. Can I terminate my contract with my subcontractor if they cannot carry out the work due to COVID-19?

There is no simple answer to this question.

Talk to your contractors. Terminating a contract is a serious matter that may have significant consequences for all parties.

  • Has the contract with the homeowner ended?

Under the HIA Period and Project trade contracts a contract with a trade contractor can be terminated if your contract with the homeowner has ended.

In those circumstances the trade contractor is entitled to be paid for the work carried out prior and up to the date of termination plus reasonable costs incurred attributable to the termination. The trade contractor is not entitled to make any claim for loss of profits.

Example: A home owner may be unable to allow building work to progress due to self-isolation and make arrangements to end the contract with the builder. The builder will then consider their contract with a subcontractor to determine an appropriate next step.

  • Is the contract with the homeowner still on foot?

If the contract with the homeowner has not ended, the trade contractor must be in breach of their contract in order for you to terminate it. An inability to carry out the proposed works within the contracted time period may substantiate a breach of contract.

However, it is more likely that these external events have caused the contract to become ‘frustrated’.

‘Frustration’ is a legal term that describes a situation when, after the contract is made, an event occurs (without either party's fault and for which the contract makes no sufficient provision) which so significantly changes the nature of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time it was made, that it would be unjust, in the new circumstances, to hold them to it.

While generally in these circumstances both parties are automatically freed from further obligations it is a very complex area and there are few cases where a contracting party has successfully claimed that a contract has been frustrated.

Example: A subcontractor may be required to self-isolate and therefore be unable to attend the worksite for up to 14 days, or longer. If that contractor cannot make appropriate arrangements to complete the contracted work the builder can consider whether they can terminate the contract.

I am a subcontractor required to self-isolate

Q. What should I do with existing work?

  • Talk to the builder about seeking an extension of time from the homeowner.
  • Seek an extension of time from the builder.

Under the HIA Period and Project trade contracts a trade contractor is entitled to an extension of time to complete the work if:

‘an unforeseeable act, event or circumstance which was beyond the control and without the fault or negligence of the trade contractor which by the exercise of reasonable diligence the trade contractor was unable to prevent and for which the principal contractor has received an extension of time under the head contract.’

Please check your contract with the builder for the applicable provision.

Q. Can I claim sick leave?

No. As an independent contractor you are not entitled to sick leave.

If you have an insurance policy that covers illness you should contact your insurer about whether you may be able to make a claim on your policy.

Q. What if I do not have a written contract with the builder?

Without a written contract with a builder the parties will need to agree to a common sense response.

HIA suggests that builders and their contractors discuss the specific issues being faced and attempt to reach mutual agreement regarding those matters. For example, the parties may agree that the arrangement has been ‘frustrated’ (as described above) and come to an agreement regarding any costs.

HIA strongly recommends that builders and trade contractors put these types of agreements in writing.

Example: If you mutually agree that the subcontract cannot be completed due to COVID-19 you might agree that the builder pay the subcontractors costs (perhaps at a negotiated rate) up to the date the contract is ended and the subcontractor agrees not to make any claims for loss of profits.

I've ordered materials I no longer need - what should I do?

You will need to check the terms of your contract with your supplier and discuss the situation. You may be able to agree to delay the delivery or obtain a credit for any money already paid.

Alternatively you may need to consider whether you can re-purpose the materials or use them for another job.

I am a builder that has a project across a state border that has closed 

Many states have introduced border closures that restrict or prohibit movement across borders (for example NSW, Victoria and the ACT are now considered COVID-19 hotspots under Queensland health directions). This means that contractors based in one state, with projects in another, may not be able to start or continue those projects until border restrictions are eased.  

Q. Can I ask my client for an extension of time if I cannot carry out works due to border closures?

Generally yes. 

HIA contracts allow for an extension of time in situations to be claimed on the basis of an ‘act of god’ or a delay in supply of labour and materials or a delay caused by something outside of the sole control of the builder.

It may also be useful to consider if the project scheduling can be amended to reflect the impacts of COVID-19. 

Please check your contract for the specific provisions, including requirements on how to claim an extension of time or contact a HIA workplace advisor for assistance.

Example: You have workers based in Queensland for a NSW project who can now no longer return to Queensland in accordance with the state health directions. You are entitled to claim for an extension of time under either a HIA new homes or renovations and additions.

Contact a HIA Workplace Adviser

1300 650 620

or email enquiry@hia.com.au