COVID-19 Construction Shutdown

Articles Written by Avendra Singh (Partner), Jennifer Boutros (Senior Associate)

The construction ban commencing on 19 July 2021 in NSW extends to all ‘construction sites’ in Greater Sydney. The public health orders can be found here (see Amendment Orders No. 8 and 9).

The NSW Government announced on 28 July 2021 that:

a) from 12:01am Saturday 31 July 2021 the construction ban will be lifted but subject to the following caveats:

  • Construction in non-occupied settings outside of the local government areas (LGAs) of concern (with no residents on-site) can re-open, subject to a one person per 4sqm rule. These low-risk construction sites must have COVID-19  safe plans in place. Construction of any sort cannot resume in the 8 LGAs of concern, nor will construction workers be allowed to leave these areas.
  • Trades people who are able to work with zero contact with residents will also be allowed to resume (no more than two people inside and five outside). If contactless arrangements are not possible, work cannot go ahead. This work will not be allowed in the eight LGAs of concern, nor will workers be allowed to leave these areas.

b) commencing Thursday 29 July 2021, work required to prepare the commencement or recommencement of construction work on a construction site (except a construction site in the 8 LGAs of concern) may be carried out. Examples of work falling within this exemption can be found in the public health order (Amendment Order No.16) here.

As of midnight 28 July 2021, those LGAs are the City of Fairfield, City of Blacktown, City of Liverpool, Canterbury-Bankstown, Cumberland, Parramatta, Campbelltown and Georges River. 

What are the ‘construction sites’

'Construction sites’ is defined to mean:

  • a place at which work, including related excavation, is being carried out to erect, demolish, extend or alter a building or structure, or
  • at which civil works are being carried out,
  • but not work carried out in relation to a dwelling in which a person is residing.

There are limited exemptions applying to work that is urgently required. 

Authorised Workers

The ban also applies to any person residing in the 8 LGAs of concern from travelling outside the LGA in which they reside for the purposes of work unless they are an ‘authorised worker’ (Authorised Workers Order). A list of ‘authorised workers’ can be found here. It presently does not include construction workers unless they fall within specified industry sectors including certain utilities, transport, warehousing and manufacturing sectors.

How are you affected by these bans?

If you have construction projects across Greater Sydney there are implications for the timely delivery of obligations, services and indeed the project as a whole. These have financial consequences raising important questions as to who should bear these.

You should consider the following:

  • Contractual Rights & Obligations: Rights and obligations under construction contracts relating to which party is to bear the risk (and therefore time and costs) associated with the delay and disruption caused by these COVID-19 measures. The commonly occurring ones are addressed below.
  • Insurance: Some business interruption policies may respond to the consequences of the COVID-19 measures imposed by the NSW Government. Indeed for many this might be the only source of relief if the terms of the contract do not assist. You may have business interruption losses or other financial loss covered by the business insurers. In that regard:
    • Recent experience has shown that even in this case, many have either been declined indemnity or are having to await the outcome of test cases currently before the Courts. We have been assisting a number of our clients navigate their way through the insurance issues involved.
    • Although the current test cases deal with the interpretation of some common coverage and exclusion clauses, they will not resolve all claims in all circumstances and for all insurers.  There may well be other test cases involving other insurers and other policy wordings.
    • If you have a business interruption policy and you need assistance with any claim you may have under your policy, we would be happy to review the circumstances and provide you with some initial guidance (and at no cost to you unless you decide you want us to act further for you and give you legal advice). This may include advice around ensuring you are appropriately positioned to gain the benefit of the outcome of the various test cases or other actions against insurers.
  • Work, Health & Safety:  To comply with the public health orders, employers should consider and implement systems and processes to ensure that workers (which will cover employees and contractors) comply with the various COVID-19 restrictions in place including COVID-19 surveillance testing.

Some of the relevant contractual provisions to consider include:

  1. COVID-19 Clauses: Recently drafted construction contracts are likely to include a clause governing COVID-19 and the effects of any COVID-19 events. These clauses commonly provide for the devising of plans to deal with the pandemic as well as the rights and obligations of each party concerned with the consequences of delay or disruption and who bears the costs that flow. Such clauses commonly operate to the exclusion of anything else in the contract and may prescribe a strict regime to be followed to keep rights and entitlements alive.  
  2. EOT Clauses: Delay and disruption are undoubtedly being caused. How this risk is allocated will have implications for the timely delivery of the contractual obligations and who bears the inevitable cost associated with that. EOT provisions should be reviewed to see whether a delay caused by COVID-19 and related government orders will constitute a qualifying cause of delay. Unless your contract was drafted in 2020/2021, it would be unlikely to. If COVID-19 is not specifically referenced as a qualifying cause, consider whether the event falls within the broader definition of what constitutes a qualifying cause of delay such as acts beyond the control of the Contractor and/or approvals or directions given by statutory authorities. Strict compliance with the requirements of EOT clauses will be required and often includes a number of notices and ongoing claims being submitted by the Contractor as the delay continues.   
  3. Change in Legislative Requirements: Contracts usually make provision for how the risk and liability is allocated if the law affecting the delivery of the project changes - usually after the date the contract is entered into. Is the clause in your contract broad enough to capture public health orders? If they do, do they allow for the consequential increase in cost and delivery times? It is not uncommon for such clauses to permit cost recovery but not delay.  
  4. Force Majeure Clauses: Force majeure clauses, though not commonly found in construction contracts in Australia, are included in some contracts particularly in the larger infrastructure projects. Force majeure entitlements have to be expressly stated and will not be automatically implied. Such clauses will usually define what constitutes a force majeure event but, as many are finding, often pandemic, pestilence or something relating to widespread illness is not included in that definition. Of course, those being drafted after the onset of COVID-19 might.
  5. Frustration Clauses: Frustration refers to a situation in which a contract becomes incapable of being performed due to circumstances or events beyond the control of the parties. It is a concept which operates at law, but can also be addressed as a term in construction contracts. It is a difficult claim to make. The way it is applied at law means that the circumstances in which it will be recognised are narrowly defined. In this case, it will also involve consideration of whether a two-week (or even eight-week) ban on construction work will be sufficient to enliven frustration. This will be a question of fact in each given case.
  6. Suspension Clauses: Clauses are often included in construction contracts usually entitling Principals to suspend the works with corresponding EOT and costs entitlements. Hence, the rights that flow from such clauses are dependent on those clauses being engaged.

The rights and obligations of principals, developers, contractors and subcontractors will undoubtedly be affected by the current bans. The exercise of those rights should be carefully considered as they can make a significant difference to how the inevitable risks and liabilities that will flow are allocated.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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