Construction contract answers during the COVID-19 pandemic
Construction contract answers during the COVID-19 pandemic
Part A – Construction contract language, site shutdowns, record keeping and shortage or delay of materials.
Posted 29 March 2020
Many clients have been contacting our quantity surveying and project management teams to ask questions related to how their construction contracts and schedules might be impacted due to the COVID-19 outbreak.
We are here to help and ready to provide practical advice by answering some of the most frequently asked questions. We will continue to update this page as the situation evolves, please feel free to submit your questions below.
The information detailed below is of a general nature. Whilst Altus Group makes every effort to ensure that the information presented is accurate, we recommend you consult with an independent professional construction lawyer to take into account your particular circumstances.
What kind of language do I need to look out for in my construction contract?
The most important note for all parties to a contract is each contract will have specific conditions and supplementary conditions which will dictate the parties’ actions and highlight the necessary next steps. You have likely seen the term ‘Force Majeure’ on numerous occasions recently. Some contracts may also have an ‘any cause’ clause beyond control of the parties. It is unusual for general contracts to reference the term ‘pandemics or epidemics’. In each instance it will be a matter of interpretation that depends on the contract language and the facts of the claim. If pandemic or other similar events are not specifically covered in the contract, a party may still claim force majeure under another type of event, specifically the ‘any cause’ clause. Should the government mandate a shutdown, there will likely be claims for legislative changes. These will most likely depend on the wording of the clauses, who bears the risk on legislative changes and the form of the government shut down.
In all cases, it is important to establish causation between the event and a party’s obligations under the contract. The circumstances must be beyond a party’s control and cannot have been foreseeable to have been avoidable with reasonable steps.
What if the government orders the shutdown of construction sites?
Contractors will need to revise the construction program as a result of the delay, in accordance with the contract. ‘As Planned versus As Built’ or ‘Impacted As Planned’ schedules should be kept up-to-date, while also updating and recording against the ‘Baseline’ schedule. Carefully review the contract to establish entitlements (i.e. Time and costs, time only or no time or costs).
What type of records should be kept?
- Maintain regular photographic and programme records of work being undertaken
- Establish progress completed to date as of the date of any site closure. Take photographs, notes and do a progress update and distribute to all parties as a record
- Record materials on site
- Request details and record materials on long deliveries that may be affected
- Record direct and indirect costs for the duration of the delay
- Update the Construction Program in line with progress and maintain Schedule for the duration of delay. Issue regular updates to all parties
- Notices from relevant authorities, relevant sources, agencies (State Government Councils, etc.) to substantiate reasoning should be logged
- Copies of site diaries/memos
- Records of mitigation procedures implemented, etc.
During the current times of restrictions, and if a lockdown is issued including construction sites we potentially see this leading to claims for Loss of Productivity, Disruption, Out of Sequence working etc. For a Loss of Productivity claim, it is essential to identify a cause and effect while also proving the damages and liability. This highlights why record-keeping is so important.
What if certain construction materials or shipments are banned or delayed? How do we make arrangements going forward?
Many contracts require a duty to mitigate any loss or expense which may occur, resulting from such a series of events. While hard to appreciate in these uncertain times, such cost mitigation will undoubtedly need to be demonstrated in order to have a successful claim.
Are there alternative local materials that can be used instead of the specified materials? This could present other obstacles. For instance, the issuance and acceptance of change orders for the alternative material by the consultant or owner – irrespective of whether an option is readily available – will assist the project in the long run.
On some projects we have experienced a shortage and delay of materials coming from China and Europe until factories and borders are opened. The resulting impacts on construction projects include delays and shortages of materials, and could also lead to increased prices. While the outcome is uncertain, it is a major concern for construction projects going forward. Communication between suppliers and other parties to the contract is a necessity, as is the general case, more so now than ever. Where there are local alternatives, contractors should be making arrangements to secure these to mitigate losses and delay.
Part B – Contractor claims, preparing for delay or disruption, contract administration and SOPA considerations.
