Builders brace for $200,000 a day virus
Australia’s building contractors are facing delays of at least four weeks in getting materials ordered from China-based factories which remain closed because of the COVID-19 virus, threatening site shutdowns that could cost the largest projects as much as $200,000 a day in damages.
The four-week delay is the minimum builders would face if all factories started up again tomorrow. It does not mean head contractors will pay developer clients the contracted delay fee for each of those days, but if shortages of critical materials halt work, they will be on the hook for those sums, says the head of quantity surveyor WT Partnership.
“The factories have not gone back yet and [will] not for another week,” David Stewart, WT Partnership Australia’s executive director told The Australian Financial Review on Wednesday.
“I’d have thought [the minimum delay will be] four weeks at least. The builders will try and work around. Some will reprogram. When you haven’t got critical materials for a few days that’s fine, but when it gets into weeks, it’s difficult to say ‘We’ll just do something else’.”
All projects were affected by the problem, he said.
“Every crane you see on a building on the horizon is going to be affected by the delivery of materials,” he said.
In an industry where materials accounting for as much as 20 per cent of the total project cost come from China, builders have already started warning clients of potential delays to projects, the Financial Review reported last week.
While head contractors are already advising clients of possible delivery problems, they are reluctant to confirm delays which would result in them paying daily damages of between $25,000 and $200,000.
“Builders don’t want to tell their clients yet,” Mr Steward said. “But in terms of the meetings I’m sitting in, they are flagging clearly that this is an issue.”
Warnings begin
Some of those clients are already aware. ASX-listed developer Cedar Woods told investors on Wednesday it was monitoring “potential impacts” that the coronavirus may have on the availability of building materials.
Cedar Woods managing director Nathan Blackburne said his company had not yet seen any impact on its business from COVID-19, but had to monitor its effects.
“We did think it was appropriate to flag the risk given the virus’ impact on the broader Australian economy,” Mr Blackburne told the Financial Review.
Mr Stewart, whose consultancy advises banks and lenders to large CBD construction projects, said he was warning the lenders that delay claims were coming.
“We have to be saying to them: ‘There’s a very high expectation these jobs will be delayed’,” he said.
Factories will have to wait until their workforce is able to travel across provincial boundaries to return to work before restarting production. Australia’s contractors will then have to compete with much larger customers for goods off the production lines and will not be top priority. This risks further delay, Mr Stewart said.
“We are a small player in the Chinese production, in terms of what we take on,” he said.
“We’ll just have to take our place in the line.”
