The Cost of Project Commencement Delay

The old adage of Time is Money rings out loud when I think of the Cost of Project Commencement Delay.

In the past 3 months, I’ve worked with many clients who have experienced delay with their project commencing. I will talk about 3 of them to highlight where things went wrong and what a builder or commercial contractor could do to manage this risk.

3 Projects that suffered from a Delay with Project Commencement

Richie the Cost Plus Builder – Up to $1M Contract

The builder was approached by a long term client to refurbish another one of his residences. The client had obtained all the compliance documents for the refurbishment. The parties agreed that the Builder should work on a cost-plus contract because of the premises seemed to be in a flood zone area.

After executing the contract, the builder engaged an engineer to determine the stability of the ground. Unfortunately, the engineer’s recommendation was that significant piers would need to installed. The parties agree it would be more cost effective and result in a better build if the house was knocked down and rebuilt.

This is where the Cost of Project Commencement Delay comes into play. The compliance documents approved by Council were now inconsistent with the new work to be performed. The Builder was expecting to commence the work in May, it is now September.

On reliance on this important long term client’s work commencing and the significant work required for this custom project, the builder cleared out his schedule and refused work from April onward. The builder accepted a few small odd jobs to keep him going but nothing really substantial. It took the Builder until August to approach me and describe the problems he is experiencing from the delay with this project commencing. I have collated his problems described below.

Trevor the Lump Sum Builder - $1M+ Contract

The Client consisted of owner-occupiers of a block of units in Bondi. The Client engaged an architect to prepare all drawings and specifications and more importantly to project manage the job. The Client engaged a building and construction lawyer to negotiate the contract terms and conditions.

The project is in a high profile location - Bondi Beach. The Client(s) are prominent long term residence of the community. The project is the first time build for the builder – a knock down re-build of apartment block. The builder viewed the project as a significant opportunity to demonstrate his building skills with a view to extending his business into apartment style building as well as his current portfolio of residential refurbishments and builds. Most importantly, the value of the contract was in the millions of dollars so the builder wanted to ensure he devoted his attention to it.

The Builder, as you would expect, blocked out his sales and construction pipeline.

Everything seemed to be on track from negotiating the contract up to the time of contract execution. Then out of left field one of the unit owners notified everyone that their finance has not yet been approved. The project has been delayed for more than 4 months now.

John the Commercial Contractor - $1M+ Contract

This commercial contractor specialises in high-end commercial windows and doors. The project was in a prominent CBD location surrounded by Global award winning buildings. The project was to design and construct curtain wall around the rooftop of a heritage listed building as-well-as an extrinsic curtain wall for the linkway adjoining the heritage building and the new building. Put simply, there weren’t many contractors who could deliver on this project.

Given the significant risks with the project, the contractor cleared his sales and project pipeline so that he good focus his specialised design and engineering skills on this project. In close collaboration with tier-1 engineers, the builders architect and other specialist contractors, the contractor worked on the design of the works to draft a building to stand-out from the rest.

You may have guessed that the builder was delayed with having the contractor commence his work. The reasons for the delay left people associated with the project wondering whether the project was cursed. First, the suppliers for the materials were few and far between given the specialist quality of the material required. The builder, despite many engineering reports, encountered numerous latent conditions during prior trade construction particularly when coming out of the ground.  Then the Gods got angry and the project experienced some of the worst rainy weather in many many years.

Unfortunately for the contractor, his work requires significant capital investment into materials. Being the diligent contractor that he is, he purchased all the material he required, fabricated this material, and had everything to go ready, as demanded by his dictating commercial builder under the construction contract and construction program. The project was delayed by 5 months.

Summary of Reasons for Project Commencement Delay

1.       Change in scope of work

2.       Incomplete or incorrect scope of work

3.       External service provider design and drawings

4.       Council approval

5.       Lack of or change to financial circumstance of client

6.       Weather

7.       Latent condition identified in prior sequence of work

The Costs of the Project Delay in Commencing

1.       No revenue generated from the expected project – the flow on effects of that are obviously significant.

2.       Dead sales pipeline – he blocked out the construction period because it was a cost-plus project and now this construction period is being extended every day by the delay with the construction commencement.

3.       Increased cost with materials. Right now, Sydney is experiencing significant boom in construction and it feels like suppliers are increasing their prices by the day.

4.       Significant capital being invested and money being locked up

5.       Overhead costs being incurred without any work – full-time wages, insurances, rent etc

6.       Idle time for workers and company-wide – leading to decreased morale and wasted skill-set

Pondering on these scenarios, I can’t help but wonder how many projects are delayed and the flow on affects of these delays. These delays were not expected by either of these builders or the commercial contractor but I know that the cost of the project commencement delay has left the small business out of pocket and hurt their successful businesses. I will blog about at a later date what are some things a commercial contractor can do to manage the risk of project delay and managing the associated costs with these.

John Dela Cruz

Small Builders – Building Software

Founder and CEO

About the Author

  

 

John Dela Cruz is a specialist building and construction lawyer who works with small builders and commercial contractors. John is passionate about helping small builders and commercial contractors build sustainable businesses. As well as being a lawyer, John is the Founder and CEO of Small Builders, Building Software. John holds numerous qualifications and memberships including being a member of the Master Builders Association of NSW.