Hotel development supplies shortage causing delay claims to rise

This article was originally published in Hotel Owner. You can read Michael’s full article on the publication here. 

Delay within the construction industry has been bought into sharp focus as a result of the pandemic, particularly within the hotel and leisure sector.  Recently this has been exacerbated by the ongoing construction materials supplies shortage which has plagued the hotel development industry in 2021.  Steel, plaster and paint supplies, amongst others, have been hit hard which has led to huge issues for hotel developers and construction companies alike, not only during hotel construction but particularly during fit out stages which is a crucial and time-pressured period of any hotel opening.  Prices have soared and project completion dates have drifted.

The problem results from a perfect storm of Covid hampering production, Brexit and transportation issues.  Construction workers are often available to work, it is simply a matter of getting materials to site, and within budget, that is really hampering progress – the Recruitment and Employment Confederation have reported that job vacancies within the construction sector have suffered as much as any other, falling as high as 17.8%.

Whilst some commentators believe the worst is behind us, the effects and consequences are beginning to be felt as delay claims are on the rise for hotel construction and development projects.

Contractually, delay claims are usually considered as twofold – critical delay and disruption.  Critical delay means the completion date of a project will be pushed back and, if caused by an event that is not the fault of the contractor, may lead the parties to agreeing a new completion date and relieving the contractor of paying its employer or the developer damages.  Disruption is where the normal progress of construction work is effected by an event causing the work to be carried less efficiently and, in many cases, causing the contractor to suffer loss.  It is not necessarily the case that critical delay will cause disruption, or vice versa.

Many construction industry standard form contracts deal with critical delay and disruption separately.  For example, JCT Contracts deal with critical delay as specified ‘Relevant Events’ that would lead to an extension of time for the contractor, whereas disruption is dealt with under the regime for the recovery of Loss and Expense as a result of specified ‘Relevant Matters’.

The hotel industry faces unique challenges for development and construction projects.  The pressure to ensure completion dates are met is driven by targeted hotel launches, peak consumer seasons and the ultimate goal to get heads on pillows.  Any delay can be damaging and potential losses can be significant.  It is not unusual for even the shortest of delays to construction completion forcing hotel operators to delay a hotel opening and missing a crucial Christmas period or bank holiday weekend.  The damage to reputation can often be more costly.

Whilst contractors can sometimes rely on protections within their contracts, often it is they who are being left in the most vulnerable position when material delays and rising costs hit hard.  Profit margins suffer and relationships with their subcontractors can become strained – it is more important than ever to ensure hotel construction projects are effectively managed to avoid critical delay and losses.