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COVID-19 – Building and Construction Update

Home Insights COVID-19 – Building and Construction Update

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Contributed by: Ed Crook, Anna Crosbie, Michael Taylor and Nick Saxton

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Published on: August 26, 2021

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With the nation back in Alert Level 4, we've considered the implications of this lockdown to the building and construction industry. While the industry has been here before, and the issues are largely the same, how those issues are resolved this time around may differ.

What work can be undertaken?

Our team has outlined the legal requirements of Alert Level 4 for businesses more generally here  but, in summary, building and construction work can be undertaken to address immediate risks to health and safety and on nationally important infrastructure. Further guidance from the Ministry of Business, Innovation and Employment is available here.

In doing so, businesses must continue to meet their obligations under the Health and Safety at Work Act 2015. Businesses will need to consider what specific risk mitigation measures are appropriate for their workplace at Alert Level 4 – guidance from CHASNZ can be found here.

Tendering

Where procurement is underway, the impact of moving to Alert Level 4 should be relatively minor. If there is an impact (for instance, a need to cancel a site visit or to change the forum of interactive sessions), the tender conditions will set out the Principal's ability to vary the tender to overcome those issues.

Where a tender has closed, the tender conditions will set out the Principal's ability to speak to individual tenderers and ask for amendments or variations to a tender to seek to overcome any issues. Tenderers are unlikely to be able to vary a submitted tender.

Entitlement to recover delay and cost

For projects underway, the contract documents will determine whether there is an entitlement to the time and cost if construction is disrupted or delayed, or additional costs are incurred. Our summary below outlines the position under the conditions of contract. These conditions may be modified or supplemented by the other contract documents.

COVID-19 clause

Most contracts will include a specific clause outlining the Contractor's entitlement to time and cost in the event of disruption, delay or additional cost caused by COVID.

The parties, particularly the Contractor, should review the current clause and any standing "tag" to determine whether the clause is too specific to the existing tools and methods of working.

Media commentary indicates that the existing tools used to eradicate the first wave of COVID may not be effective in this second wave. Additionally, the guidelines and protocols that allowed work to progress as New Zealand moved down the Alert Levels previously may not be appropriate given the more infectious Delta variant. Any changed guidelines and protocols may increase costs and/or reduce productivity when construction resumes.

The ability of the COVID clause to adapt is important for Contractors as a specific COVID entitlement could be a treated as a Contractor's sole remedy to the exclusion of a more general basis of entitlement. Flexibility can ensure the clause works regardless of how the Government seeks to eradicate COVID.

A contractual or deemed variation

Numerous circumstances are treated or deemed to be a Variation giving rise to cost and time for the Contractor.

There are a number of pathways – a change in legislation and a requirement for the Engineer to suspend the Contract Works were often cited in 2020. We query the need for the Engineer to suspend the Contract Works when the Government has already done so.

Alternative pathways may arise as New Zealand moves down the Alert Levels.

Extension of time

The Contractor is entitled to an extension of time, with no entitlement to time related costs, where the Contractor is delayed by a circumstance not reasonably foreseeable at the time of tendering. Timing will be key in assessing whether this entitlement applies. A Contractor's ability to rely upon this entitlement will largely depend on when the tender took place and what was reasonably foreseeable by an experienced contractor at that time.

FIDIC

In addition to the Contractor's ability to recover time and costs resulting from a change in legislation, the FIDIC suite of contracts include a fairly typical force majeure clause for the benefit of both parties.

A force majeure event is also treated as a qualifying cause of delay in the extension of time regime.

In contrast to the position in 3910, the force majeure event relied upon must be beyond the reasonable control of the party seeking to rely upon the force majeure event, rather than the force majeure event not being reasonably foreseeable.

There is no broader force majeure clause in the NZS suite of contracts.

Notices

Regardless of the basis of claim, any notice needs to be sent in the timeframe required by the Contract, contain the details required by the Contract, and comply with any delivery requirements.

Insurance

Work required to ensure a building's security, so that the building is safe and secure, is permitted at Alert Level 4. Undertaking such work is likely to be a requirement of the obligation to act as a prudent uninsured.

Contractors should also consider damage caused by exposure to the elements, as the Contract Works policy will typically not respond to gradual deterioration. The measure of damage may also be relevant to claims.

It would also be beneficial to check the Contract Works policy. Specifically, is there a cessation of works clause? Is there a specific COVID-19 exclusion?

 
If you would like to discuss how this update may impact you and your organisation, please get in touch with one of our experts below

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