Corona-Construction: Same industry, new red-tape

Pre-COVID, most of us dreamed about working from home 100% of the time. However, turns out the grass is NOT greener on the other side. Screaming kids, the difficulties of working with a small laptop vs your three-screen office set up and the constant regret of renting in an overland flight path (despite airplanes going out of business?).

Putting all that to one side, you still need to run a construction business and keep projects moving forward.

Post-COVID, the biggest risk to all parties, is a partial or full site closure to allow for cleaning or other decontamination processes. Should this occur, this article will show you how:

1. if you’re a contractor – to secure that EOT and keep work flowing; or
2. if you’re a principal – to knock back meritless claims and recover time and cost lost through LDs.

No matter which side of the fence you’re on, here are the five main areas that you need to be aware of during corona-construction:

1. strict compliance with your contract requirements, including reasonable steps to reduce delays and costs;
2. analyse your supply chain;
3. avoid service issues for adjudications due to office closures;
4. back-to-back subcontract and supply agreements;
5. considerations when negotiating contracts for future projects.

Strict compliance with your contract requirements

A typical force majeure clause does not guarantee that you’ll recover time and cost for COVID disruptions. In the event of delays or site closure, a contractor’s entitlement to time and cost will come down to whether:

1. it has complied with the contract’s notice requirements;
2. it can prove its delays; and
3. it has taken reasonable steps to reduce delay and cost overruns and to avoid site closure.

Complying with notice requirements and proving delays

Regardless of how COVID affects you, there’s no escaping the usual notice requirements for EOTs and delay claims. Time bars wait for no contractor.

For contractors and principals alike, the first issue will be: “When did the delay start?”. Working out when the site was shut down is a no-brainer. Working out when delays stated from COVID is a much more difficult task.

Contractors and principals alike should consider maintaining a chronology of the specific effects that COVID had on the project. This may involve keeping a timeline of government measures and their impacts, a record of all internal assessments and decisions, and the cause and effect of each relevant event. Be sure to segregate delays related to COVID as distinct from concurrent delays.

This will allow you to pinpoint the exact time that works started slowing due to COVID to make sure you meet that time bar – or if you’re on the other side of the fence knock back any EOTs that are out of time.

Taking reasonable steps to minimise risk to workers and avoid site closure

After notice requirements, the next go-to reason for knocking back claims is that the contractor has failed to mitigate any loss. During corona-construction, contractors need to take all reasonable steps to minimise workers exposure to the virus.

Australia is fortunate in that construction sites to date have been allowed to remain open, and this is likely to continue. However, authorities (such as the QBCC) are undertaking random inspections to enforce compliance with physical distancing guidelines. In the case of non-compliance, or detection of virus contamination on a construction site, a partial or full site closure may occur.

In these circumstances, a developer may have reason to refuse the contractor’s claims should it be found that the contractor contributed to the cause of the delay by failing to have in place the necessary safety procedures.

Aside from the obvious workplace benefits, taking the following measures will assist in minimising the risk of a site shutdown:

1. adhering to physical distancing of 1.5m between workers on site;
2. practically, the following measures are a good start to ensure workers follow guidelines:

• mark-out ground and floor to reflect where workers should stand, for example to wait for lifts or hoists;
• where possible, schedule teams of workers to work in separate areas within the site with separate amenities and lunchrooms;
• staggering of lunch breaks, start times and finish times of workers;
• ensure fixed workspaces on site are away from high traffic areas and amenities;

3. provide temporary washing stations, hand sanitiser facilities, and consumable personal protective equipment (i.e., disposable gloves and face masks) to all sites and offices;
4. do not allow sharing of personal protective equipment;
5. employ additional cleaning staff to clean and sterilise all common areas and frequently touched surfaces twice-daily, and have cleaning recorded on a register;
6. screen workers before entering a site. This may involve an initial declaration and ongoing daily screening in the form of a declaration before each shift, acknowledging symptoms of possible infection or exposure to risk factors. Contractors may also wish to consider engaging a person to undertake temperature checks before entering the site;
7. provide workers with a questionnaire to employ when contacting the occupant of a residence before attending to any defect/maintenance inspections and a protocol for minimising risk when undertaking these inspections;
8. for operations in NSW and Victoria, take advantage of the increased work hours and extended days of operation for construction sites to include weekends and public holidays;
9. update all safety management plans, and safe method work statements in line with new government mandated health measures;
10. communicate all new procedures and site rules in prestart documents and require workers to sign, acknowledging they have read and understood the site rules; and
11. establish an on-site COVID task force to ensure that the new health and safety protocols are being strictly adhered to, with the expectation that these task forces will become the key communication conduit between head office and the site.