Posted 18 April 2020
In the previous section we answered some common construction contract questions related to COVID-19. This included construction contract language, site shutdowns, record keeping and delays or shortages of materials. As the environment that we live in changes, so too do the government mandates and the way in which the construction industry operates. In this section, we provide further insight into the considerations related to contractor claims, preparing for delay or disruption, contract administration and SOPA considerations.
What contractor claims are likely to be made?
As stated earlier, it is not common for general contracts to reference the term ‘pandemic or epidemic’. In each instance it will be a matter of interpretation that depends on the contract language and the facts of the claim.
Each projects construction contract will differ and you should seek specific legal advice if a claim is made. In our experience, claims are likely to be made as ‘extension of time’ (EOT) and delay cost claims (if applicable) due to;
- force majeure;
- authority delays; and/or
- change in legislative requirements
In all cases, it is important to establish causation between the event and a party’s obligations under the contract. Given that sites may experience a drop in productivity due to disruption and out of sequence working, rather than a shut down, record keeping is of utmost importance.
Construction sites in NSW can now operate on weekends and public holidays under new rules introduced by the NSW Government on 2 April 2020. The City of Melbourne is extending site hours on a case-by-case basis and other states are expected to follow. This is an important step toward maintaining safe and socially distant building sites while allowing projects to continue. This is in our view is an important consideration with any potential claim.
How can you prepare for possible delay claims?
In the midst of the COVID-19 pandemic, establishing, proving and assessing a delay claim will rapidly become complicated. Mitigate potential disputes now by establishing the necessary project reporting regime. Here are some starting points to consider.
- Status the construction programme (the agreed baseline schedule) for your project.
- Immediately launch a review to establish the position of your project before to the alleged event occurred. Remember: this is not binary. The situation evolved with a reduction in production prior to a likely shutdown.
- Clearly catalogue the event(s) that have taken place and their timing.
- Establish the critical impact to the project by determining – in an agreed and industry recognised manner – the impact of these events on the construction schedule.
- Maintain regular and ongoing photographic and programme records of work being undertaken at least weekly.
- Record materials on site with photos and comprehensive notes
Completing these steps will help to establish liability and potential costs attributable to the parties to the contract.
How can you prepare for possible claims related to disruption?
Disruption claims are likely to be pursued by contractors to recover damages for loss of productivity when labour and equipment costs exceed what was planned. Disruption claims, however, are challenging to prove – even more so given the uncertainty of the current environment.
Preparing to defend or validate damages claims now will prove to be a valuable advantage later, but where do you start? You can begin by asking yourself these questions:
- Are you maintaining detailed and verifiable records?
- Can these documents be provided immediately upon request?
- What analysis is required to accurately capture the impact of the disruption?
There are several recognised methods of analysing and quantifying the total cost of a disruption, depending upon the circumstances and factors involved.
What other contract administration items should I consider?
During times of uncertainly it is important not to forget key contract administration tasks that could help influence the success of your project. Some of these key items to keep careful watch on include;
- Payments (ensuring on time or consider shorter timelines to assist cashflows, consider directing payments to subcontractors and suppliers, always remember SOPA)
- Financiers requirements for reporting
- Other stakeholder requirements
- Other project timelines and deadlines and notices (leases, sunset clauses)
- Insurances are held and valid (suitability, values, and durations)
- Security held is valid (type and values); and
Are Security of Payment Act (SOPA) deadlines still in place?
Despite the fact that construction sites can now operate on weekends and public holidays in NSW, there have been no changes to the strict deadlines under the Building and Construction Industry Security of Payment Act 1999 (NSW). It is very important that all deadlines are met, especially with respect to serving a payment schedule, and any Adjudication Application and Responses. We have previously provided some helpful tips on navigating SOPA and maintaining compliance you may wish to review.
Questions for our experts?
We are here to provide practical advice to our partners by answering frequently asked questions. We will continue to update this page as the situation evolves. Send us your questions.