Coronavirus delays hit local construction industry

Local construction projects are being impacted by indefinitely delayed shipments of construction material due to the novel coronavirus, according to Natalie Reyneke, a director at MDA Attorneys.

"Our clients are receiving delayed shipment notices that indicate cancellation of shipments, with calls for patience from customers as China does its best to fight the epidemic. In times of such uncertainty, we advise proactively mitigating possible damages," says Reyneke.

As a result, she says, South African contractors are "sharpening up" on the terms of their contracts and the financial impact the virus could have on projects in South Africa, she says.

Contracts typically place the risk of material delivery and delays on contractual completion times squarely on the shoulders of contractors.

She notes that contractors may, however, have a reprieve if their contracts have adequate provisions to allow for time extensions.

For example, the impact of the virus may be seen as an unforeseen circumstance that prevents either of the parties from fulfilling their obligations under the contract (force majeure).

A construction contract could also allow for time extensions when contractors cannot obtain materials or there is a shortage as a result of an unforeseeable epidemic.

Cost implications

"Project delays have significant cost implications. When an event occurs that is beyond the control of the parties, they usually share the risk," says Reyneke.

Then a contractor would bear the monthly expense of being on site for longer than expected if there are delays, and the project owner would take the risk of other costs and expenses incurred due to late project completion.

Dr Michael Ade, chief economist of Seifsa (the Steel and Engineering Industries Federation of Southern Africa) told Fin24 on Tuesday that the industry body is currently advising its members not to travel to China. He says usually many of their members travel to China to negotiate and conclude contracts there.

"We think it will impact negatively on construction material exports to China, which has been a big destination for SA steel products," he said.

"It is actually really sad to now have the impact of the coronavirus concerns on our industry. It comes just as we were hopeful in the light of recent trade agreement progress between China and the US."

Ade is concerned that, if the virus is not contained or a vaccine developed within the next few months, the local steel industry will experience a negative impact, which could spill over into negatively impacting local production and employment. At the same time, he applauds the Chinese authorities for putting measures in place to deal with the virus.

According to Geoff Jacobs, president of the Cape Chamber of Commerce and Industry, the impact on any South African firm of the effects of the Coronavirus outbreak in China varies. Those that cannot switch to an alternate source will be most affected. Others who always keep a small stockpile in anticipation of unexpected delayed in deliveries from China (such as floods) will be less affected. Those companies entirely dependent on a just-in-time supply chain will be hardest hit.

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