The fall-out from the Novel Coronavirus (or “COVID-19”) is already being felt by businesses across a number of industry sectors, and the construction industry is certainly not immune. Broken supply chains, the immobilisation of workforces, and issues preventing site access are just some of the factors beginning to have an impact on construction and infrastructure projects.

While a direction that people attempt to work from home may work in some industries, that is not possible for most companies and trades that need to physically attend to their place of work, including job sites. Businesses in the construction and infrastructure space have been asking for guidance on how they can protect their workforce whilst ensuring contractual compliance to mitigate any losses or exposure.

Below we discuss the following scenarios and considerations for each.
Click on the following links to navigate the article…

Supply chain interruption

Immobilisation of workforce

Restricted access to site

Potential recourse should your site or project be impacted


Supply Chain Interruption

The Australian construction industry relies heavily on the importation of building products, materials and machinery from a collection of countries, including those already affected by the Coronavirus outbreak. Almost 20% of Australia’s total imports are sourced from China, including over $10b worth of machinery, reactors and boilers and another $2.5b worth of articles made from iron and steel. Tiles, marble and other textiles are often imported from Italy, which is now in countrywide lockdown. These are just two countries heavily affected by Covid-19 who supply Australia’s construction industry.

While companies and individuals can seek to source Australian manufacturers producing alternatives to these products (and have been), the ability of those suppliers and manufacturers to deal with the dramatic increase in demand is limited – particularly if Australia and its workforce become impacted by lockdowns government-mandated isolation and raw material supply constraints.

Supply chain interruptions and supply availability are likely to cause significant delays for construction and infrastructure projects nationwide.

We have already assisted our clients in response to supply issues for concrete, rubber and other materials that were manufactured in Wuhan, and expect clients to require assistance for numerous other supplies that have production issues both globally and at home.

As most, if not all, construction contracts place the risk of delay to contractual completion firmly on the head of the contractor, it is imperative that the contractual provisions and notices for any delay are followed.

Example Scenarios:

Scenario 1:
Works on site are unable to continue because materials are unable to be supplied.

  1. Look to mitigate your losses or downtime
    1. Identify any opportunities to work on other areas of the site that do not require those materials.
    2. Investigate alternative supply and suppliers
    3. Keep lines of communication with the principal open
    4. Undertake regular discussions and updates from subcontractors
    5. Implement toolbox updates on:
      1. Site access
      2. Supply issues
      3. Programme updates
      4. Health issues – referring to government-issues documents
  2. Get your notices in on time!
    1. Prepare the relevant notices – the specific requirements of notice will depend on the contract governing the project however, should usually include as a minimum:
      1. Evidence of the delay (e.g. Why the materials are unavailable, and steps taken to mitigate)
      2. Reasons why the supply of an alternative product is unavailable, or if available when supply will become available
      3. Anticipated impact on the programme, including regularly updated programmes identifying the changes to the critical path
      4. Contractor’s (and Subcontractor’s) ability to mitigate and how it will be implemented
      5. Likely costs (and if such cost will be claimed, for example, is it a valid variation?)
      6. Details of any claim for an extension of time (EOT)
      7. Details of any delay claim including calculation of damages
  3. If works are unable to continue, then you will need to consider how to suspend the works
    1. What notices are needed?
    2. Who has to be notified?

Scenario 2:
What happens if the costs of supplying material have considerably increased?

