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Got wood? Building industry faces perfect storm

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The Australian Government claims that the economic recovery plan is on track to bounce back. Despite the government’s assistance to create more jobs, provide tax cuts, and invest in infrastructure, the building industry is facing the perfect storm with construction sites being shut down due to COVID-19 lockdown directives, scarce building supplies, and unprecedented demand, explains Attwood Marshall Lawyers Commercial Litigation Senior Associate and NSW Law Society Accredited Specialist in Dispute Resolution, Charles Lethbridge.

Introduction

We’re not alone in our building and renovating boom. With travel on hold, record-low interest rates, and government incentives to build or renovate, it is reported that other countries around the world, including New Zealand, England, and the USA, are also experiencing the same demand that our construction industry is facing in Australia.

The Australian Government successfully boosted residential development in 2020 by enticing homeowners to renovate or build with the HomeBuilder Scheme.  Fast-forward to 2021, and construction companies are struggling to get their hands on supplies to try to keep up with Australia’s building boom.

Wait times for just about every trade have blown out excessively, in some cases years, as global supply chain disruptions cause material shortages which have impacted many people’s plans to renovate or build their home and caused a headache for builders who are trying to keep customers happy and plan for future work.

The building and renovating boom

The HomeBuilder Scheme, in addition to state-specific building bonuses, was released by the Government to support confidence in the residential construction sector and incentivize consumers to proceed with construction that may have been delayed due to uncertainty as a result of the COVID-19 pandemic.

Applications for the HomeBuilder Scheme closed on Wednesday 14 April 2021. The largest number of applications were completed by Victorians who submitted 35,169 applications, followed by Queensland’s 26,293 applications and New South Wales’ 23,175 applications as of 9th April 2021.

With unprecedented demand for building materials and supply issues, it has created a challenge for the building and construction industry and their customers.

In 2019-2020, it was estimated that a single-story home would take six to eight months to build from slab to completion. To complete the same project today, it is estimated that it would likely take 12 to 16 months, if not longer.

A double story home, which would have previously taken anywhere from 10 to 12 months, is now estimated to take 14 to 20 months to complete.

Global supply shortages

Trying to schedule a build, without certainty around when building materials will be available, is just the first challenge set for builders. Sub-contractors are also in demand, and with international travel off the cards and interstate travel restricted, there may not be enough workers to get the project completed.

Timber processing mills are under pressure trying to keep up with demand as a global timber shortage sets back the industry. Usually, one fifth of construction timber is imported. In the USA, the price for timber has risen by 400% from a year ago. As a result of the increase, international traders have been sending all their material to the United States, leaving other countries short.

Australia’s domestic timber production has increased by 17%, but despite this increase the industry is still unable to keep up with demand.

In addition to supply shortages, shipping costs are also a factor, with significantly high fees to ship materials as a result of the Suez Canal blockage which took place earlier this year. The Suez Canal accounts for around 15 per cent of global shipping traffic. In March 2021, the Canal was blocked for six days. It is estimated that approximately 50 ships per day travel through the Canal.

Through no fault of their own, builders are being lugged with thousands of dollars added to the cost of their work, which they are often wearing and not passing on to the customer.

Managing conflict and resolving residential building disputes

For customers that were ahead of the curve and were planning to build or renovate prior to the COVID-19 pandemic, many would have received quotes and set timelines that are now redundant. There are many disappointed homeowners now in for a nasty surprise as costs soar by at least 10-30% in 2021, and building timeframes are almost impossible to estimate.

With demand outweighing supply, suppliers have had to increase the cost of building materials, including timber, bricks, steel, cabinetry, and everything in between.

With the added consequences of supply issues with manufacturing slowing down in many factories worldwide due to COVID-19 restrictions and lockdowns, production is at its slowest.

Some builders are reporting up to 3 price increases from one supplier in the space of 4 months. As you can imagine, this would have a roll-on effect to the quotes builders are providing upfront to customers who are trying to scope their work. Unfortunately, supplier prices are out of the control of builders.

Emotions can be running high for clients who are eagerly awaiting the completion of their home. With a rental crisis gripping the country, this is bad news, with many people unable to extend their current leases, or locate short term accommodation at a reasonable price to accommodate them whilst they await the completion of their build or renovation. This means clients are at a loss and are left with no other option than to put more pressure on builders to fast-track their build or renovation. It’s a matter of riding it out as best as possible. But this means also negotiating with stressed out clients who want nothing more than to fast-track their build.

Although most customers are generally understanding of the current situation and impact COVID-19 has had on the industry, builders are the ones stuck between a rock and a hard place trying to navigate as best they can and deliver projects at a reasonable cost and timeframe.

Attwood Marshall Lawyers – alternative dispute resolution experts to help you keep construction on track

With so many variables that could impact the cost, schedule, and outcome of a build project, it is important to manage customer expectations throughout the process.

As construction work progresses minor fluctuations are common, but significant misunderstandings can occur over variations, especially when variations are not communicated effectively. We are seeing more and more disputes arise around the agreed date for project completion and rising costs, particularly in the current climate where building materials are so difficult to secure, and trades are hard to lock down.

Then there are the usual disputes that can arise over quality of workmanship.

These issues contribute to arguments over payments, including delayed or withheld payments. These issues can be sensitive and difficult to resolve once work is underway.

The goal should be to resolve any disputes at the earliest opportunity so that you can avoid any further delays and get on with the task at hand. In most cases, building and construction disputes can be settled through alternative dispute resolution mechanisms, without resorting to litigation, which can be extremely costly and stressful.

It is our intent to help builders and their clients resolve disputes quickly and effectively so that everyone can move forward and achieve the most satisfactory outcome for all involved.

By addressing any issues at the earliest opportunity, we can help you navigate what options are available and advise on the best way to resolve your matter.

For advice on building disputes, contact our Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 at any time.

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