Warehouse cargo courier shipment. Stack of cardboard boxes on wooden pallet and truck docking at warehouse

COVID-19 Impacting Supply Chains in the Building & Construction industry

Ben Johnson ||

The threat posed by COVID-19 is becoming more widely recognised and publicised. Governments across the globe are taking swifts steps to try and reduce the spread of COVID-19, including social distancing, quarantines, curfews, lockdowns and even isolation zones. Closer to home, we are starting to see Australia adopt similar practices, with the imposition of restrictions on public gatherings and travel warnings.

Supply Chain Impacts

Whilst much media attention has been given to panic buying and stockpiling toilet paper, the real impact of COVID-19 extends much further. This stock piling mentality is indicative of a much deeper concern, being the impact of COVID-19 on our supply chains. This is especially true for the building and construction industry within Australia.

In short, we are already starting to see instances of companies not being able to progress projects or fill supply orders locally because they are waiting on international suppliers to refill stocks. For instance, let us consider the following scenario:

  • Building company HXK Constructions Pty Ltd (HXK) has been engaged by PK University to construct and fit out a new building for its Science and Technology Department (the Project);
  • As part of the fit out, HXK is to install 10 MRI machines within the building and has engaged JKL Pty Ltd (JKL) to supply the MRI machines after it imports them from China;
  • The Project was commenced on 16 December 2019 and practical completion is to be achieved by 1 April 2020;
  • HXK starts construction on 16 December 2019 and plans to install the MRI Machines on 20 March 2020;
  • On 15 March 2020 JKL advises HXK that its Chinese suppliers have not been able to manufacture or export the MRI Machines because of the location of its factory and the quarantine zones in place;
  • HXK is now in a position where it may not be able to complete the Project by 1 April 2020 due to the issue with the supply chain.

The above provides a simplistic example of how COVID-19 is disrupting supply chains in the building and construction industry in Australia and the impact it has on builders trying to complete projects by the certain dates for practical completion.

Force Majeure Events

Another issue that arises out of the above situation is what are HXK’s options and what is JKL’s liability towards HXK in not being able to provide the MRI machines as required by its contract. The answer rests in their respective contracts and critically whether there is a “force majeure” clause contained within them. Broadly speaking a force majeure clause generally excludes or limits the liability of a party to a contract in circumstances where they are unable to perform their obligations due to events beyond one’s control.

There are two key aspects of these clauses, the first is what is defined under the contract as being a “force majeure event” and the second is what is the effect on each party’s rights and obligations if a contractually defined force majeure event occurs.

Now, whether COVID-19 issues fall within the scope of a force majeure clause will depend on the way the specific contract has been drafted. If force majeure is used as a broad term in the contract, it may cover acts beyond one’s control including diseases or other government action such as quarantines and travel restrictions affecting the supply chain. However, unavailability of goods from the designated sources may not ordinarily entitle suppliers to benefit from a force majeure clause. The supplier may need to consider alternative sources of supply and must prove that it is unable to fulfil its contract by another source of supply.

It is important for all parties within the building and construction industry to carefully consider their contracts and in particular, what rights they have with respect to the fulfilment of their contractual obligations in light of COVID-19.

If you have any questions or concerns about your rights, please do not hesitate to contact a lawyer in Coleman Greig’s Building & Construction team, who would be more than happy to assist you.


Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.


More posts

SafeWork NSW
SafeWork NSW releases new strategy to address psychosocial hazards

On 22 May 2024 SafeWork NSW introduced a new strategy to address psychological and psychosocial hazards. The SafeWork NSW Psychological Health and Safety Strategy 2024-2026 establishes new supports for employers regarding their duties in preventing psychosocial harm in the workplace.

roles in the strata scheme
Understanding roles in the strata scheme

A strata scheme is a building or group of buildings that have been divided into lots which can be apartments, villas, offices, units or townhouses. This will be articulated in the strata plan.

Airbnb home
Can I put my home on Airbnb?

Airbnb is a form of short-term rental accommodation. To add your property to Airbnb in NSW, you are required to meet several laws and regulations governing short-term rentals.

liquidators required to seek approval
When are liquidators required to seek approval to retain legal counsel?

When does a liquidator (or the company he or she is appointed to) need court, creditor, or committee approval to validly retain a solicitor to act in a liquidation matter which is likely to extend for longer than three months?  The answer to this question has only recently been settled.

Proposed changes to building
Proposed changes to building and construction law in NSW

The Building Bill 2022 (the Bill) is the key avenue through which the NSW Government has proposed to reshape the culture of the building and construction industry by eliminating poor performance and improving the quality of building statewide.

Dismiss an employee
Can you dismiss an employee who fails to return to the office?

Slowly but surely, most employers are requiring employees to return to the office for at least a portion of their working week. Some employers continue to struggle with employees resistant to returning to the office or those who have an expectation that they can continue to work from home whenever it suits them.

Phoenixing in Construction
New powers to combat phoenixing in construction

The rise of phoenixing in the building and construction industry in Australia in recent years has proved a significant challenge to regulators. Mismanagement of time or cashflow can quickly propel businesses into insolvency.

© 2024 Coleman Greig Lawyers  |  Sitemap  |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230