By Meika McHardy - 22 Apr 2020
Property owners and builders alike will have welcomed the
Government announcement this week that the country will move to
Alert Level 3 on 28 April, meaning that most on-site construction
work can begin again from that date. The initial joy (and relief)
of this news, however, will be quickly tempered by the realisation
that it is not going to be business as usual for some time
yet.
As builders return to site, the parties to building contracts
will find themselves grappling with a whole host of issues. The
following paragraphs are a brief summary of just a few of these
anticipated issues:
Health and Safety Protocols
At Alert Level 3, on-site construction work is only permitted
with strict health and safety measures in place. These precautions
will ensure the continued prevention of the spread of Covid-19 and
protect both workers and (where relevant) occupants.
A cross-sector group have put together a set of new health and
safety standards and protocols, which provide guidance on minimum
standards that need to be implemented to manage the risk of
Covid-19 transmission on-site.
The protocols include requirements such as a written plan,
physical distancing between workers, detailed records of
interactions and high cleaning and hygiene standards.
There may be some situations where it is not possible to
implement the strict guidelines and ensure that work is carried out
safely. In these situations, on-site building work must not be
resumed until such time as the requisite precautions can be put in
place.
Delays and Extension of Completion Time
In addition to the delays already experienced as a result of the
lockdown during Alert Level 4, there will inevitably be further
delays in completing projects. These delays will arise as a result
of the ongoing restrictions that will slow down the progress of
work. Additional delays may also be caused by other factors such as
a backlog in supplying materials as well as delayed site
inspections.
Most building contracts (especially standard form contracts)
will have terms dealing with delays and clarifying the
circumstances that allow for an extension of time. Several standard
form building contracts have a process for claiming an extension to
the completion time with specific timeframes that need to be
adhered to. Yet other building contracts allow for an automatic
extension of completion time in certain circumstances.
As well as specific terms dealing with delays, some building
contracts will have a force majeure provision that may provide
relief to builders (and/or the property owner). A force majeure
provision will typically clarify that a party is not liable for any
failure to perform its obligations to the extent that that failure
is due to a specific cause outside of the party's control. These
are generally things like natural disasters, but depending on how
the provision is worded may include a declared state of emergency
or pandemic for example.
Increased Costs
In addition to causing delays, the obligation to adopt new
health and safety protocols will also no doubt lead to increased
project costs.
For projects that are being carried out on a cost reimbursement
basis (charge-up), the increased costs will be passed on to the
property owner, potentially leading to a budget blow out. Where
this is anticipated, a builder is obliged to keep the property
owner informed of the likely increased costs.
In a fixed price situation, it is the builder who has assumed
the risk of the eventual cost of the works. However, even under
this arrangement, some building contracts will contain provisions
that may allow the builder to increase the contract price.
Provisions allowing for cost fluctuation and parts of the works
that were allocated a provisional sum are two examples of how costs
may be increased. A builder may also be able to claim that
additional time-related costs constitute a variation to the
works.
Damage Caused During Alert Level 4
In situations where partially completed construction work has
been sitting without any supervision for over four weeks, there
will inevitably be some instances where damage to the works has
occurred during that time. For example, damage to shrink wrap may
have left building work exposed to the elements or in more extreme
cases, partially completed work may have suffered structural
damage.
Questions will arise as to who bears responsibility for the
damage and who will pay for repairing it. In many cases the damage
may be covered by contract works insurance but in some cases it
will not be.
In those cases, factors such as whether enough was done to
protect the building work prior to the move to Alert Level 4 will
be relevant to determining who pays for the damage. There may also
be instances where further work carried out to rectify the damage
will constitute a variation to the works.
Communication
Parties to a building contract should be proactively
communicating with each other about how the situation may affect
their project moving forward. It may be easier to talk through the
various issues on the phone or by Zoom (as opposed to emails),
however, if you reach any agreement that varies the contract's
terms, you should record this in writing. A quick follow up email
to record what was discussed will do in most situations.
If you have any queries regarding the resumption of building
work under Alert Level 3, then please contact any of our construction
team for advice.