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COVID-19 –  Claims for loss and expense due to slower working conditions?

By Finn Collins

COVID-19 – Claims for loss and expense due to slower working conditions?

24 April 2020

Working under the constraints of level 3 working conditions will likely slow the pace. That may mean that a further extension of time is required to the due date for completion. Although, I suspect if a project is near completion and different trades are not getting in each other’s way – due to the need for distancing - it may, for some trades, become their dream working conditions and actually speed matters up.

It is also possible that the delays may only cause a ‘local prolongation’ to certain activities but there is sufficient float in the programme or the activities affected were not on the critical path, meaning there is no effect on the contractual completion date. Programmers will be busy for months to come.

Why claim an extension of time?

The first point to make is that a contractor's claim for an extension of time under the standard forms of contract in New Zealand is defensive. An extension of time acts simply as a defence to a claim that the employer might otherwise bring for liquidated damages due to delay. An extension of time brings no other benefit. It does not carry money. If the contractor wants to claim loss and expense as a result of delay, he has to look at other clauses of the contract and has to put forward a very different sort of claim, likely a variation in this instance.

My suggestion is to set out your stall from day one. Gently notify your contractor or the employer, depending on where you sit in the supply chain, by sending an email, which could be along the following lines:

We are very conscious that working under the requirements of level 3 means that our works and other works will be necessarily prolonged onsite caused by a loss of productivity over this period.

Will there be a revised programme to reflect the level 4 lockdown and the level 3 constrained working conditions or will time be at large? We are anxious to know as we anticipate a new programme will be required and it may even be the case that it is not sensible to have a fixed completion date and simply to have time at large given the uncertainties.

Suggesting that ‘time may be at large’, and therefore there is no date for completion, will on many projects be a somewhat cheeky suggestion, so you should judge whether to include such a comment against the context of the project. On some projects it will be a perfectly appropriate suggestion.

This initial soft approach is likely to achieve a better result than rushing too quickly to belt out formal claim for an extension of time and for a variation due to loss and expense incurred as a direct result of level 3 working conditions. Such claims should still be issued within the required timeframes, but an initial approach shows that you are open to discussion and do not wish to make the project any more difficult than it has to be.

Under many current contracts there will be an allowable variation for additional loss and expense if these are caused by level 3 working conditions. For example, if you are working under the NZS3910:2013 form of contract, or if that is the head contract if you are the subbie, then any loss and expense is likely to be recoverable as a variation under clause 5.11.10, which states:

If after the date of closing of tenders the making of any statute, regulation or bylaw or the imposition by Government or by a local authority of any royalty, fee, or toll increases or decreases the Cost to the Contractor of performing the Contract, the effect shall be treated as a Variation.

Whichever way you draft an email to query the programme, if one exists, it should ideally be drafted to open the door for a discussion. In some cases the level 3 working conditions will have little or no impact on the programme and possibly only limited extra costs i.e. an additional toilet and washing facilities. If that’s the case then a soft approach is sensible, as any additional costs may be quickly agreed.

On projects where level 3 will have more impact, forging a good relationship and showing a willingness to talk and compromise whilst maintaining normal processes of contractual protection (i.e. delay notices, progress records, etc.) should stand you in good stead.

On many commercial projects, with provisions for liquidated damages, the ideal outcome may be that the employer accepts that it should not apply liquidated damages to allow the contractor not to have to worry about spending resources on pursuing extensions of time and claims for loss and expense. This may be where the principal will have some leverage and can negotiate any loss and expense costs as a trade-off for agreeing not to pursue any delay damages.

So many times we see contracts that fall into costly protracted disputes because the contract is too onerous, or a uncompromising approach is taken by one or both parties, resulting in a contractor desperate to protect its margin and thereby going on the offensive.

Any correspondence sent, whether you are a subcontractor or a contractor, should show a willingness to help in overcoming the problems. The message needs to be clear — “we are prepared to help and get on with the project, but ideally let’s do so with an agreement in place that fairly reflects the disruption from Covid-19 and that we can both live with”.

For further information, or advice, contact Gibson Sheat's construction team:

Finn Collins | email Finn | P: 04 916 6428
Rebecca Richter | email Rebecca | P: 04 916 7486
Jessica Perry | email Jessica | P: 04 916 7477





 

Topics: Construction, News