Construction projects around the world rely on both a healthy labour force and, increasingly, on materials and components that are produced in another country; particularly those produced in China.
COVID-19 has developed rapidly, slowing trade and disrupting the international supply chain. Movement of people and goods has been limited, meaning the ability to source materials will become an issue. This raises some important issues in relation to construction projects, particularly in relation to liability for delay.
Effects on labour force
The human element of the build phase of the construction contract is likely to be problematic and result in delays. As the number of infections increases, there is a high likelihood that labour will have to self-isolate which may lead to sites being shut down, which will inevitably lead to delay and disruption to the progress of construction works. In addition, PCBU’s under the Health and Safety at Work Act 2015 are obliged to minimise or eliminate the risks of harm and hazards to their workers. This would include mitigating the chance of exposure and limiting the spread of COVID-19 at construction sites.
Effects on material supply
COVID-19 is already having a negative impact on the supply chain in Australia (as reported in the Australian Financial Review: https://www.afr.com/property/commercial/construction-feels-covid-19-delays-in-supply-chain-20200304-p546pv)
, and it is only a matter of time before it is felt in New Zealand.
What this means for your project
Whether contractors are able to gain relief for delays will largely depend on the wording of your construction contract, particularly in relation to force majeure, extensions of time and frustration.
A force majeure clause may excuse a principal or a contractor from performance due to unforeseen circumstances that prevent its ability to perform. However NZS 3910:2013, which is probably the most widely used form of construction contract in New Zealand, does not contain a force majeure clause. Instead contractors will need to look to clause 10.3 to claim an extension of time, or clause 14.1 which deals with frustration and may excuse the principal or the contractor from performance.
Whether the COVID-19 outbreak will entitle the parties to invoke those clauses will depend on the impact of the outbreak on a particular project, and any amendments to the standard wording in the contract.
We be happy to help any parties to a construction contract who are worried about their situation. Whatever happens, it would be prudent to maintain proper records, and for parties to a construction contract to promptly notify each other of potential delays and maintain open lines of communication.
Please get in touch with Rebecca Saunders
if you have any construction queries.