Finally, should there be a partial shutdown or interruption because of COVID, look to resequence works where possible to avoid delays. In delay disputes, there is often a fight about whether a delay could have been avoided simply by taking corrective action and rescheduling the construction program.

Developers may seek to reject claims on the basis that the contractor failed to take measures to accommodate the delay by reconfiguring the critical path of construction. Contractors need to be proactive with the resequencing of activities and re-distribution of workforce (where possible) to minimise delays.

Analyse your supply chain

Supply chains are also being hit hard during corona-construction (particularly those who rely on shipments from China, Italy, and Germany which today is almost everyone).

Contractors should audit their supply chains and take proactive steps to assess which suppliers are in economic stress. Ascertain if critical materials or supplies are likely to be delayed as a consequence of border control. Materials most likely to be affected include lifts, tiling, carpet, plumbing fixtures, glazing and aluminium.

An audit trail should be maintained to prove all possible steps are being taken to mitigate such delays, including actions such as:

1. contacting key suppliers as soon as possible to determine delays;
2. diversifying vendors for materials. If sourcing products locally, analyse the increased cost and incorporate into your tender price;
3. allowing for early order and delivery of materials and additional offsite storage if required;
4. developing contingency plans for upcoming deliveries of materials in case an existing plan is unable to proceed.

Service of adjudication documents

Office closures, the restriction of interstate travel and lockdowns will inevitably impact the method of service of Adjudication Applications and Responses made under the relevant security of payment legislation.

Adjudication timeframes surrounding service are brutal and unforgiving.

To avoid service arguments attempting to invalidate applications, we recommend employing the following measures:

1. check the notice provisions of your contract to see if service is permitted by email;
2. communicate with counterparties and obtain express consent to serve documents under any Act by electronic means;
3. if your office is closed, consider regular checks of the premises in case you are physically served with a payment claim and/or adjudication application;
4. to prevent the service of documents by electronic means being found void, obtain evidence of acknowledgment of receipt, such as delivery/read receipt or calling the counterparty to confirm receipt; and
5. avoid the use of Dropbox or compression software as this is not a valid method of service. Attach PDFs, sending multiple emails if required.

Back-to-back your subcontracts and supply agreements

When the terms under the head contract differ from those with a subcontractor or a supplier, contractors expose themselves to the risk of liability for delay under the head contract without any recourse against a delayed supplier.

Contractors must ensure that all risks flow down in related subcontracts and supply agreements on a back-to-back basis in accordance with the risks in the head contract.

Updating your contracts before signing up a new subcontractor or supplier is a small cost in comparison to delays on site and potential cost overruns.

Considerations when negotiating contracts for future projects

Many residential and retail projects have been put into a holding pattern due to a decrease in pre-sales and agreements for lease. Developers may have to stagger the delivery of projects to accommodate the requirements of their financiers in this uncertain time.

Watch out for any clauses which do not specify a timeframe in which the developer must issue a direction to proceed with any works. Otherwise, you may have to hold your price for several months without any way out.

When looking over any preconditions to commencing works, ensure that:

1. there is a clear date by which the developer must provide its notice to proceed with each stage and if the developer does not adhere to this date, the right of the contractor to:

• re-tender in accordance with:
  • market changes;
  • recurring site-based overheads due to extended project duration;

• • establishment costs for equipment and subcontractors.
• terminate the balance of the contract, without affecting the completion and payment for any outstanding work relating to the ongoing stage (if any);

2. if the developer does not proceed with a stage, an entitlement for the contractor to claim the following:

• demobilisation costs; and
• compensation costs to represent loss of other business opportunities as a consequence of resources being held on standby.

It is common for a contractor to carry out preliminary design work before signing the contract, or the contract becoming unconditional. Given the current uncertainty, contractors should not commence any work without an early works agreement in place.

In conclusion, it is most beneficial for all parties to work cooperatively and in good faith, with the common goal of finding amicable solutions in the exceptional circumstances we find ourselves in at present.

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