  1. What does your contract say?
    1. Who has the risk for an increase in material costs? In most circumstances, it will be the contractor.
    2. Check whether the event that gives rise to the increase constitutes a force majeure event, e.g. Does a biological event give rise to a force majeure?
  2. Can you use alternative materials because of coronavirus?
    1. Will depend on the terms of the contract
    2. Are the materials like for like?
    3. Do you need to advise the Principal?
      1. Are the materials specified in the contract?
      2. Does the contract include a requirement to fulfil a specific intent or design purposes
    4. Need to change the materials or cannot supply them? What do you need to tell the Principal?
    5. A notice under the contract will be required and you must ensure that you:
      1. Submit the claim within the specified time and with the necessary particulars
      2. Provide sufficient information such as:
        • New materials and relevant specifications – and how they comply with contract documents
        • Effect on the contract price (if any)
        • Steps taken to mitigate the change in supply
        • Any other reasons required by the specific contracts
  3. Can you claim a variation resulting from coronavirus
    1. Will be dependent on why a variation has arisen, and what the change in work that is required is. For example, just because you cannot get bricks and need to use weatherboards, will not automatically give rise to a variation.
    2. To ensure any changes can be claimed, however, ensure the specific notices comply with the terms of the contract which will likely include:
        1. Details of the proposed variation

      1. Effect on any contractual completion dates
      2. Effect on adjustment to the contract price
      3. Any additional work required by the Contractor

back to top


Immobilisation of Workforce

Experts warn the situation will likely escalate as the spread of the virus intensifies in the coming weeks and months. The NSW government noted they expected up to 1.5 million people in this state alone to be infected in the first iteration of the virus1. The effect will no doubt be seen on job sites Australia wide as workers are required to isolate, are ill or access to personnel is limited for extended periods of time.

Scenario 3:
What are the options if a Subcontractor cannot attend site for an extended period of time

  1. Termination
    1. Check whether the subcontractor’s appointment can be terminated under the Contract. If you have not yet entered into a subcontractor agreement, talk to us about our fixed fee coronavirus contract amendments.
    2. Check if termination by frustration clauses apply.
    3. Notify the principal/superintendent in writing as early as possible, including as to any impact on the works.

Scenario 4:
What happens if supervisors are unavailable for extended periods due to illness, quarantine or self-isolation?

Supervisors and the Principal’s representative are needed on site or to be available as works progress to provide instructions as needed. What occurs if the superintendent or principal’s representative is unavailable? Do works just stop? And what (if any) are the contractor’s rights and obligations?

  1. Refer to contract
    1. Most standard form contracts allow a principals or superintendent to swap out an individual at any time with notice.
    2. Check to see if the circumstance allows for an EOT.
    3. What instructions must be provided or can work continue?
    4. Assess the associated risks in proceeding with works (some contracts state that cover up works will have to be re-opened if appropriate sign off is not achieved).
    5. Don’t proceed without sign-off from the relevant party.
  2. If you can’t proceed, get your claims in!
      1. Prepare the relevant notices – the specific requirements of a notice will depend on the contract documents governing the project however, should include:
        1. Evidence of the delay (e.g. superintendent unavailable to inspect works and steps taken to mitigate)
        2. Reasons why other sign off is unavailable
        3. Anticipated impact on the programme
        4. Contractors (and Subcontractor’s) ability to mitigate and what that plan is
        5. Likely cost implication (and if such cost will be claimed)

    1. Prepare claim for an extension of time (EOT)
    2. Prepare delay claim including calculation of damages if available under the contract.
  3. Hold commercial discussions with your client to consider sensible arrangements for the deviation from current programmes.

back to top


Restricted Access to Site

On 13 March, it was reported that the $1.3-billion Google headquarters project in London was closed after a subcontractor with site access tested positive for the virus. About 200 people work at the site, and it is believed to be the first major construction site in the U.K. affected by coronavirus.

The situation was confirmed by Australia-based contractor Lendlease, which said in a statement that the affected employee “is in self-isolation … and, as a precautionary measure, the site has been closed for two days to allow a deep-clean of the facilities”.2

As the number of cases in Australia increase, so does the prospect of principals and owners shutting down sites due to quarantine or exposure to the virus. This is becoming more probable in circumstances where the site is connected to a vulnerable section of the population such as hospitals, schools and aged care facilities. We have already advised our clients in respect of works on aged care centres and their likely self-imposed isolation.

Scenario 5:
What happens if the Principal locks down the site?

    1. Don’t rely on informal notice of site closure – get confirmation in writing from the principal
    2. Review your contract
      1. Does it entitle the Contractor to claim costs?
      2. Prepare and EOT claims and entitlement to extend completion dates
      3. Prepare claim for delay
        1. Consider holding costs (if any)
        2. Consider cost of remobilising workforce/site
    3. Contact us immediately

Scenario 6:
What happens if a government health authority locks down the site or instigates quarantine?

  1. Obtain copies of the formal closure notice from the relevant authority.
  2. Discuss with the Principal and contact us to discuss your options and those of your subcontractors.

back to top


Potential recourse should your site or project be impacted

The recourse available to principals, contractors and subcontractors for delays caused to construction projects by the Coronavirus outbreak will largely depend on the contract drafting.

Below we consider some of the options available under common construction contracts used in both commercial and residential building works.

Frustration

The doctrine of frustration discharges both parties from their contractual obligations where, following the formation of the contract, an unforeseen event makes the performance of the contractual obligations either impossible or radically different, whether the impact of a certain material supply falls into this category is arguable, however, prolonged denial of access to a site because of a government directive would likely be.

Certain standard form contracts such as the AS4000 and AS2124 include direct provisions for termination by frustration which set out a strict process that must be followed (see, for example, clause 40 in the unamended AS4000 and clause 45 in the AS2124).

Frustration would not be available as a result of an increase in costs of materials, delay in supply or a change in the programme, however, they may give rise to a variation, delay or EOT claim as discussed below.

Force Majeure

Force majeure translates literally from French as ‘superior force’ and typically relates to acts of God, terrorism, and other civil unrest or natural disasters which may disrupt obligations under a contractual agreement.

Occasionally, certain contracts will offer a reprieve in the form of extensions of time where a party can’t fulfil its obligation due to such unforeseen circumstances. Drafting for these types of clauses can vary dramatically and often only cater for an express list of circumstances, however, the majority of unamended standard form contracts such as the AS4000, GC21, and BC4 do not include force majeure provisions and will require parties to rely on other contractual mechanisms for relief.

If outbreaks persist, then our prediction is that parties will struggle to rely on force majeure in future contracts as delay stemming from the spread of coronavirus will be reasonably foreseeable, and no longer an unforeseen circumstance.

For more information on the Coronavirus & Force Majeure please refer to our recent article here.

Extensions of Time (EOT) for Practical Completion

In the absence of express contractual provisions for frustration or force majeure, most construction contracts will usually contain allowances for an extension of time where a delay in the completion of works is caused by a factor outside of the parties’ control.

Some contracts, such as the NSW MBA’s BC4 (for lump sum residential projects), have a wide definition of circumstances where the builder would be entitled to an EOT such as “If for reasons beyond the control of the builder, materials are hard to get or delay will be experienced because the material required is hard to get or unavailable” (see clause 9(b)). This drafting is rare in most construction contracts, particularly for larger building or infrastructure projects.

Others, such as the AS4000, limit a valid request for an EOT to a qualifying cause of delay meaning “acts, defaults or omissions of the Superintendent, the Principal or its consultants”. Supply chain issues and access to materials would clearly not fall into this category and contractors would need to consider other avenues of extending the date for practical completion.

This is general advice only and to be used for reference only. If you have specific questions in respect of the above, please contact Morrissey Law + Advisory.

back to top


[1] https://www.smh.com.au/national/authorities-warn-first-wave-of-infections-in-nsw-to-top-1-5-million-people-20200312-p549h2.html accessed on 13 March 2020
[2] Mark Shaw, Aileen Choo and Peter Rein, ‘Construction Responds To Limit Coronavirus Infection Exposure, Manage Work’ (online13 March 2020) ENR URL: https://www.enr.com/articles/48866-construction-responds-to-limit-coronavirus-infection-exposure-manage-work

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.